Merger and acquisition presentation

1. Merger & Acquisition
Basic Lines
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2. Merger & Acquisition
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3. Hello!
• Acquisition?
– Asset
– Ownership
– Business
• Merger ?
– Statutory merger – one exist
– Subsidiary merger
– Consolidation merger
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4. Who ?
• MARKET : Market leader? Market specification?
• LIFE CYCLE: New Comer? Veterans?
• FINANCE: Loaded? Crisis?
• OPPORTUNITY: Short term? Long Term?
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5. When?
• Market is getting low or getting high?
• Industry life cycle: initial, growth, mature, decline
• Regulation/Government policy
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6. How does it work?
• Scope
• Value
• Terms of transaction
• Result : Evaluation
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7. What Effect?
• Market Access
• Vertical and/or Horizontal Business Synergy
• Portfolio
• Etc
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8. Price
• Too expensive or too cheap?
• Who is the buyer? What is the plan? What would be the
impact?
• Calculate best price for buyer, based on most possible plan.
• Value of the business and value of the result of
merger/acquisition.
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9. Due Diligence
• Legal, Technical, Finance, BUSINESS.
• Finance – First Priority
• Legal – support financial numbers
• Technical – support financial numbers
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10. Terms of Transaction-The Object
• No liability ---- How far can you go?
• License and certificates in place
• Other condition
• Conditional Sales Purchase Agreement
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11. Terms of Transaction – The Phases
• Mitigated risk
• Fund availability
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12. Parties
• Consultant/Financers
• Consultant/Appraisal
• etc
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13. Merger
• Horizontal Merger
– Economies of scale
– Increased Market Power
• Vertical Merger
– Backward of forward integration (Coal Mine Acquire
Barging Company – Trader Acquire Coal Mine).
– Cost savings
– Greater control
• Conglomerate Merger
– Diversification
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14. Motives of Merger
• Synergy
• Growth
• Increasing Market Power
• Acquiring unique capability and resources
• Diversification-entry to new market division
• Bootstrap Effect
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15. Bootstrap Effect
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A T AM
Stock Price 100$ 50$ 100$
Earning Per Share 4.0$ 2.5$ 4.2$
Price Earning Ratio 25 20 23.81
Total Shares Outstanding 100,000 50,000 125,000
Total Earnings 400,000$ 125,000$ 525,000$
Total Market Value of Equity 10,000,000$ 2,500,000$ 12,500,000$
Share T to be bought 2,500,000$
New shate A to be released 25,000
Share A after Acquisition 125,000
Always focus on the PE Ratio growth.
Next step, might be followed by increase in stock price of AM.
A T AM
Stock Price 100$ 50$ -$
Earning Per Share -$ -$ -$
Price Earning Ratio 0 0 0.00
Total Shares Outstanding 100,000 50,000 -
Total Earnings 400,000$ 125,000$ -$
Total Market Value of Equity -$ -$ -$
Share T to be bought -$
New shate A to be released -
Share A after Acquisition -

16. Form of Acquisition
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Form of Acquisition
Ownership Stock Acqusition AssetAcquisition
Shareholders receive payment Payment to the company
of the acquired stocks. owned the asset
Shareholders approval Shareholders approval may
be required.
No corporate level taxes Target company pays
taxes on any capital gain
Shareholders are taxed on their No direct tax
capital gain
Acquirer assumes the target's Acquirer avoids the
Liabilities assumption of the Liabilities
Payment
Approval
Tax Corporate
Tax
Shareholders
Liabilities

17. Method of Payment
• Cash.
• Securities offering:
– Exchange ratio: number of shares of acquirers stock per
target share
– Cost = exchange ratio x number of shares of target x value
of stock given to target shareholders.
• Mixed offering.
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18. Acquisition Scheme Using Share
Acquirer stock price 20$
Target stock price 15$
Ratio A to T 0.9
Target Oustanding 1,000,000
Cost of Acquisition 18,000,000$
Real Value 15,000,000$
Premium 3,000,000$
C W on T 500
7,500$
450
9,000$
CW gains 1,500$
Acquisition Using Scheme
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19. Valuation
• Target Company Valuation
– Discounted Value Analysis-free cash flow (NPV) – determine terminal
and discounted value.
– Comparable Company Analysis-identify 2 to 3 similar companies and
take (Capex to Revenue, Asset to Revenue, Sales Volume to Revenue,
P/E, etc). Example: P/E 10, E 200, Value 2000. From this angle we can
open the “hidden” specs of the company. (Coal Mining-Coal Quality-
Stripping Ratio-Hauling & Barging).
– Comparable Transaction Analysis-from this angle we can see the
strategic value of the M & A.
• Bid Evaluation
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