Merger and Acquisition Costs

8 Key excerpts on "Merger and Acquisition Costs"

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  Corporate Finance, Law and Governance

  • (Author)
  • 2014(Publication Date)
  • College Publishing House

    (Publisher)

  _____________WORLD TECHNOLOGIES_____________ Chapter- 3 Mergers and Acquisitions Mergers and acquisitions (abbreviated M&A ) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can aid, finance, or help an enterprise grow rapidly in its sector or location of origin or a new field or new location without creating a subsidiary, other child entity or using a joint venture. The distinction between a merger and an acquisition has become increasingly blurred in various respects (particularly in terms of the ultimate economic outcome), although it has not completely disappeared in all situations. Acquisition An acquisition is the purchase of one business or company by another company or other business entity. Consolidation occurs when two companies combine together to form a new enterprise altogether, and neither of the previous companies survives independently. Acquisitions are divided into private and public acquisitions, depending on whether the acquiree or merging company (also termed a target) is or is not listed on public stock markets. An additional dimension or categorization consists of whether an acquisition is friendly or hostile . Achieving acquisition success has proven to be very difficult, while various studies have shown that 50% of acquisitions were unsuccessful. The acquisition process is very complex, with many dimensions influencing its outcome. Whether a purchase is perceived as being a friendly one or a hostile depends significantly on how the proposed acquisition is communicated to and perceived by the target company's board of directors, employees and shareholders. It is normal for M&A deal communications to take place in a so-called 'confidentiality bubble' wherein the flow of information is restricted pursuant to confidentiality agreements.

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  Corporate Finance Handbook

  • (Author)
  • 2014(Publication Date)
  • Library Press

    (Publisher)

  ____________________ WORLD TECHNOLOGIES ____________________ Chapter- 3 Mergers and Acquisitions Mergers and acquisitions (abbreviated M&A ) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can aid, finance, or help an enterprise grow rapidly in its sector or location of origin or a new field or new location without creating a subsidiary, other child entity or using a joint venture. The distinction between a merger and an acquisition has become increasingly blurred in various respects (particularly in terms of the ultimate economic outcome), although it has not completely disappeared in all situations. Acquisition An acquisition is the purchase of one business or company by another company or other business entity. Consolidation occurs when two companies combine together to form a new enterprise altogether, and neither of the previous companies survives independently. Acquisitions are divided into private and public acquisitions, depending on whether the acquiree or merging company (also termed a target) is or is not listed on public stock markets. An additional dimension or categorization consists of whether an acquisition is friendly or hostile . Achieving acquisition success has proven to be very difficult, while various studies have shown that 50% of acquisitions were unsuccessful. The acquisition process is very complex, with many dimensions influencing its outcome. Whether a purchase is perceived as being a friendly one or a hostile depends significantly on how the proposed acquisition is communicated to and perceived by the target company's board of directors, employees and shareholders. It is normal for M&A deal communications to take place in a so-called 'confidentiality bubble' wherein the flow of information is restricted pursuant to confidentiality agreements.

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  Corporate Finance

  A Practical Approach

  • Michelle R. Clayman, Martin S. Fridson, George H. Troughton(Authors)
  • 2012(Publication Date)
  • Wiley

    (Publisher)

  Example 10-1 , such as the forms of payment in a merger, legal and contractual issues, and the necessity for regulatory approval. More important, this chapter aims to equip you with the basic tools for analyzing M&A deals and the companies behind them. In subsequent sections, we will discuss the motives behind business combinations, various transaction characteristics of M&A deals, the regulations governing M&A activity, and how to evaluate a target company and a proposed merger. Section 2 discusses the basic types of mergers. Section 3 examines the common motives that drive merger activities. In Section 4, we consider various transaction characteristics and their impact on different facets of M&A deals. Section 5 focuses on takeovers and the common defenses used to defeat unwelcome takeover attempts. In Section 6, we outline the various regulations that apply to M&A activity. Section 7 explores methods for analyzing a target company and provides a framework for analyzing merger bids. In Section 8, we review the empirical evidence related to the distribution of gains in mergers. Section 9 provides a brief introduction to corporate restructuring activities, and Section 10 summarizes the chapter.

  2. MERGERS AND ACQUISITIONS: DEFINITIONS AND CLASSIFICATIONS

  Business combinations come in different forms. A distinction can be made between acquisitions and mergers. In the context of M&A, an acquisition is the purchase of some portion of one company by another. An acquisition might refer to the purchase of assets from another company, the purchase of a definable segment of another entity, such as a subsidiary, or the purchase of an entire company, in which case the acquisition would be known as a merger. A merger represents the absorption of one company by another. That is, one of the companies remains and the other ceases to exist as a separate entity. Typically, the smaller of the two entities is merged into the larger, but that is not always the case.

  Mergers can be classified by the form of integration. In a statutory merger, one of the companies ceases to exist as an identifiable entity and all its assets and liabilities become part of the purchasing company. In a subsidiary merger, the company being purchased becomes a subsidiary of the purchaser, which is often done in cases where the company being purchased has a strong brand or good image among consumers that the acquiring company wants to retain. A consolidation is similar to a statutory merger except that in a consolidation, both

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  Valuation

  Mergers, Buyouts and Restructuring

  • Enrique R. Arzac(Author)
  • 2015(Publication Date)
  • Wiley

    (Publisher)

  Part Two Mergers, Acquisitions, and Buyouts 151 This page intentionally left blank Chapter 9 Mergers and Acquisitions 9.1 VALUE CREATION AND MERGERS A merger should be attractive to the shareholders of the companies involved if it increases the value of their shares. Value creation may result from a number of factors such as economies of scale in production, distribution and management, a technology that can be best deployed by the surviving company, the acquisition of new channels of distribution, and cross-selling of each other’s products. However, experience shows that merger synergies are difficult to attain and their size can be disappointing. 1 Acquisitions are sometimes made to redeploy excess corporate cash and avoid double taxation of dividends to shareholders, but the tax argument may lead the acquirer to overreach into areas beyond its competency. 2 Changes in technology and the globalization of markets have led to many recent mergers. These factors have created opportunities and, in many cases, the need to consolidate, and pushed the global volume of transactions to $3.6 trillion in the year 2000. In the less favorable stock market and economic environment of 2002, the global volume of transactions fell to $1.4 trillion but deal activity regained momentum by mid-2003 and reached $4 trillion in 2006. The chapter begins with an introduction to the legal, tax, and accounting aspects of mergers and acquisitions with emphasis in the choices available for structuring a transac- tion and their implications. The rest of the chapter shows how to apply the valuation tools studied in previous chapters to valuing expected synergies and testing the robustness of the assumptions upon which a transaction is predicated. 9.2 LEGAL FORM OF THE TRANSACTION AND TAX CONSIDERATIONS 3 In a merger , the surviving company assumes all the assets and liabilities of the merged company, which ceases to exist as a separate entity.

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  Mergers and Acquisitions Security

  Corporate Restructuring and Security Management

  • Edward Halibozek, Gerald L. Kovacich(Authors)
  • 2005(Publication Date)
  • Butterworth-Heinemann

    (Publisher)

  Inability to Successfully Integrate the Newly Acquired Business Unit into the Acquiring Company Once an acquisition or merger is completed, the integration of the new business unit into the acquiring company must be accomplished swiftly and completely. Failure to do this will affect the management team’s ability to achieve cost reductions in the short and long run. Failing to move quickly to integrate the two companies into a new company will limit all early gains or successes. Furthermore, and just as problematic, acquiring another company and then leaving it to continue on its own denies both parties the advantage of eliminating redundancies, creating synergies, and ultimately attaining maximum value from the merger or acquisition. What Are Mergers and Acquisitions? 17 How does one know if and when the integration of both companies into one is a success? The only effective method to assess performance is to measure. Remember the old adage, what gets measured, gets done. The acquisition team must establish early on the criterion for success. How will the elements of success be defined? Once established, the team must develop an appropriate set of metrics to measure progress and success; as well as monitor them throughout the process. Reviewing metrics as the integration progresses will provide regular indicators on how successful the team is in working toward its goals. Moreover, knowing about a problem or issue early in the process allows for corrective action before the problem becomes too serious.

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  Know All About Mergers and Acquisitions in Business

  • (Author)
  • 2014(Publication Date)
  • Orange Apple

    (Publisher)

  ____________________ WORLD TECHNOLOGIES ____________________ Chapter- 1 Introduction to Mergers and Acquisitions The phrase mergers and acquisitions (abbreviated M&A ) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity. Acquisition An acquisition is the purchase of one company by another company. Consolidation is when two companies combine together to form a new company altogether. An acquisition may be private or public, depending on whether the acquiree or merging company is or isn't listed in public markets. An acquisition may be friendly or hostile. Whether a purchase is perceived as a friendly or hostile depends on how it is communicated to and received by the target company's board of directors, employees and shareholders. It is quite normal for M&A deal communications to take place in a so called 'confidentiality bubble' whereby information flows are restricted due to confidentiality agreements (Harwood, 2005). In the case of a friendly transaction, the companies cooperate in negotiations; in the case of a hostile deal, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer. Hostile acquisitions can, and often do, turn friendly at the end, as the acquiror secures the endorsement of the transaction from the board of the acquiree company. This usually requires an improvement in the terms of the offer. Acquisition usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger or longer established company and keep its name for the combined entity.

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  Reaping the Benefits of Mergers and Acquisitions

  • John Coffey, Valerie Garrow, Linda Holbeche(Authors)
  • 2012(Publication Date)
  • Routledge

    (Publisher)

  This is often the greatest risk of any deal and reflects the risk that the integration of the two companies represents in terms of its disruption to current operations. There is also risk related to realizing the synergies or expected added value from the partnership. The higher the level of integration that is required to realize the benefits, the higher this risk is likely to be. This area is discussed in greater detail in later chapters.

  Agreeing the Deal Price

  The final deal price is driven by a number of factors. The first of these is the perceptions of value of the deal by vendor and purchaser, specifically:

  • Vendor perception of value of their company
  • Purchaser’s perception of value of the company
  • Purchaser’s perception of added value to both companies from integration synergies.

  The value and nature of the deal will depend on these valuations, as well as the relative negotiating power of purchaser and vendor. The level of interest the vendor may have in maintaining a stake in the new integrated company will also impact the nature of the deal.

  Quantifying Acquisition Costs

  The other consideration in evaluating any deal and its viability are the costs associated with the deal. The deal costs are:

  • Settlement costs: this is the purchase price paid to the vendor in the form of cash or shares
  • Acquisition costs: these are the administrative costs associated with the deal. They would cover external cost of advisors and the internal costs of management involvement
  • Integration costs: these are the one-off costs of the post-acquisition integration or transition activities
  • Development costs: these are the ongoing business development costs related to realizing the business benefits and improved earnings arising from the acquisition.

  Overall Viability of Deal

  The final go/no-go decision on the deal will be based around a straight return on acquisition investment decision. The balance of the costs required to finance the deal and the projected improvements in future earnings resulting from the deal, determines the viability of the deal. The balance of these two must be great enough to generate an acceptable rate of return. The financing costs of the deal are:

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  Investment Banking

  Valuation, LBOs, M&A, and IPOs

  • Joshua Rosenbaum, Joshua Pearl(Authors)
  • 2021(Publication Date)
  • Wiley

    (Publisher)

  2 Mergers Consequences Analysis calculates the pro forma effects of a given transaction on the acquirer or merging party, including impact on key financial metrics such as earnings and credit statistics. Buy-Side M&A 333 Synergies Synergies refer to expected cost savings, growth opportunities, and other financial benefits that occur as a result of the combination of two companies. They represent one of the primary value enhancers for M&A transactions, especially when targeting companies in core or related businesses. This notion that “two plus two can equal five” helps support premiums paid and shareholder enthusiasm for a given M&A opportunity. The size and degree of likelihood for realizing potential synergies play an important role in framing the purchase price, and often represent the difference between meeting or falling short of internal investment return thresholds and shareholder expectations. Similarly, in a competitive bidding process, those acquirers who expect to realize substantial synergies can typically afford to pay more than those who lack them. As a result, strategic acquirers have traditionally been able to outbid financial sponsors in organized sale processes. Due to their critical role in valuation and potential to make or break a deal, bankers on buy-side assignments need to understand the nature and magnitude of the expected synergies. Successful acquirers typically have strong internal M&A or business development teams who work with company operators to identify and quantify synergy opportunities, as well as craft a feasible integration plan. The buy- side deal team must ensure that these synergies are accurately reflected in the financial model and M&A analysis, as well as in communication to the public markets. Upon announcement of a material acquisition, public acquirers typically provide the investor community with guidance on expected synergies.

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