M&A Framework

Question 1

Ben & Jerry is buying a mid-size cream cheese manufacturer. Does this make sense? What should the company be thinking about?

How would you approach this problem?

Answer 1

1. Determine the goals and objectives. Why are they buying it? Does it make good business sense, or are there better alternatives? Is it a good strategic move?
2. Due diligence. Research the company and industry
3. How much are they paying?
4. Exit strategies, looking for a way out.

Question 2

How do you assess the company’s goals and objectives? (3)

Answer 2

1. Why are they buying it?
2. Does it make good business sense or are there better alternatives?
3. Is it a good strategic move?

Question 3

What are reasons why a company would want to partake in an M&A?

Answer 3

1. increase market access
2. diversity their holdings
3. pre-empt the competition
4. gain tax advantages
5. incorporate synergies: marketing, financial, operations
6. create shareholder value

Question 4

What questions would you ask to conduct due diligence on the company and industry? (6)

Answer 4

1. What kind of shape is the company in?
2. How secure are its markets, customers and suppliers?
3. How is the industry doing overall? And how is this company doing compared to the industry? Are they a leader in the field?
4. What are the margins like? Are they high-volume, low-margin, or low-volume, high-margin?
5. How will our competitors respond to this acquisition?
6. Are there any legal reasons why we can’t, or shouldn’t, acquire it?

Question 5

Questions to ask to assess “how much are they paying?” (4)

Answer 5

1. Is the price fair?
2. How are they going to pay for it?
3. Can they afford it?
4. If the economy sours, can they still make their debt payments?

Question 6

Questions to ask to determine exit strategies (2)

Answer 6

1. How long are they planning to keep it?

2. Did they buy it to break it up and sell off parts of it?