Mergers & Acquisitions - Intro Class


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This is the introduction class I teach at the Tel aviv University MBA program. Enjoy!

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Mergers & Acquisitions - Intro Class

  1. 1. Strategic Aspects in Mergers & Acquisitions Yair Friedman 2009 1/27
  2. 2. Presentation will include: Course Overview Targets Expectations Why M&A? M&A Process and Key Terms Ethics in M&A Lead vs. Supporting Roles in M&A 2/27
  3. 3. Course Overview Sundays, 20:15-21:30, Room 253 Lecturer: Yair Friedman Internet Site: Class attendance is not obligatory. However, Work submission is mandatory… If you do attend, please be ready. Cell phones on Mute… 3/27
  4. 4. Course Overview Lectures and Class Discussions Required Reading Individual Case Write-Ups Sector Comparable Analysis Historical Transaction Analysis Deal Proposal Exercise Bonus: Presentation of your choosing 4/27
  5. 5. Presentation Bonus Pick a Merger or Acquisition. List reasons, prices, problems, etc. Financials Overview (acquirer and target) State your opinion Differences between owning a firm and being a shareholder. 5/27
  6. 6. Targets To provide a broad overview of the M&A process, an understanding of the conceptual framework and a review of empirical evidence. To cover key aspects of the Acquisition business process from corporate strategy, to target evaluation, to deal negotiation, close, and integration. Combining theory and know-how. 6/27
  7. 7. Expectations 7/27
  8. 8. Why M&A? Range for “failure”: approximately 50%. So, why acquire? Explanations include: Markets are rational but managers are irrational Markets and managers are irrational Markets are irrational but managers are rational Rational markets and managers 8/27
  9. 9. The Question Companies end up doing business on a larger scale, with increased economic power, but the question is whether or not they gained competitive advantage / market power. 9/27
  10. 10. Exemplary Reasons Make (grow organically) versus Buy. Access to new technology, manufacturing capacity or suppliers. Access to management or technical talent. Synergy (e.g. expenses / costs reduction). Access to new product lines. Quick access to new markets or industries. 10/27
  11. 11. Why do some M&As fail? No “Fit” Price “Culture” Home-work / planning 11/27
  12. 12. Strategy ≠ M&A M&A is not a strategy. Strategy has become a catchall term used to mean whatever one wants it to mean. Strategy is the means by which organizations achieve their objectives. The essence of strategy is making choices, and mainly answering the following questions: “Where to compete?” and “How to compete?” (Grant, 1991) 12/27
  13. 13. Strategy A strategy (Hambrick & Fredrickson, 2001) has 5 elements, providing answers to 5 questions: Arenas Vehicles Differentiators Staging Economic logic 13/27
  14. 14. M&A Waves Mergers have typically occurred in cyclical patterns: periods of intense merger activity have been followed by intervening periods of fewer mergers. Historians and M&A specialists have identified five merger waves in US history. 14/27
  15. 15. First Merger Wave (1897-1907) Followed the Depression of 1883. Most mergers concentrated in a handful of industries: petroleum, mining, metals, food and transportation. Included many horizontal mergers, so affected industries became concentrated. 15/27
  16. 16. Second Merger Wave (1916-29) Began during World War I and continued until the stock market crash of 1929. Mergers faced increased governmental scrutiny because of the first merger wave. Mergers were characterized by oligopolies rather than monopolies. 16/27
  17. 17. Third Merger Wave (1965-1969) Coincided with a period of economic prosperity in the US. The strong economy gave many firms the resources necessary to acquire other companies. Characterized by as conglomerate mergers. Horizontal mergers were subject to strict antitrust enforcement. Johnson Administration (1963-1969) favored aggressive antitrust enforcement. 17/27
  18. 18. Fourth Merger Wave (1981-1989) Coincided with the presidency of Ronald Reagan, and the economic prosperity of the mid- to late-1980s. Although most mergers that occurred were “friendly,” there were more hostile takeovers than previously (“corporate raiders”). Mergers were larger than those of earlier periods. Mergers in the billion-dollar range became common. Debt was more widely used to finance mergers. 18/27
  19. 19. Fifth Merger Wave (1993-2000) Followed the economic recession of 1990- 91, and coincided with the Clinton presidency. Large mergers occurred at about the same level as during the fourth merger wave; hostile takeover activity diminished. Mergers emphasized longer term business strategies. Debt-financed mergers were less common than during the fourth wave. 19/27
  20. 20. M&A of Israeli High-Tech Companies 20/27
  21. 21. Selected M&As in 2008 Value of Company Acquirer Industry Acquisition Barr (US) Teva Pharmaceuticals $ 7.2B Let It Wave (France) Zoran Video Solutions $27.6M Zoomix Microsoft (US) Software $20-30M SDM Bank (Russia) Hapoalim Bank Banking $111M Destinator Intrinsyc (Canada) Wireless Software $16M Revaho (Holland) Netafim Irrigation $60M Photon Dynamics (US) Orbotech Inspection Systems $290M Eutronsec (Italy) Aladdin Security Software €10M Care Vision (Europe) Baviera (Spain) Ophthalmology €22M Qumranet Red Hat (US) Software $115M Tribe (US) Osem Food $57M Pixer Technology Carl Zeiss (Germany) Optics Solutions $70M Logos (Czech) Ness Technologies IT services $68M Source: The marker and other news sites 21/27
  22. 22. M&A Process and Key Terms Deal Flow Due Diligence Valuing issues (DCF, Multiples) Negotiation / Bidding Closing Post-merger integration 22/27
  23. 23. Process Time Frame: Min. 2-6 Months And only then, the real work begins: PMI (post merger integration)… 23/27
  24. 24. Ethics in M&A Strong reputation attracts buyers as well as yields higher returns through price premiums. Moral philosophy offers various perspectives: Consequence Duty / Intention Virtue 24/27
  25. 25. Lead vs. Supporting Roles Buyers and sellers shareholders. Supporting roles include: Key managers Board of Directors Minority investors Advisors Employees and other stakeholders 25/27
  26. 26. Summary We outlined the course and its requirements. Overviewed M&A history and process. Discovered Dilbert’s thoughts on M&A… Examined M&A roll in the Strategic process. Discussed Ethics in M&A. 26/27
  27. 27. Questions, Anyone? 27/27