Intro to Merger and Acquisition Flashcards
1
Q
Mergers and Acquistion (1)
A
- consolidation of companies or assets
- decision that the firm’s assets or ability to generate profit
2
Q
Mergers (1)
A
- combining two or more companies, generally by offering shareholders of one company securities in the acquiring company in exchange for surrender of their stocks
3
Q
Acquisition (1)
A
- one company purchases an interest in the acquired; asset or share purchase
4
Q
Divestiture (1)
A
- sale of asset or business unit
5
Q
Two disciplines of finance (4)
A
- what is something worth? valuation (cash flow, risk analysis)
- how will we pay for it? Deal structuring, capital raising (hedge)
6
Q
Basic Framework (6)
A
- Strategize
- select target, screen, approach - Execute
- engage, negotiate structure, conduct DD - Realize
- seek approval
7
Q
Multi-Disciplinary approach (8)
A
- legal and regulatory
- strategy
- tax and treasury
- valuation
- operation
- negotiation
- HR
- accounting
8
Q
Who’s involved in merger and acquisition (8)
A
- senior management
- investment banks
- corporate banks
- internal and external consultant
- legal
- accounting
- tax
- business development
9
Q
M & A stakeholders (7)
A
- stockholders
- debtholders
- employee
- union
- customers
- competitors
- suppliers
10
Q
Drivers of M & A (9)
A
- technological changes
- economies of scale
- globalization, free trade
- change in industrial organization
- new industries
- deregulation and regulation
- economic and financial prosperity and growth
- negative trend in industries
- high/low equity valuation
11
Q
Horizontal mergers (4)
A
- same industry
- economies of scales
- require regulatory approval
- roll up strategy: consolidate number of smaller companies
12
Q
Vertical mergers (5)
A
- same industry, different stage of value chain
- security of supply
- cost saving
- transfer pricing
- critical components
13
Q
Conglomerate product extension (1)
A
- same market but new product
14
Q
Conglomerate market extension (1)
A
- similar product but separate market
15
Q
Conglomerate unrelated industries (3)
A
- investment, financial, managerial
16
Q
First merger movement (1)
A
- 1895- 1904
17
Q
Second merger movement (3)
A
- 1922-1929
- transportation, communication, and merchandising
- vertical mergers and product extension
18
Q
Conglomerate merger (2)
A
- defensive diversification
- 1960
19
Q
Deal Decade (3)
A
- break up diversified firms
- financial innovation
- 1981-1989
20
Q
Strategic merger (2)
A
- 1992-2000
- globalization, deregulation
21
Q
2000+ (3)
A
- lower interest rate
- consolidation
- private equity
22
Q
Common characteristics of merger movement- environmental factors (6)
A
- period of high economic growth
- favourable stock price and financial conditions
- technological changes (telephones)
- input price volatility (oil industry)
- legal and regulatory changes (deregulation)
- financing innovation (junk bond)
23
Q
Long term strategy (4)
A
- vision
- culture
- plans
- policies and procedures
24
Q
Short term strategy (3)
A
- tactics
- decisions
- actions
25
Nature of strategy (5)
- execute team decision
- organization must execute to fit strategy
- success changes- dynamic
- accelerator: suppliers’ impact by decline in sales
- sale to capacity relationship
26
Corporate strategy (4)
- focus on entire enterprise
- type of business that should be pursued
- resource allocation across business units
- how an enterprise is going to allocate resources, create synergies, and compete on broader scale
27
Business strategy (4)
- related to business unit
- short term
- tactical and strategic
- how to compete successful in specific business
28
Essential strategic planning process elements (6)
- assessment of change in organization environment
- evaluation of company capabilities and limitation
- assessment of expectation of stakeholders
- analysis of company, competitors, industry, and economic factors
- formulation of mission, goals, and policies for master strategy
- development of sensitivity to critical external environmental changes
29
Steps for planning process (7)
- formulation of internal organizational performance measurement
- formulation of long range strategy programs
- formulation of mid-range program and short term plans
- organization, funding and implementing all preceding elements
- information flow and feedback system for continued repetition of essential elements for adjustment and change at each stage
- review and evaluation
30
Strategy Methodologies (19)
- SWOT analysis
- top down and bottom up: do the business segment try and meet forecast or do they generate forecast
- computer model: complexity and inter-relationship
- competitive analysis: porter 5 forces
- synergy
- logical incrementalism: small steps to create major change
- muddling through: what policy alternatives are incrementally different than existing policies
- comparative histories
- delphi techniques: asking informed individuals non directly (survey), create report, then ask same idea
- discussion group technique
- adaptive process
- environmental scanning
- discontinuities
- brainstorming: delphi is anonymous
- game theory: logical assessment of competitors
- game playing: assign roles and simulate alternatives
31
Analytical framework (18)
- product life cycle
- learning curve
- cost leadership
- product differentiation
- value chain analysis
- niche opportunities
- product breadth
- profitability correlation
- market share
- product quality
- technological leadership
- focus matrix
- relatedness matrix
- growth share
- attractiveness matrix
- global matrix
- resource base views
32
Boston consulting approach (4)
- cost fall at a geometric rate with cumulative production
- development, growth, maturity, decline
- market growth, and share: star, cash cow, question market, dog
- CFROI = cash flow / market value of capital employed
33
Porter approach (5)
- threat new entrant, threat of substitute product, bargaining power of customers, bargaining power of suppliers, competitors
34
Adaptive process (1)
- uncertainty
35
Strategy in practice (10)
- goal setting
- economic, industry, environmental analysis
- competitive analysis
- valuation
- sensitivity analysis
- capabilities analysis
- discussion
- resources allocation and risk management
- feedback
- reassessment, reaction, and adjustment
36
Strategy and structure (4)
- U Form: small organization
- H Form: division are relatively independent
- M Form: partial autonomy but division share central function
- Matrix Form
37
Sensible motive (7)
- economies of scales: synergies
- vertical integration: eliminate customer/supplier
- risk reduction: growth, R & D
- complementary resources: product extension, geographical roll up
- unused tax losses
- surplus funds
- eliminating inefficiencies
38
Dubious (4)
- diversification
- earning per share
- lower financing cost
- management preference and hubris
39
Specific strategies (4)
- LBO: acquisition of another company using a significant amount of borrow money to meet cost of acquisition
- MBO: transaction where a company management team purchases the asset and operation of the business they manage
- spin out of asset
- overcapacity M&A: eliminate capacity and gain market share or operating leverage
