This document discusses mergers and acquisitions from multiple perspectives. It begins by defining mergers and acquisitions as well as divestitures. It then discusses the market for corporate control and how takeovers can help resolve conflicts between owners and managers. Several rationales for acquisitions are provided such as achieving synergies or market power. However, it also notes that acquisitions often fail due to overpaying or poor integration. The document analyzes several case studies of acquisitions and divestitures in detail. It concludes by discussing methods for valuing companies and determining acquisition prices.
The board of directors might decide it is in the best interest of shareholders to sell the corporation to new owners. In theory, a change in control only makes sense when the value of the firm to new owners, minus transaction costs, is greater than the value of the firm to current owners.
This Quick Guide examines the market for corporate control.
It answers the questions:
• Why do companies merge?
• Do mergers improve performance?
• Who gets the value in a merger?
• How do companies protect themselves from hostile bids?
• Do these protections help shareholders?
For an expanded discussion, see Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences (Second Edition) by David Larcker and Brian Tayan (2015): http://www.gsb.stanford.edu/faculty-research/books/corporate-governance-matters-closer-look-organizational-choices
Buy This Book: http://www.ftpress.com/store/corporate-governance-matters-a-closer-look-at-organizational-9780134031569
For permissions to use this material, please contact: E: corpgovernance@gsb.stanford.edu
Copyright 2015 by David F. Larcker and Brian Tayan. All rights reserved.
Mergers and Acquisitions Training, M and A Course is reply to the present most imperative focused instruments utilized by partnerships in a quickly changing worldwide business landscape. Learn Merger and Acquisition with recreation process from end-to-end.
Learn about integrating organizations from a holistic view including:
Valuation
Negotiation Strategies
Finance, Accounting and Tax Planning
Organizational Alignment and Business Processes
Enterprise Architecture
Cultural Integration
Integration Planning
Human and Intellectual Capital Retention
Operations Management
TONEX’s Mergers and Acquisitions Training is designed to help executives, technology, business and operations professionals get ready for the challenge of an M&A work.
TONEX’s Mergers and Acquisitions Training revolves around the following core modules:
Finance and Accounting Basics
Managerial Economics Basics
Overview of Mergers and Acquisitions (M&A)
Mergers and Acquisition Process
Strategic Approaches to Mergers and Acquisition
Mergers and Acquisition Strategic Management
Risk Considerations for Mergers and Acquisitions
Post-Merger Integration: Planning, Organizing, and Executing
Mergers and Acquisition Capstone Project and Simulation
OBJECTIVES:
Discuss the motivating factors for Mergers and Acquisition
List the requirements and performance targets for Mergers and Acquisition
Explain the process of Mergers and Acquisition planning and execution
Identify the main players in Mergers and Acquisition transactions
List the steps for planning an acquisition
Discuss the basics of financing an acquisition
Discuss the relationship between risk and return
Describe common risk considerations
Identify steps to be taken by a due diligence team
Describe elements of accounting valuation
Define key principles of financial forecasting
Recognize crucial elements of economic valuation
Recognize debt and equity financing methods
Compare cash offers with share exchanges and Discuss concerns for financing acquisitions
Identify key elements of mezzanine financing , Identify the two main areas of integration
Describe techniques for effective change management and HR
Learn more about Finance and accounting basics, managerial economics basics, overview of mergers and acquisitions, mergers and acquisitions process, strategic approaches to mergers and acquisitions, mergers and acquisitions strategic management, post-merger integration: planning, organizing, and executing, Mergers and acquisitions workshop.
Upon program completion, attendees will demonstrate an understanding of the Mergers and Acquisition topics covered through a capstone project and a real Mergers and Acquisition simulation based on Harvard Business School.
Call Us Today: +1-972-665-9786
Price: $4,999.00
Course Number: 9044
Length: 4 Days
Mergers and Acquisitions Training
https://www.tonex.com/training-courses/mergers-and-acquisitions-training/
The board of directors might decide it is in the best interest of shareholders to sell the corporation to new owners. In theory, a change in control only makes sense when the value of the firm to new owners, minus transaction costs, is greater than the value of the firm to current owners.
This Quick Guide examines the market for corporate control.
It answers the questions:
• Why do companies merge?
• Do mergers improve performance?
• Who gets the value in a merger?
• How do companies protect themselves from hostile bids?
• Do these protections help shareholders?
For an expanded discussion, see Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences (Second Edition) by David Larcker and Brian Tayan (2015): http://www.gsb.stanford.edu/faculty-research/books/corporate-governance-matters-closer-look-organizational-choices
Buy This Book: http://www.ftpress.com/store/corporate-governance-matters-a-closer-look-at-organizational-9780134031569
For permissions to use this material, please contact: E: corpgovernance@gsb.stanford.edu
Copyright 2015 by David F. Larcker and Brian Tayan. All rights reserved.
Mergers and Acquisitions Training, M and A Course is reply to the present most imperative focused instruments utilized by partnerships in a quickly changing worldwide business landscape. Learn Merger and Acquisition with recreation process from end-to-end.
Learn about integrating organizations from a holistic view including:
Valuation
Negotiation Strategies
Finance, Accounting and Tax Planning
Organizational Alignment and Business Processes
Enterprise Architecture
Cultural Integration
Integration Planning
Human and Intellectual Capital Retention
Operations Management
TONEX’s Mergers and Acquisitions Training is designed to help executives, technology, business and operations professionals get ready for the challenge of an M&A work.
TONEX’s Mergers and Acquisitions Training revolves around the following core modules:
Finance and Accounting Basics
Managerial Economics Basics
Overview of Mergers and Acquisitions (M&A)
Mergers and Acquisition Process
Strategic Approaches to Mergers and Acquisition
Mergers and Acquisition Strategic Management
Risk Considerations for Mergers and Acquisitions
Post-Merger Integration: Planning, Organizing, and Executing
Mergers and Acquisition Capstone Project and Simulation
OBJECTIVES:
Discuss the motivating factors for Mergers and Acquisition
List the requirements and performance targets for Mergers and Acquisition
Explain the process of Mergers and Acquisition planning and execution
Identify the main players in Mergers and Acquisition transactions
List the steps for planning an acquisition
Discuss the basics of financing an acquisition
Discuss the relationship between risk and return
Describe common risk considerations
Identify steps to be taken by a due diligence team
Describe elements of accounting valuation
Define key principles of financial forecasting
Recognize crucial elements of economic valuation
Recognize debt and equity financing methods
Compare cash offers with share exchanges and Discuss concerns for financing acquisitions
Identify key elements of mezzanine financing , Identify the two main areas of integration
Describe techniques for effective change management and HR
Learn more about Finance and accounting basics, managerial economics basics, overview of mergers and acquisitions, mergers and acquisitions process, strategic approaches to mergers and acquisitions, mergers and acquisitions strategic management, post-merger integration: planning, organizing, and executing, Mergers and acquisitions workshop.
Upon program completion, attendees will demonstrate an understanding of the Mergers and Acquisition topics covered through a capstone project and a real Mergers and Acquisition simulation based on Harvard Business School.
Call Us Today: +1-972-665-9786
Price: $4,999.00
Course Number: 9044
Length: 4 Days
Mergers and Acquisitions Training
https://www.tonex.com/training-courses/mergers-and-acquisitions-training/
Mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location.
Obtaining Australian merger and acquisition clearances in 2012Martyn Taylor
An overview of the current issues and methodology for obtaining a merger and acquisition clearance from the Australian Competition and Consumer Commission in Australia.
This presentation enumerates the practical aspects of merger, demerger and reduction of capital and the strategies involved therein. It also highlights certain key issues involved in corporate restructuring.
A general term used to refer to the consolidation of companies. A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed.
PPT on acquisition, meaning of acquisition, what it is? types,
examples. Benefits of acquisition. Corporate strategy, Acquisition chapter in MBA. Short PPT. Finance major, Business studies. slide share ppt, for students, self study, business management, MBA studies, merger and acquisition, educational. Bschools, management subject.
Organizations are human systems and their system structure includes the worldview, beliefs, and mental models of their leaders and members. Changing organizational
behavior requires changing the belief system of its personnel. This process of changing beliefs, learning, requires clear, open communications throughout the organisation.
Organizational performance ultimately rests on human behavior and improving performance requires changing behavior. Therefore corporate restructuring should have as a fundamental goal the facilitation of clear, open communication that can enable organizational ongoing learning and clarify accountability for results.
Continuous organizational learning is necessary to stay up to date. Organizations that cannot or will not learn will become obsolete. Leaders must periodically examine the structure of their organization to assure that it continues to provide an environment for organizational learning. The points of leverage in organizations are the beliefs and worldview of their decision makers. The sense of purpose, vision and commitment of an organization's leadership play a critical role in the results it can accomplish.
Mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location.
Obtaining Australian merger and acquisition clearances in 2012Martyn Taylor
An overview of the current issues and methodology for obtaining a merger and acquisition clearance from the Australian Competition and Consumer Commission in Australia.
This presentation enumerates the practical aspects of merger, demerger and reduction of capital and the strategies involved therein. It also highlights certain key issues involved in corporate restructuring.
A general term used to refer to the consolidation of companies. A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed.
PPT on acquisition, meaning of acquisition, what it is? types,
examples. Benefits of acquisition. Corporate strategy, Acquisition chapter in MBA. Short PPT. Finance major, Business studies. slide share ppt, for students, self study, business management, MBA studies, merger and acquisition, educational. Bschools, management subject.
Organizations are human systems and their system structure includes the worldview, beliefs, and mental models of their leaders and members. Changing organizational
behavior requires changing the belief system of its personnel. This process of changing beliefs, learning, requires clear, open communications throughout the organisation.
Organizational performance ultimately rests on human behavior and improving performance requires changing behavior. Therefore corporate restructuring should have as a fundamental goal the facilitation of clear, open communication that can enable organizational ongoing learning and clarify accountability for results.
Continuous organizational learning is necessary to stay up to date. Organizations that cannot or will not learn will become obsolete. Leaders must periodically examine the structure of their organization to assure that it continues to provide an environment for organizational learning. The points of leverage in organizations are the beliefs and worldview of their decision makers. The sense of purpose, vision and commitment of an organization's leadership play a critical role in the results it can accomplish.
This content is designed to develop understanding of different types of mergers and acquisitions and the process involved in executing their deals and also develop an ability to understand factors influencing the valuation of a business and different methods used in Business Valuation.
The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A.
Corporate Strategy or Strategic Management
Concepts and Cases by Fred R. David,
Francis Marion University, Florence, South Carolina, &
Forest R. David,
Strategic Planning Consultant
presentation on a merger and acquisition, a quick revision on the subject on M&A with an overview of it, with example to understand the concepts better
FINANCIAL MANAGEMENT, ROLE OF FINANCIAL MANAGEMENT, IMPORTANCE OF FINANCIAL MANAGEMENT, FEATURES OF FINANCIAL MANAGEMENT, SCOPE OF FINANCIAL MANAGEMENT, FUTURE OF FINANCIAL MANAGEMENT, etc.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
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Enterprise Excellence is a holistic approach that's aimed at achieving world-class performance across all aspects of the organization.
What might I learn?
A way to engage all in creating Inclusive Excellence. Lessons from the US military and their parallels to the story of Harry Potter. How belt systems and CI teams can destroy inclusive practices. How leadership language invites people to the party. There are three things leaders can do to engage everyone every day: maximizing psychological safety to create environments where folks learn, contribute, and challenge the status quo.
Who might benefit? Anyone and everyone leading folks from the shop floor to top floor.
Dr. William Harvey is a seasoned Operations Leader with extensive experience in chemical processing, manufacturing, and operations management. At Michelman, he currently oversees multiple sites, leading teams in strategic planning and coaching/practicing continuous improvement. William is set to start his eighth year of teaching at the University of Cincinnati where he teaches marketing, finance, and management. William holds various certifications in change management, quality, leadership, operational excellence, team building, and DiSC, among others.
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3. Mergers and Acquisitions
•Mergers & Acquisitions
•Divestitures
•Valuation
Concept: Is a division or firm worth more
within the company, or outside it?
4. The Market for Corporate Control
When you buy shares, you get dividends; and
potential control rights
There is a market for corporate control—that is,
control over the extent to which a business is run in
the right way by the right people.
This market is constrained by
• Government
• Management
• Some shareholders
5. The Market for Corporate Control
• M&A&D situations often arise from conflicts:
• Owner vs manager ("agency problems“)
• Build vs buy ("internalization")
• Agency problems arise when owners' interests and
managers' interests diverge. Resolving agency problems
requires
• Monitoring & intervention, or
• Setting incentives, or
• Constraining, as in bond covenants
• Resolving principal-agent conflicts is costly
• Hence market price may differ from potential value of a
corporation
6. “Internalization”: Is an activity best done within
the company, or outside it?
Issue: why are certain economic activities conducted
within firms rather than between firms?
• As a rule, it is more costly to build than to buy—
markets make better decisions than bureaucrats
• Hence there must be some good reason, some
synergy, that makes an activity better if done within
a firm
• Eg: the production of proprietary information
• Often, these synergies are illusory
7. Takeovers as a Solution to “Agency Problems”
• There is a conflict of interest between shareholders
and managers of a target company—E. g. poison pill
defenses
• Individual owners do not have sufficient incentive to
monitor managers
• Corporate takeover specialists, E.g. KKR, monitor
the firm's environment and keep themselves aware
of the potential value of the firm under efficient
management
• The threat of a takeover helps to keep managers on
their toes—often precipitates restructuring.
8. Goal of Acquisitions and Mergers
•Increase size - easy!
•Increase market value - much harder!
9. Goal: Market Value Addition
Definition
It is a measure of shareholder value creation
Methodology
It is the change in the market value of invested
capital ( debt and equity) minus the change in the
book value of invested capital
10. Value Changes In An Acquisition
175
250
75
50
50
40
30
10
Final value of
combined company
Initial value
plus gains
Profit on sale
of assets
Synergies and/
or operating
improvements
Value of
acquired
company as
a separate
entity
Value of
acquiring
company
without
acquisition
Gain in
shareholder
value
Takeover premium
Taxes on sale of assets
11. Goals of Acquisitions
Rationale: Firm A should merge with Firm B if
[Value of AB > Value of A + Value of B + Cost of
transaction]
• Synergy
• Gain market power
• Discipline
• Taxes
• Financing
12. Goals of Acquisitions
Rationale: Firm A should merge with Firm B if
[Value of AB > Value of A + Value of B + Cost of transaction]
• Synergy
• Eg Martell takeover by Seagrams to match name and inventory with marketing
capabilities
• Gain market power
• Eg Atlas merger with Varity. (Less important with open borders)
• Discipline
• Eg Telmex takeover by France Telecom & Southwestern Bell (Privatization)
• Eg RJR/Nabisco takeover by KKR (Hostile LBO)
• Taxes
• Eg income smoothing, use accumulated tax losses, amortize goodwill
• Financing
• Eg Korean groups acquire firms to give them better access to within-group
financing than they might get in Korea's undeveloped capital market
13. Fallacies of Acquisitions
• Size (shareholders would rather have their money
back, eg Credit Lyonnais)
• Downstream/upstream integration (internal
transfer at nonmarket prices, eg Dow/Conoco,
Aramco/Texaco)
• Diversification into unrelated industries
(Kodak/Sterling Drug)
14. Methods of Acquiring Corporate Control
• Mergers
• Bidder typically negotiates a friendly agreement with target
management and submits this for approval to both sets of
shareholders
• Usually entails an exchange of securities
• Tender Offers
• Often hostile, often opposed, often generates competing bids
• Usually a direct cash offer to stockholders of an above-market price
• Proxy Fights
• A method of gaining control without acquisition: dissident
shareholders seek to change management by soliciting proxies from
other shareholders.
15. Who Gains What?
• Target firm shareholders?
• Bidding firm shareholders?
• Lawyers and bankers?
• Are there overall gains?
Changes in corporate control increase the combined
market value of assets of the bidding and target
firms. The average is a 10.5% increase in total
value.
16. The Price: Who Gets What?
Daimler Chrysler Combined
Market value before deal
leaked
$52.8 $29.4 $82.2
Value added by merger $18.0
Merged Value $100.2
Shareholders get 57.2% 42.8% 100%
Which is now worth $57.3 $42.9 $100.2
Shareholders' shares of
the gain
$4.5 $13.5 $18
Premium, as % 9% 46%
17. A Case Study: Kodak - Sterling Drugs
• Eastman Kodak’s Great Victory
18. Earnings and Revenues at Sterling
Drugs
Sterling Drug under Eastman Kodak: Where is the synergy?
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1988 1989 1990 1991 1992
Revenue Operating Earnings
19. Kodak Says Drug Unit Is Not for
Sale (NYTimes, 8/93)
• Eastman Kodak officials say they have no plans to
sell Kodak’s Sterling Winthrop drug unit.
• Louis Mattis, Chairman of Sterling Winthrop,
dismissed the rumors as “massive speculation,
which flies in the face of the stated intent of Kodak
that it is committed to be in the health business.”
20. Sanofi to Get Part of Kodak Drug
Unit (6/94)
• Taking a long stride on its way out of the drug business,
Eastman Kodak said yesterday that the Sanofi Group, a
French pharmaceutical company, had agreed to buy the
prescription drug business of Sterling Winthrop, a Kodak
subsidiary, for $1.68 billion.
• Shares of Eastman Kodak rose 75 cents yesterday, closing at $47.50
on the New York Stock Exchange.
• Samuel D. Isaly an analyst , said the announcement was “very good
for Sanofi and very good for Kodak.”
• “When the divestitures are complete, Kodak will be entirely
focused on imaging,” said George M. C. Fisher, the company's
chairman and chief executive.
21. Smithkline to Buy Kodak’s Drug
Business for $2.9 Billion
• Smithkline Beecham agreed to buy Eastman
Kodak’s Sterling Winthrop Inc. for $2.9 billion.
• For Kodak, the sale almost completes a
restructuring intended to refocus the company on
its photography business.
• Kodak’s stock price rose $1.25 to $50.625, the
highest price since December.
22. Reasons Why Many Acquisitions Fail To Generate Value
Value
Destruction
Over
optimistic
market
assessments
Poor
post-merger
integration
Overestimating
synergies
Deal price not based on
cash flow value
23. Using Industry Structure Analysis
COMPETITIVE
ADVANTAGE
SUBSTITUTES
Questions:
Do substitutes exist?
What is their price/
performance?
Potential Action:
Fund venture capital and
joint venture to obtain
key skills
Acquire position in new
segment
CUSTOMERS
Questions:
Is the customer base
concentrating?
Is value added to
customer end product
high,changing?
Potential Actions:
Create differentiated
product
Forward - integrate
BARRIERS TO ENTRY
Questions:
Do barriers to entry exist?
How large are the barriers?
Are they sustainable?
Potential Actions:
Acquire to achieve scale in
final product or critical
component
Lock up supply of critical
industry input
SUPPLIERS
Questions:
Is supplier industry
concentrating?
Is supplier value/cost
added to end product high,
changing?
Potential Actions:
Backward - integrate
24. Goals of Acquisitions
Rationale: Firm A should merge with Firm B if
[Value of AB > Value of A + Value of B + Cost of
transaction]
• Synergy
• Gain market power
• Discipline
• Taxes
• Financing
Example:
Ciba-Geigy/
Sandoz
25. Most Value is Created on the Asset Side (Operational
Restructuring)
• Discounted Cash Flow (DCF) analysis for project
evaluation
• Value-Based Management for performance
evaluation
?
Wärtsilä NSD
(from Wärtsilä Diesel & New Sulzer Diesel
26. Wärtsilä NSD now has the
world’s most extensive portfolio
of heavy duty engines. Its 4-
stroke engines are mainly
Wärtsilä design, while the 2-
stroke engines are based on
Sulzer design. The engine range
consists of lean burn gas engines,
dual fuel engines and gas diesels.
Market share is strong and
production is being consolidated
or out-sourced, particularly for
low-speed engine technologies.
Wärtsilä NSD: Consolidating
Production and Distribution
29. Corporate Restructuring
• Divestiture—a reverse acquisition—is evidence
that "bigger is not necessarily better"
• Going private—the reverse of an IPO (initial public
offering)—contradicts the view that publicly held
corporations are the most efficient vehicles to
organize investment.
30. Divestitures
Divestiture: the sale of a segment of a company to a third
party
• Spin-offs—a pro-rata distribution by a company of all its
shares in a subsidiary to all its own shareholders
• Equity carve-outs—some of a subsidiary' shares are offered
for sale to the general public
• Split-offs—some, but not all, parent-company shareholders
receive the subsidiary's shares in return for which they
must relinquish their shares in the parent company
• Split-ups—all of the parent company's subsidiaries are
spun off and the parent company ceases to exist.
31. Divestitures Add Value
• Shareholders of the selling firm seem to gain,
depending on the fraction sold:
• Total value created by divestititures between 1981
and 1986 = $27.6 billion.
% of firm sold Announcement effect
0-10%
10-50%
50%+
0
+2.5%
+8%
32. Going Private
A public corporation is transformed into a privately held
firm
• The entire equity in the corporation is purchased by
management, or managment plus a small group of
investors
• These account for about 20% of public takeover activity in
recent years in the United States.
• Can be done in several ways:
• "Squeeze-out"—controlling shareholders of the firm buy up the
stockholding of the minority public shareholders
• Management Buy-Out—management buys out a division or
subsidiary, or even the entire company, from the public
shareholders
• Leveraged Buy-Out (LBO)
33. Leveraged Buy-Outs
LBO is a transaction in which an investor group acquires a
company by taking on an extraordinary amount of debt, with
plans to repay the debt with funds generated from the
company or with revenue earned by selling off the newly
acquired company's assets
• Leveraged buy-out seeks to force realization of the firm’
potential value by taking control (also done by proxy fights)
• Leveraging-up the purchase of the company is a "temporary"
structure pending realization of the value
• Leveraging method of financing the purchase permits
"democracy" in purchase of ownership and control--you
don't have to be a billionaire to do it; management can buy
their company.
34. LBOs, Agency Costs
and Free Cash Flow
• "Free cash flow" is cash-cow type earnings in excess
of amounts required to fund all positive-NPV
projects
• Payout of free cash flow, to stockholders, reduces
the amount of resources under managment's
discretion. Forces management to go out into the
markets and justify raising funds
• Thus debt has a disciplining role. “Safe” managers
choose less debt.
35. Example (June 1996)
• AT&T sells AT&T Capital (equipment leasing
division) for $2.2 billion
• The division goes private
• Financed by:
• Bank debt
• Asset securitization
• $900 million equity (85% GRS UK, 10% Babcock &
Brown, 5% management)
• Another major step in AT&T’s restructuring
36. The LBO of EMAS
• EMAS is in the retailing and hire-purchasing business in
Malaysia
• An LBO was done in 1998 by financial investors
• The management of the business have been retained by
EMAS to continue to operate the businesses
• EMAS’s assets include a strong local brand-name, and high-
yielding accounts receivables with a low default rate
37. The Buyout
• EMAS was incorporated to buy existing assets, liabilities
and business at 10.5 times prospective PER i.e. equivalent
to 2 times book value, subject to a minimum of $52m and a
maximum of $63m
• The leveraged buyout was financed primarily by bank
borrowings ($10.25m equity and $42m senior debt). The
loan was made by the Malaysian Bumi Bank at Libor + 2%.
• The vendors have an option to subscribe up to 20% of
EMAS’s issued shares prior to IPO at an 8% discount from
IPO price
38. After the LBO
• EMAS’s existing business is profitable. However, additional
funds are required to finance its expansion plan and the
penetration into new business
• EMAS intends to reduce its senior debt to more acceptable
levels with proceeds from IPO targeted for launch before end-
2000
• Meanwhile, where can EMAS get additional funding?
• And how will the lender get paid back?
39. Income Statement
Forecast
1997 1998 1999 2000
$'m $'m $'m $'m
Turnover 139.8 117.8 119.4 165.2
Net operating profit 8.4 8.8 5.2 10.5
Management and legal fees 0.0 0.0 (0.2) (0.5)
Net operating profit
before interest & tax 8.4 8.8 5.0 10.0
Interest expense 0.0 0.0 (0.7) (2.1)
Net profit before tax 8.4 8.8 4.3 7.9
Tax (Assume 26%) (2.2) (2.3) (1.1) (2.1)
Net profit after tax 6.2 6.5 3.2 5.8
40. Balance Sheet
As at 31 Dec 1999
$'m
Fixed Assets 1.2
Goodwill 25.6
Current Assets 54.4
Total Assets 81.2
Current Liabilities 28.5
Bank Loan 41.2
Total Liabilities 69.7
Share capital 10.3
Retained Earnings 1.2
81.2
Net Tangible Assets (14.1)
41. What's It Worth?
Valuation Methods
• Book value approach
• Market value approach
• Ratios (like P/E ratio)
• Break-up value
• Cash flow value -- present value of future cash
flows
42. How Much Should We Pay?
Applying the discounted cash flow approach, we
need to know:
1. The incremental cash flows to be generated
from the acquisition, adjusted for debt servicing
and taxes
2. The rate at which to discount the cash flows
(required rate of return)
3. The deadweight costs of making the
acquisition (investment banks' fees, etc)
43. How Should We Pay?
• Payment in cash
• (What happens to acquirer's stock price?)
• Payment with debt
• (When you buy something by mail order, it's best to pay
with a credit card)
• Payment with equity shares
• (Figure out how many shares acquirer needs to offer)
44. Framework for Assessing Restructuring
Opportunities
Restructuring
Framework
1
2
Current
Market
Value
3
Total
restructured
value
Potential
value with
internal
+ external
improvements
Potential
value with
internal
improvements
Company’s
DCF value
Maximum
restructuring
opportunity
Financial
structure
improvements
4
Disposal/
Acquisition
opportunities
Operating
improvements
Current market
overpricing or
underpricng
5
(Eg Increase D/E)
45. Using The Restructuring Framework
($ Millions of Value)
Restructuring
Framework
1
2
Current
Market
Price
3
Optimal
restructured
value
Potential
value with
internal
and external
improvements
Potential
value with
internal
improvements
Company
value as is
Maximum
restructuring
opportunity
Financial
engineering
opportunities
4
Disposal/
Acquisition
opportunities
Strategic
and operating
opportunities
Current
perceptions
Gap: “Premium”
5
$ 25
$ 975
$ 300
$ 1,275
$ 350
$ 1,625
$ 10
$ 1,635
$ 635
$1,000
Eg Increase D/E
46. M&A Advisory Services:
1. Role of the Seller's Advisor
• Develop list of buyers
• Analyze how different buyers would evaluate company
• Determine value of the company and advise seller on probable
selling price range
• Prepare descriptive materials showing strong points
• Contact buyers
• Control information process
• Control bidding process
• Advise on the structure of the transaction to give value to both
sides
• Ensure all nonfinancial terms are settled early
• Smooth postagreement documentation
47. M&A Advisory Services:
2. Role of Buyer's Advisor
• Thoroughly review target & subs
• Advise on probable price range
• Advise on target's receptiveness
• Evaluate target's options and anticipate actions
• Devise tactics
• Consider rival buyers
• Recommend financial structure and plan financing
• Advise on initial approach and follow-up
• Function as liason
• Advise on the changing tactical situation
• Arrange the purchase of shares through a tender offer
• Help arrange long term financing and asset sales
48. M&A & D Opportunities
Target Companies
• Need value chain integration – eg dependent on supplier – vertical integration
• Benefit from greater efficiency – avoid cutthroat competition, achieve production
or distribution efficiencies
• Company has weak financials – flat earnings, overleveraged
• Has several businesses that have no synergies – some growth, some flat
• Company has businesses with incompatible cultures – or two different companies
with compatible cultures
• Company is in sector with overcapacity – too much bread (!) – benefit from
consolidation
• Company wants to buy competitor who could end up in a rival’s hands
• Company wants to do an IPO but is not suitable – eg not in a “new economy”
business, or the size is insufficient
• Companies in the same line of business, but with P/E differentials
• Conglomerate discount – company is undervalued in the market and would be
worth more if some businesses were hived off
• Owner wants to retire
49. Strategic Alliances:
An Alternative to Acquisition
• "A strategic alliance is a collaborative agreement between
two or more companies, which contribute resources to a
common endeavor of potentially important competitive
consequences, while maintaining their individuality."
• Example with internal emphasis: Sunkyong with GTE,
Vodaphone & Hutchinson Whampoa for cellular system
• Example with external emphasis: Santander with Royal
Bank of Scotland for European market in financial services
• Driving forces:
• Complementary resources - gain strategic resources
• Similar capabilities - gain economies or market power
51. Forms of Strategic Alliance
• Many linkages are options for future development
of relationships
IRREVERSIBILITY OF COMMITMENT
POTENTIAL
FOR CONTROL
INFORMAL
ALLIANCE
JOINT
PROJECTS
JOINT
VENTURE
MERGER
WITH FULL
INTEGRATION
ACQUISITION
SPECIFIC
DISTRIBUTION
OR SUPPLY
AGREEMENT
52. Questions to Ask Before the Alliance
• Identify value creation logic to both firms. Are the logics similar? Are they
compatible?
• What is the potential value of the alliance to each firm (versus the cost of not
having the alliance?)
• What are the specific financial and competitive risks to each partner?
• What is the value of complementary assets? Of common assets contributed?
• Evaluate the investment each partner would make.
• Evaluate other resource commitments.
• What are the scope and boundaries of the alliance?
• What commitments are made in the alliance?
• What are the criteria for success? Are they shared?
• What revenues and returns are projected? What risks?
• What are the critical limiting factors?
• Is there an action plan to reduce the limiting factors?
53. Mergers and Acquisitions: Summary
•Mergers & Acquisitions
•Divestitures
•Valuation
Concept: Is a business worth more within
our company, or outside it?
55. The Global Environment
• Managers need to consider:
– How globalization is impacting the environment in
which their company competes
– What strategies they should adopt to exploit
opportunities
– How to counter competitive threats
56. The Global Environment
• Industry boundaries do not stop at national
borders
• The shift to global markets has intensified
competitive rivalry in industries
• Global markets created enormous opportunities
57. Increasing
Profitability Through Globalization
• The success of many multinational companies is
based not just on the goods and services they sell,
but upon the distinctive competencies that
underlie their production and marketing
• Globalization increases profits by:
– Expanding the market
– Realizing economies of scale
– Realizing location economies
– Leveraging the skills of global subsidiaries
58. Competitive Pressures
• Two main pressures:
• Pressure for cost reduction
• Pressure to be locally responsive
• These pressures place conflicting demands on a
company
59. Cost Reductions
• Cost reductions are common in:
– Industries where price is the main competitive
weapon
– Industries with universal need products
– Universal Need: When consumer preference is similar
or identical in different nations
• Companies may achieve cost reduction by basing
production in a low-cost location or by offering a
standardized product.
60. Local Responsiveness Pressures
• These arise from differences in:
– Consumer taste and preferences
– Infrastructure or traditional practices
– Distribution channels
– Host government demands
• The more that customer preferences vary, the
more local responsiveness is required
61. Choosing a Strategy
Basic four strategies:
• Global Standardization Strategy
• Localization Strategy
• Transnational Strategy
• International Strategy
62. Global Standardization Strategy
• Focuses on increasing profitability by pursuing a
low-cost strategy on a global scale
• Works best if there is:
– Strong pressure for cost reduction
– Low pressure for local responsiveness
63. Localization Strategy
• Customizes goods or services to provide a good
match to tastes and preferences in different
national markets
• Works best if there is:
– Low cost pressure
– Varied taste and preferences by nation
64. Transnational Strategy
• Attempts to achieve low-cost, differentiated
products across markets and to foster a flow of
skills between different subsidiaries
• Works best if there is simultaneous :
– High cost pressures
– High local responsiveness pressures
65. International Strategy
• Centralizes product development, but
manufactures and markets globally
• Works best if there is:
– Low cost pressure
– Low pressure for local responsiveness
– A universal need product
– No significant competitors
66. Choices of Entry Mode
• Exporting
– Many companies begin global expansion through
exporting production
– Exporting allows companies to bypass the cost of
establishing manufacturing facilities
– Exporting may be consistent with scale economies and
location economies
67. Choices of Entry Mode (cont’d)
• Licensing
– A licensee in a foreign country can purchase the rights
to produce a product in their country
– The cost of development is low, as well as the risk
involved
68. Choices of Entry Mode (cont’d)
• Franchising
• A specialized form of licensing where the franchiser
sells intangible property (usually a brand or
trademark).
• The franchisee agrees to follow the strict rules and
business plans of the company
69. Choices of Entry Mode (cont’d)
• Joint Venture
– Separate corporations come together to form a new
corporate entity
– Two or more companies have an ownership stake, but
combine resources for mutual benefit
– Sharing knowledge can be dangerous for the
companies involved
70. Choices of Entry Mode (cont’d)
• Wholly Owned Subsidiaries
– A parent company owns 100% of a smaller self-
contained business unit
– This can be a very costly approach, since the parent
company is responsible for all of the financing