M&A Overview & Deals Flashcards
(30 cards)
What does M&A stand for?
Mergers and Acquisitions - transactions where companies combine or one buys another.
What’s the difference between a merger and an acquisition?
A merger typically combines two firms into a new entity; an acquisition is one firm taking control of another.
Why do companies pursue M&A instead of organic growth?
M&A provides faster access to markets, capabilities, synergies, or scale compared to internal development.
What is the #1 goal of most M&A deals?
To create value through synergies - either cost savings or revenue enhancements.
What does the term “synergy” mean in M&A?
The additional value created by combining two businesses –> “1 + 1 = 3”
Name seven common strategic reasons for pursuing M&A.
Synergies
Gaining market share
Expanding geographically
Diversification
Vertical integration
Talent/technology acquisition
Tax benefits
What is vertical integration in M&A?
Acquiring a company along the supply chain (upstream or downstream)
What’s an example of vertical integration?
Tesla acquiring a battery supplier to secure key components.
What’s a horizontal merger?
A merger between two companies in the same industry and at the same stage of the value chain.
What’s the goal of a horizontal merger?
To increase market share, reduce competition, and realize cost synergies.
What’s a conglomerate merger?
A merger between firms in unrelated industries.
Why would a firm pursue a conglomerate merger?
To diversify risk or invest excess capital.
What’s a market extension merger?
A merger that allows a firm to sell existing products in new geographic markets.
What’s a product extension merger?
A merger where two firms combine to cross-sell related products to the same customers.
Give a real-world example of a horizontal merger.
Exxon and Mobil combining to become ExxonMobil.
What are the two main types of synergies in M&A?
Cost synergies and revenue synergies.
Which type of synergy is more reliable?
Cost synergies - they’re easier to identify and measure.
What is a “control premium”?
The extra amount paid by the acquirer above the target’s current market value.
Why does an acquirer pay a control premium?
To gain full control and influence over the target company’s decisions and cash flows.
What is “goodwill” in M&A accounting?
The excess purchase price over the fair value of net assets - recorded as an intangible asset.
What is integration risk in M&A?
The risk that combining operations, cultures, or systems will fail or create friction.
What percentage of M&A deals fail to deliver expected value?
Around 70% to 90%, often due to poor integration or overpaying.
What is due diligence?
The process of investigating a target’s financials, legal risks, operations, and synergies before acquisition.
What’s a red flag in financial due diligence?
Unusual revenue recognition practices, inconsistent margins, or aggressive accounting.
