mergers and acquisitions

Examples of mergers and acquisitions in the following topics:

• The Role of an Advisor

  • The advisory group of an investment bank is primarily concerned with facilitating the mergers and acquisitions of businesses.
  • M&A stands for "mergers and acquisitions", which refers to the the buying, selling, dividing and combining of different firms.
  • The advisory group is charged with the task of helping buyers find sellers and vice versa, and then facilitating the deal.
  • In order for the acquisition to take place, the two boards and leadership must be agree on the terms.
  • Pricewaterhouse Cooper got it's name after the 1998 merger of Price Waterhouse and Coopers & Lybrand.

• Valuing the Target and Setting the Price

  • In order to prepare an appropriate bid in the mergers and acquisition process, the buyer must be able to accurately value the target company.
  • Due diligence can be defined as the examination of a potential target for merger, acquisition, privatization, or a similar corporate finance transaction– normally by a buyer.
  • Due diligence involves a reasonable investigation focusing on material future matters and the asking of certain key questions, including how do we buy, how do we structure the acquisition, and how much do we pay?
  • Moreover, due diligence is an investigation on the current practices of process and policies and an examination aiming to make an acquisition decision via the principles of valuation and shareholder value analysis.
  • This is in order to reduce the number of failed mergers and acquisitions.

• Surprises and Returns

  • Announcements of Mergers and acquisitions (M&A) are a frequent type of surprise announcements.
  • Mergers and acquisition is a category of announcement that deals with corporate structure.
  • A merger or an acquisition could signal to an analyst that one particular company is financially weak, and it could downgrade its long run outlook for that company.
  • Any of this news has the potential to impact a particular company and, in some cases, competition, suppliers, and customers of that company.
  • Take a look at the creditworthiness ratings of different countries by Standard and Poors.

• Overview of Investment Banking Functions in M&A

  • With increasing competitive pressures being placed on businesses and the trend towards globalization, companies are engaging more and more in M&A activity.
  • The investment bank's role in mergers and acquisitions falls into one of either two buckets: seller representation or buyer representation (also called "target representation" and "acquirer representation").
  • One of the main roles of investment banking in mergers and acquisitions is to establish fair value for the companies involved in the transaction.
  • For instance, if a bank has performed valuation on a potential target company that suggests its market value (or the value of its shares in the marketplace) is less than what the business is actually worth, it may facilitate a merger or acquisition of this target company for its client that carries with it substantial profit opportunity.
  • Investment banks, such as Barclays (the headquarters for which is pictured here), play a vital role in the mergers and acquisitions process.

• Components of the Cash Budget

  • The cash budget includes the beginning balance, detail on payments and receipts, and an ending balance.
  • A cash budget is a prediction of future cash receipts and expenditures for a particular time period, usually in the near future.
  • The cash flow budget helps the business determine when its income will be sufficient to cover its expenses and when the company will need to seek outside financing.
  • Accounts receivable, also known as Debtors, is money owed to a business by its clients (customers) and shown on the business's balance sheet as an asset.
  • It is one of a series of accounting transactions dealing with the billing of a customer for goods and services that the customer has ordered.

• Other Topics in M&A

  • Despite the goal of value creation and synergy, results from mergers and acquisitions are often disappointing compared with results that are predicted or expected.
  • Some reasons for failed mergers include lack of strategic fit, difference in corporate culture, lack of due diligence, poor integration, over-optimism, and failed valuation leading to too high of a purchase price.
  • A form of corporate cooperation lying between a merger or acquisition and internal growth is called a corporate alliance, or strategic alliance.
  • When raising funds for a merger or acquisition, firms may not seek funds from public offerings - either out of necessity or by choice.
  • Explain why a company may want to divest itself of an acquisition

• Types of Transactions

  • Transactions can be mergers or acquisitions, made with cash or stock, and they can be friendly or hostile.
  • Such transactions are usually termed acquisitions rather than mergers because the shareholders of the target company are removed from the picture and the target comes under the (indirect) control of the bidder's shareholders.
  • Whether a purchase is perceived as being a "friendly" one or a "hostile" depends significantly on how the proposed acquisition is communicated to and perceived by the target company's board of directors, employees, and shareholders.
  • Hostile acquisitions can, and often do, ultimately become "friendly," as the acquirer secures endorsement of the transaction from the board of the acquiree company.
  • Choose the best strategy and method for completing a merger or acquisition

• Reasons for Combining Businesses

  • Business combinations are referred to as mergers.
  • A merger happens when two firms agree to go forward as a single new company, rather than remain separately owned and operated.
  • Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it is technically an acquisition.
  • A merger can also be achieved independently of the corporate mechanics through various means - such as triangular merger, statutory merger, etc.
  • Hiring: Some companies use acquisitions as an alternative to the normal hiring process.

• Types of Private Financing Deals: Going Private and Leveraged Buyouts

  • LBOs use debt to secure an acquisition and the acquired assets service the debt.
  • A leveraged buyout (LBO) is an acquisition (usually of a company, but it can also be single assets like a real estate) where the purchase price is financed through a combination of equity and debt, and in which the cash flows or assets of the target are used to secure and repay the debt .
  • LBOs are a very common occurrence in today's Mergers and Aquisitions environment.
  • As financial sponsors increase their returns by employing a very high leverage (i.e., a high ratio of debt to equity), they have an incentive to employ as much debt as possible to finance an acquisition.
  • Depending on the size and purchase price of the acquisition, the debt is provided in different tranches:

• Agency

  • Investment banks are not confined solely to working with and making money on large, publicly traded companies.
  • A private firm might hire an investment bank for help with a merger or acquisition or for issuing an IPO (initial public offering of shares).
  • Suppose a firm does not want to be acquired and cannot (or does not want to get) good loans from banks.
  • They hire a placement agent to act as an intermediary between them and investors.
  • Mezzanine financings can be structured either as debt (typically an unsecured and subordinated note) or preferred stock.