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Corporate Finance 1 (Fach) / 8 Mergers and Acquisitions (Lektion)

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  • Merger In a merger, the acquirer absorbs the acquiree (acquisition of all assets and liabilities) and emerges as the surviving firm – often mergers among equals.
  • Consolidation In a consolidation, a new business entity is created from the combination
  • Acquisition of stock Acquisition of assets Acquisition of stock, i.e. the acquirer buys the acquiree’s shares (executed via a tender offer). Acquisition of assets, i.e. the acquirer purchases only the assets. The acquiree’s liabilities are not assumed.
  • The M&A Process (Overview) SEIVDEIC
  • Motives Behind Acquisitions Buy Cheap (below market value) Manage Better (Buy at market value with a different strategy and stronger management) Strategic Fit (Buy at market value and add value through synergies: Operating Synergies (higher growth or lower costs), Financial Synergies (tax benefits))
  • Most powerful reasons to justify an acquisition. Inefficient management synergies
  • What Price Will A Buyer Be Willing to Pay? Financial buyers Financial buyers (e.g. private equity investors or hedge funds) are very likely to expect a liquidity discount. 20-30% liquidity discount for privately held firms. shares of privately held firms are less liquid (i.e. harder to sell)
  • What Price Will A Buyer Be Willing to Pay? Strategic buyers Strategic buyers that can realize synergies by acquiring and controlling the investment may be willing to pay a takeover premium. 30%+ takeover premium for strategic acquisitions
  • Operating synergies Operating efficiencies (e.g. increase operating margins) Economies of scale (e.g. use of one distribution network) or scope (e.g. customers like to buy from one supplier) Increase market power (e.g. enhance brand value and marketing power)
  • Financial synergies Tax benefits (e.g. loss carry forward when indebted firm is acquired) Increase in debt capacity (e.g. increased use of tax shields)
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  • Types of due diligence: LEEFT 1. Economic due diligence 2. Tax due diligence 3. Financial due diligence 4. Legal due diligence 5. Environmental due diligence

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