This document provides an introduction to mergers and acquisitions (M&A). It defines M&A as aspects of corporate strategy and finance that involve combining companies. The document outlines different types of acquisitions and mergers. It also discusses common business valuation methods, financing options, the roles of advisory firms, and potential motivations for and effects of M&A deals. Special topics covered include brand considerations after mergers, historical trends in merger activity, and cross-border M&A.
The Concept
A stable strategy arises out of a basic perception by the management that the firm should concentrate on using its present resources for developing its competitive strength in particular market areas.
In simple words, stability strategy refers to the company’s policy of continuing the same business and with the same objectives
A firm pursues stability strategy when
1. It continues to serve the public in the same product or service, market, and function sectors as defined in its business definition.
2. Its main strategic decisions focus on incremental improvement of functional performance.
2. Corporate Restructuring is the process of redesigning one or more aspects of a company.
3. The process of reorganizing a company may be implemented due to a number of different factors, such as positioning the company to be more competitive, surviving a currently adverse economic climate, or acting on the self confidence of the corporation to move in an entirely new direction.
Merger and Acquisition ppt - SlideShareJanvhi Sahni
International Business Management (IBM) - BBA & MBA NOTES / POWER POINT PRESENTATION.... This ppt will tell you about the merging and takeover companies in India along with various examples. Presented By: Janvhi
- Understand the motives for corporate restructuring, different types of restructuring including: mergers & acquisitions, leveraged buyouts, and divestitures.
- Valuing the corporate restructuring process.
- Case Study: Exxon-Mobil merger
The Concept
A stable strategy arises out of a basic perception by the management that the firm should concentrate on using its present resources for developing its competitive strength in particular market areas.
In simple words, stability strategy refers to the company’s policy of continuing the same business and with the same objectives
A firm pursues stability strategy when
1. It continues to serve the public in the same product or service, market, and function sectors as defined in its business definition.
2. Its main strategic decisions focus on incremental improvement of functional performance.
2. Corporate Restructuring is the process of redesigning one or more aspects of a company.
3. The process of reorganizing a company may be implemented due to a number of different factors, such as positioning the company to be more competitive, surviving a currently adverse economic climate, or acting on the self confidence of the corporation to move in an entirely new direction.
Merger and Acquisition ppt - SlideShareJanvhi Sahni
International Business Management (IBM) - BBA & MBA NOTES / POWER POINT PRESENTATION.... This ppt will tell you about the merging and takeover companies in India along with various examples. Presented By: Janvhi
- Understand the motives for corporate restructuring, different types of restructuring including: mergers & acquisitions, leveraged buyouts, and divestitures.
- Valuing the corporate restructuring process.
- Case Study: Exxon-Mobil merger
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.
Legal aspects of mergers and acquisition
Acquisition is the combination of two companies where one corporation is completely absorbed by another corporation. The less important company loses its identity and becomes part of the more important corporation, which retains its identity. It may involve absorption or consolidation.
Merger is also defined as amalgamation. Merger is the fusion of two or more existing companies. All assets, liabilities and the stock of one company stand transferred to Transferee Company in consideration of payment in the form of:
I) Equity shares in the transferee company,
II) Debentures in the transferee company,
III) Cash, or
IV) A mix of the above mode
Portfolio revision, securities, New securities, existing securities, purchases and sales of securities, maximizing the return, minimizing the risk, Transaction cost, Taxes, Statutory stipulations, Intrinsic difficulty, commission and brokerage, push up transaction costs, reducing the gains, constraint, Taxes, capital gains, long-term capital, lower rate, Frequent sales, short-term capital gains, investment companies, constraints, established, objectives, skill, resources and time, substantial adjustments, mispriced, excess returns, heterogeneous expectations, better estimates, generate excess returns, market efficiency, little incentive, predetermined rules, changes in the securities market, Performance measurement, Performance evaluation, superior or inferior, small investors, better performance, prompt liquidity, comparative performance, purchase and sale of securities.
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.
Legal aspects of mergers and acquisition
Acquisition is the combination of two companies where one corporation is completely absorbed by another corporation. The less important company loses its identity and becomes part of the more important corporation, which retains its identity. It may involve absorption or consolidation.
Merger is also defined as amalgamation. Merger is the fusion of two or more existing companies. All assets, liabilities and the stock of one company stand transferred to Transferee Company in consideration of payment in the form of:
I) Equity shares in the transferee company,
II) Debentures in the transferee company,
III) Cash, or
IV) A mix of the above mode
Portfolio revision, securities, New securities, existing securities, purchases and sales of securities, maximizing the return, minimizing the risk, Transaction cost, Taxes, Statutory stipulations, Intrinsic difficulty, commission and brokerage, push up transaction costs, reducing the gains, constraint, Taxes, capital gains, long-term capital, lower rate, Frequent sales, short-term capital gains, investment companies, constraints, established, objectives, skill, resources and time, substantial adjustments, mispriced, excess returns, heterogeneous expectations, better estimates, generate excess returns, market efficiency, little incentive, predetermined rules, changes in the securities market, Performance measurement, Performance evaluation, superior or inferior, small investors, better performance, prompt liquidity, comparative performance, purchase and sale of securities.
certified merger and acquisitions analyst sample-materialVskills
The sample course material covers the followings concepts on.
Introduction to M & A
Understanding Key terms
Motivation behind M&A
Fundamental of M&A
Types of M&A Deals
Stages in M&A
Challenges of M&A deals
Check more details on the below link.
http://www.vskills.in/certification/accounting-banking-and-finance/Certified-Merger-and-Acquisition-Analyst
A merger involves the total absorption of a target firm by the acquirer. As a result, one firm ceases to exist and only the new firm (acquirer) remains.M&A can include a number of different transactions, such as mergers, acquisitions, consolidations, tender offers, purchase of assets and management acquisitions.
HwA’s team of finance assignment experts would be delighted to help students solve finance assignment and finance homework through quality sample solutions.
http://www.helpwithassignment.com/admin/filemanager/downloads/Corporate%20restructuring-%20finance%20sample%20assignment.pdf
Mergers and acquisitions are used as instruments of momentous growth and are increasingly getting accepted by Indian businesses as critical tool of business strategy. They are widely used in a diverse array of fields such as information technology, telecommunications, and business process outsourcing as well as in traditional business to gain strength, expand the customer base, cut competition or enter into a new market or product segment. Mergers and acquisitions may be undertaken to access the market through an established brand, to get a market share, to eliminate competition, to reduce tax liabilities or to acquire competence or to set off accumulated losses of one entity against the profits of other entity.
The project stands to demystify the mysteries regarding the various strategies of the subject, the mysteries relating to select notations like valuation and different restructuring activities, the mysteries of the process of Merger and Acquisition.
BUS 499, Week 6 Acquisition and Restructuring StrategiesSlide #.docxcurwenmichaela
BUS 499, Week 6: Acquisition and Restructuring Strategies
Slide #
Topic
Narration
1
Introduction
Welcome to Business Administration.
In this lesson we will discuss Acquisition and Restructuring Strategies.
Please go to the next slide.
2
Objectives
Upon completion of this lesson, you will be able to:
Identify various levels and types of strategy in a firm.
Please go to the next slide.
3
Supporting Topics
In order to achieve this objective, the following supporting topics will be covered:
The popularity of merger and acquisition strategies;
Reasons for acquisitions;
Problems in achieving acquisition success;
Effective acquisitions; and
Restructuring.
Please go to the next slide.
4
The Popularity of Merger and Acquisition Strategies
The acquisition strategy has been a popular strategy among U.S. firms for many years. Some believe that this strategy played a central role in an effective restructuring of U.S. business during the 1980s and 1990s and into the twenty-first century.
An acquisition strategy is sometimes used because of the uncertainty in the competitive landscape. A firm may make an acquisition to increase its market power because of a competitive threat, to enter a new market because of the opportunity available in that market, or to spread the risk due to the uncertain environment.
The strategic management process calls for an acquisition strategy to increase a firm’s strategic competitiveness as well as its returns to shareholders. Thus, an acquisition strategy should be used only when the acquiring firm will be able to increase its value through ownership of the acquired firm and the use of its assets.
Please go to the next slide.
5
Mergers, Acquisitions, and Takeovers
A merger is a strategy through which two firms agree to integrate their operations on a relatively coequal basis. Few true mergers actually occur, because one party is usually dominant in regard to market share or firm size.
An acquisition is a strategy through which one firm buys a controlling, or one hundred percent, interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio. In this case, the management of the acquired firm reports to the management of the acquiring firm. Although most mergers are friendly transactions, acquisitions can be friendly or unfriendly.
A takeover is a special type of an acquisition strategy wherein the target firm does not solicit the acquiring firm’s bid. The number of unsolicited takeover bids increased in the economic downturn of 2001 to 2002, a common occurrence in economic recessions; because the poorly managed firms that are undervalued relative to their assets are more easily identified.
On a comparative basis, acquisitions are more common than mergers and takeovers.
Please go to the next slide.
6
Reasons for Acquisitions
There are a number of reasons firms decide to acquire another company. These are:
Increased market power;
Overcoming entry barriers;
Co.
Before engaging in a business deal, due diligence makes sure a corporation is competent to manage risk. There are two main justifications why businesses should perform due diligence . A company should confirm that a business is what it purports to be before engaging in trade with an Indian company.
TO KNOW MORE : https://vakilsearch.com/financial-due-diligence-report
BUS 499, Week 6 Acquisition and Restructuring StrategiesSlide #VannaSchrader3
BUS 499, Week 6: Acquisition and Restructuring Strategies
Slide #
Topic
Narration
1
Introduction
Welcome to Business Administration.
In this lesson we will discuss Acquisition and Restructuring Strategies.
Please go to the next slide.
2
Objectives
Upon completion of this lesson, you will be able to:
Identify various levels and types of strategy in a firm.
Please go to the next slide.
3
Supporting Topics
In order to achieve this objective, the following supporting topics will be covered:
The popularity of merger and acquisition strategies;
Reasons for acquisitions;
Problems in achieving acquisition success;
Effective acquisitions; and
Restructuring.
Please go to the next slide.
4
The Popularity of Merger and Acquisition Strategies
The acquisition strategy has been a popular strategy among U.S. firms for many years. Some believe that this strategy played a central role in an effective restructuring of U.S. business during the 1980s and 1990s and into the twenty-first century.
An acquisition strategy is sometimes used because of the uncertainty in the competitive landscape. A firm may make an acquisition to increase its market power because of a competitive threat, to enter a new market because of the opportunity available in that market, or to spread the risk due to the uncertain environment.
The strategic management process calls for an acquisition strategy to increase a firm’s strategic competitiveness as well as its returns to shareholders. Thus, an acquisition strategy should be used only when the acquiring firm will be able to increase its value through ownership of the acquired firm and the use of its assets.
Please go to the next slide.
5
Mergers, Acquisitions, and Takeovers
A merger is a strategy through which two firms agree to integrate their operations on a relatively coequal basis. Few true mergers actually occur, because one party is usually dominant in regard to market share or firm size.
An acquisition is a strategy through which one firm buys a controlling, or one hundred percent, interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio. In this case, the management of the acquired firm reports to the management of the acquiring firm. Although most mergers are friendly transactions, acquisitions can be friendly or unfriendly.
A takeover is a special type of an acquisition strategy wherein the target firm does not solicit the acquiring firm’s bid. The number of unsolicited takeover bids increased in the economic downturn of 2001 to 2002, a common occurrence in economic recessions; because the poorly managed firms that are undervalued relative to their assets are more easily identified.
On a comparative basis, acquisitions are more common than mergers and takeovers.
Please go to the next slide.
6
Reasons for Acquisitions
There are a number of reasons firms decide to acquire another company. These are:
Increased market power;
Overcoming entry barriers;
Co ...
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2. Elemental Economics - Mineral demand.pdfNeal Brewster
After this second you should be able to: Explain the main determinants of demand for any mineral product, and their relative importance; recognise and explain how demand for any product is likely to change with economic activity; recognise and explain the roles of technology and relative prices in influencing demand; be able to explain the differences between the rates of growth of demand for different products.
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1. Elemental Economics - Introduction to mining.pdfNeal Brewster
After this first you should: Understand the nature of mining; have an awareness of the industry’s boundaries, corporate structure and size; appreciation the complex motivations and objectives of the industries’ various participants; know how mineral reserves are defined and estimated, and how they evolve over time.
2. WHY ARE YOU HERE To learn the basics of mergers and acquisitions To acquire knowledge about specialist M&A firms To know how to valuate a business To learn how to control brand considerations after a merger To know the effects of mergers on management
3. AGENDA What is a M&A? Differentiating M & A Common Ways of Business Valuation How Do We Get Finance? Specialist M&A Advisory Firms What Motives Lie Behind? Effects on Management Brand Building or Brand Destroying? Factors of the Merger Movement Merger Waves Cross Border M & A Major M&A’s
4. WHAT IS A M&A? An aspect of corporate strategy, corporate finance and strategic management. Deals with buying, selling, combining of different companies that can Aid Finance Help a growing company in a given industry grow rapidly without having to create a new business entity.
5. ACQUISITION Purchase of one company by another company. Company 2 Company 1 Newly Formed Company
6. TYPES OF ACQUISITIONS Depending upon Acquiree or merging is or isn’t listed in public markets. How the communication is done and received by the target.
7. THE FIRST CLASSIFICATION ACQUISITION PRIVATE (IF ACQUIREE NOT LISTED IN PUBLIC MARKETS PUBLIC (IF ACQUIREE LISTED IN PUBLIC MARKETS)
9. CONFIDENTIALITY BUBBLE Quite normal for M&A deal communication to take place in a so called ‘confidentiality bubble’. Here information flows are restricted due to confidentiality agreements.
11. HOSTILE ACQUISITIONS Takeover target unwilling to be purchased. It can also be if the acquiree company has no prior knowledge of offer. Hostile takeovers do turn friendly in the end. Most of the times. For the above thing to happen, offer is usually improved.
12. REVERSE TAKEOVERS Acquisition usually refers to purchase of smaller firm by larger firm. Sometimes, smaller firm acquire management control of a larger / longer established company. Keep its name for combined entity. Known as reverse takeover.
13. REVERSE MERGER Another type of acquisition. Is a deal enabling a private company to become a public company. The deal enables private company by listing in a short time period. Occurs when a private company has strong prospects and is eager to raise financing, buys a publicly listed shell company. Usually the public one is one with No business Limited assets
14. SOME STATISTICS Achieving acquisition successfully has proven to be tough. Various studies show 50% of them are unsuccessful. Process very complex, many dimensions influence its outcome. Variety of structures used in securing asset control. Different tax and regulatory implications
15. THE ACQUISITION PROCESS Buyer buys shares of target company Ownership control conveys effective control over assets, but since company is going concern, liabilities come as well. Buyer buys assets of target company. Cash target receives from sell-off is paid back to its shareholders by Dividend Through liquidation If buyer buys out entire assets, then target company = empty shell. Buyer often cherry picks his assets
16. SOME OTHER TERMS There are some other terms used as well like: Demergers Spin-off Spin-out Sometimes used to indicate a situation where one company splits into two, generating a 2nd company separately listed on a stock exchange.
17. DIFFERENTIATING MERGERS AND ACQUISITIONS Both terms are often used synonymously. They mean slightly different things in reality.
18. ACQUISITIONS FIRST When one company takes over another, clearly establishes as its new owner. Legal View: target ceases to exist. Buyer swallows target Buyer’s stock continues to be traded.
19. MERGERS NEXT Happens when two firms agree to go forward as a single new company rather than remain separate. Often precisely termed as merger of equals. Firms are often of same size. Both companies stock surrendered New company stock put into place instead. Example: 1999 merger of GlaxoWellcome and SmithKline Beecham, both firms ceased to exist and a new firm GlaxoSmithKline was created.
20. MERGERS IN PRACTICE Actually the principle of mergers of equals don’t really happen. Usually one company buys another. Simply allow acquired firm to pronounce it as a merger, though technically it is an acquisition. Being purchased always portends negative connotations. Therefore, they term it as merger, makes takeover more acceptable. Example : takeover of Chrysler by Daimler-Benz in 1999. Purchase deal also a merger -> friendly takeovers. Hostile takeovers -> mainly acquisitions.
21. COMMON WAYS OF BUSINESS VALUATION Asset Valuation Historical Earnings Valuation Future Maintainable Earnings Valuation Relative Valuation Discounted Cash Flow Valuation
22. ASSET VALUATION Valuations are made for: Excess or restricted cash Other non-operating assets and liabilities Lack of marketability discount Control premium Above or below market leases Excess salaries in case private companies Typical adjustments include: Working capital adjustment Deferred capital expenditures Cost of goods sold adjustment Non recurring professional fees and costs Certain non operating income/expense items
23. VALUATION OF INTANGIBLE ASSETS Can be made for intangible assets like: Patents Copyrights Software Trade secrets Customer relationships Uses either Present value model Estimating the costs to recreate it Process time consuming and costly Often necessary for financial reporting and intellectual property transactions. Stock markets give only an indirect value. Can be regarded as difference between its market capitalization and its book value.
24. VALUATION OF MINING PROJECTS Process of determining the value of a mining property. Sometimes required for: Initial Public Offers Fairness opinions Litigations Mergers and acquisitions Shareholder related matters Fair market value is standard value. CIMVal Standards are recognized standards for mining project valuations.
25. HISTORICAL EARNINGS VALUATION Uses EPS (Earnings Per Share) values for valuation of stock. Figures can be used for forecasting performance by visiting free financial sites such as Yahoo Finance.
26. RELATIVE VALUATION Generic term that refers to the notion of comparing asset price to market value of similar assets. Presumably spot pricing anomalies on securities market. Compare certain financial ratios such as: Price to book value Price to earnings EV/EBITDA Mainly statistical and historical Compare national or industry stock performance to economic and market fundamentals like: GDP growth Interest rate Inflation forecasts Earnings growth National equity index
27. DISCOUNTED CASH FLOW METHOD Abbreviated as DCF Uses concepts of time value of money All future cash flows are estimated and discounted to give their present values(PV’s). Sum of all future values, is net present value (NPV). Widely used in investment finance, real estate development, corporate financial management Most commonly used method is exponential discounting. Other methods are: Hyperbolic discounting Discount rate used is Weighted Average Cost of Capital (WACC).
28. METHODS OF PROJECT APPRAISAL Equity Approach Flow To Equity Approach Entity Approach Adjusted Present Value Approach Weighted Average Cost Of Capital Approach Total Cash Flow Approach
29. SHORTCOMINGS OF DCF Commercial banks have widely used DCF for construction projects. These have following shortcomings: Discount rate assumptions rely on market for competing investments, rates change drastically over time. Straight line assumptions generally based upon historic increases in market rent but never factors in the cyclical nature of many real estate markets. Sometimes leads to overvaluation of assets Powerful method of valuation though not devoid of shortcomings Merely a mechanical tool, makes it subject to axiom of garbage in garbage out small changes in input can lead to large changes in company value. To avoid we can use simple annuity.
30. THE VALUATION PROFESSIONALS Professionals who do business valuations use a combination of some of them. Information in balance sheet or income statement is obtained using the following accounting measures: Notice to Reader Review Engagement Audit Accurate business valuation most important aspect of M&A. Major impact on value of business sold for.
31. HOW DO WE GET FINANCE? We can differentiate mergers and acquisitions by the way they are financed. Various methods of financing include: Cash Stock
32. THINK STRATEGIC!!!! With pure cash deals, no doubt on real bid value. Contingency of share payment removed., Cash offer preempts competitors.
33. TAXES Should be evaluated with counsel of Competent tax advisors Competent accounting advisors
34. CASH V/S SHARES With a share deal, buyer’s capital structure might be affected and control of new company modified. If issuance of shares necessary, shareholders might prevent capital increase. Risk removed with cash transaction. In cash deal, balance sheet of buyer will be modified, liquidity ratios might decrease. In stock transactions, lower profitability ratios might show.
35. THE CASH DEAL If buyer pays cash, there are 3 main financing options: Cash on Hand: consumes financial slack. May decrease debt rating. No major transaction costs, Issue of debt: consumes financial slack. May decrease debt rating. Increases cost of debt. Transaction costs include underwriting or closing costs of 1% to 3% of face value. Issue of stock: increases financial slack, may improve debt rating, reduce cost of debt, transaction costs include fees for preparation of proxy statement, an extraordinary shareholder meeting, registration.
36. THE STOCK DEAL If buyer pays with stock: Issue of Stock Shares in Treasury: increases financial slack, improve debt rating, reduce cost of debt, transaction costs include brokerage fees if shares repurchased in market otherwise no major costs.
37. LETS GENERALIZE… Stock will create flexibility. Transaction costs also to be considered but tend to have greater impact. Remember: Buyers tend to offer stock when they believe their shares are overvalued and cash when undervalued.
38. SPECIALIST M&A ADVISORY FIRMS Provided usually by Full service investment banks Recently, specialized M&A firms have emerged. Sometimes referred to as Transition Companies. Assisting business referred to as companies in transition.
39. WHAT MOTIVES LIE BEHIND? Economy of scale Economy of scope Cross selling Synergy Taxation Geographical or other diversifications Resource transfer Vertical integration Absorption of similar businesses under single management. Manager’s hubris Empire building Manager’s compensation.
40. ECONOMY OF SCALE Combined company can often reduce its fixed costs Can remove duplicate departments Lower company costs Increase profit margins.
41. ECONOMY OF SCOPE Relates to efficiencies primarily associated with demand side changes Increasing/decreasing scope of marketing and distribution
42. INCREASED MARKET SHARE Assumes that buyer will be absorbing a major competitor. Thus increase revenue/market share to set prices.
43. SYNERGY Managerial economics such as increased opportunity of managerial specializations. Purchasing economies due to increased order size and associated bulk buying discounts.
44. CROSS SELLING A bank buying a stock broking firm Manufacturer acquiring and selling complementary products.
45. TAXATION Profitable company can buy a loss maker to use target’s loss as their advantage by reducing their tax liability. But there are certain regulations to follow.
46. GEOGRAPHICAL DIVERSIFICATION Designed to smooth company earnings Smoothens stock price Gives conservative investors more confidence But does not always deliver value to shareholders.
47. RESOURCE TRANSFER Resources unevenly distributed across firms. Can create value by Overcoming information asymmetry Combining scarce resources
48. VERTICAL INTEGRATION Occurs when an upstream firm merges with a downstream firm. One reason is externality problem. Common example is double marginalization
49. EFFECTS ON MANAGEMENT M&A according to some studies destroy leadership continuity in target companies. Target companies lose 21% of their executives each year following an acquisition.
50. BRAND CONSIDERATIONS M&A’s often create brand problems. 4 different approaches: Keep one name and discontinue other. Ex: United Airlines and Continental Airlines Merger. Keep one name and demote other: Caterpillar Inc. keeping Bucyrus International. Keep both names and use together: Pricewaterhouse Coopers. Discard both legacy names and adopt new one: merger of Bell Atlantic and GTE which became Verizon Communications. This merger was successful. Merger of Yellow Freight and Roadway Corporation which became YRC Worldwide. This merger was partially successful, brand value lost. Factors range from political to tactical. Ego as well as rational factors drive choice. Rational factors : brand value, costs involved with changing brands.
51. THE MERGER MOVEMENT Predominantly a US phenomenon. Short run factors: desire to keep prices high, Long run factors: reduction of transportation and production costs.
53. CROSS BORDER M&A’S Large M&A deals cause domestic currency of target corporation to appreciate by 1% Rise of globalization increased the necessity for MAIC trust accounts and securities cleaning services. In 1997 alone there were 2333 cross border M&A transactions, with a total of approx. $298 billion.