Clear investment criteria
-Strategic fit: where can we provide leverage
-Business models
-Management
-Valuation
Principals as digital shareholder
-Retaining founders
-Synergy potential
-No cultural clash
Focus of Mergers & Acquisitions
-History
-Strategy & Tactics
-Financing
Types of Banker
-Private Banker
-Commercial Banker
-Investment Banker
Advisory
Research
Sales & Trading
Book price per share
Total Assets - Total Liabilities / Number of shares
Price to book
Share Price / Book price per share
Special Purpose Acquisition Corporations (SPACs)
-Companies that are formed to acquire other companies —> Alternative to PE
-Raise capital (eg IPO) for acquisition
-Shareholders dont know at timing of investment what acquisition target is —> Approval needed
Characteristics of Spacs
-Time Frame: No shareholder approved deal within 1,5-2 years —> money returns to investors
-Popularity: Popular becoming investments
-Founder & Management Compensation (Management gets 20% of company —> incentivize deal)
Leveraged buyouts
Where debt is used to take a public company private
Merger Types
-Horizontal (Same size firms)
-Vertical (Manufacturer buys distributor)
-Conglomerate
Merger of Equals
-2 Companies of equal size
-One company ends up being the dominant one
Statutory Merger
-Merger pursuant to state laws in which acquirer is incorporated
-Agreed upon deal
-Smaller company gets eaten
Subsidiary Merger
Merger of 2 companies in which target becomes subsidiary
Advantage of Subsidiary Merger
-Buyer keeps target as separate subsidiary corporation
-Insulate the parent company from target’s liabilities
Tender Offer
Bidder makes offer directly to target company’s shareholders —> hostile takeover
Consolidation
2 equal-sized companies combine & new company is created
Acquisition
-One company is bigger than the other
-Valuing deals: smaller company is acquired one
Enterprise Value
Equity price + value of debt + preferred stock - cash
Value of new merged firm
-Pre Merger value of A
-Pre Merger value of B
—> Synergistic Gains (Value of B)
—> Combined value of individual firms (A+B)
Fairness Opinions
-Opinion issued by firm on the value of the company being acquired
-Evaluations are conducted by investment bankers
-Conflict interest of bankers (Advisory fees & financing fees)
-Prevent conflict interest —> hire independent valuation firm
Asset Purchases
-Important Issue: Treatment of liabilities
-Buyer assumes both assets & liabilities of seller
-Successor Liability: Attempt to avoid liabilities that rise lawsuit
De Facto Merger
-Buyer may assume the seller’s liabilities unintentionally
-Occurs when asset purchase is later treated like a merger
Unions & Sellers Liability
New buyer may require renegotiation of union agreements
Holding companies
-Parent companies owns sufficient stock in target to control target (<51%)
-Alternative: 100% Acquisition
Advantages Holding Companies
-Lower cost (no 51%-100% acquisition)
-No control premium
-May get control without soliciting target shareholder approval
Disadvantages Holding companies
-Triple taxation of dividends
-Easier to disassemble if Justice Department searches (Antitrust, Anticompetitive Problems)
Joint Ventures
-Alternative to M&A
-Allow bidder to accomplish goals without incurring costs of target acquisition
-Goals
Enter new market, new supply source, product development
Advantages Strategic Alliances
-More flexibility than joint ventures
-Wide varieties
-Enable companies to pursue goals
Disadvantages Strategic Alliances
-Greater opportunities for merger partners
-Know-how transfer
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