Lecture 7: Merger and Acquisition Flashcards
(31 cards)
What is the purpose of financial management in the context of M&A?
To provide layered information at different times for different purposes, supporting decision-making throughout the M&A process.
What does M&A stand for, and what does it include?
Mergers & Acquisitions; includes transactions where companies buy or sell entire businesses or parts of them.
Why are M&A transactions important for companies?
They help acquire new technologies, strengthen core business, or support succession planning.
What are the 3 main phases of an M&A process?
Pre-M&A (Preparation)
M&A Phase (Transaction)
Post-M&A (Integration/Disintegration)
Name 3 financial/strategic reasons to acquire a company.
Lower fixed costs (economies of scale)
Tax benefits
Improve market positioning
What are 3 operational reasons to acquire a business?
Acquire key employees/know-how
Secure resources or supply chains
Expand value chain / diversify risk
What is a “bargain” acquisition?
When a company’s share price is below its asset value—an opportunity for asset stripping or cheap acquisition.
Give 3 reasons a company might sell part of its business.
Focus on core competencies
Need capital for survival/turnaround
Succession or retirement planning
What triggers sale due to external changes?
Loosing key investor
Privatization
Centralizing locations due to trade agreements
Name 3 main reasons M&A transactions fail.
Overoptimistic synergy estimates
Inadequate planning and strategy alignment
Cultural and personnel integration issues
What is due diligence in simple terms?
A careful check before a big decision—like checking a used car before buying it.
What are the main goals of due diligence?
Identify risks
Assess transaction practicality
Support purchase decision and negotiation
Why is due diligence often difficult?
Time pressure, limited access to info, unclear what’s “relevant” in advance.
What are the 3 categories of information in due diligence?
Deal Breakers
Need to Know
Nice to Have
Can hidden information during due diligence have legal consequences?
Yes, sellers can be held legally accountable.
Name 5 challenges in financial due diligence.
Inventory valuation
Window dressing
Tax liabilities
Pension obligations
Quality of management team
What does the Net Asset Value method focus on?
Book value of net assets.
What does the Earning Power method value?
Discounted future stable profits.
How does the Market Efficiency method work?
Market capitalization = shares × share price.
What is the DCF method?
Discounted Cash Flow—future cash flows discounted to present value.
What does the EVA method calculate?
Economic value added + invested capital.
How do you calculate a company value using multiples?
CV = Multiple × Reference Figure (like EBITDA, revenue)
Pros and cons of multiples?
✅ Simple and market-driven
❌ Depends on comparable transactions and adjusted figures
What is an asset deal?
Buyer purchases specific assets; liabilities usually stay with seller.
