Mergers & Acquisitions For Dummies

Bill Snow

• Editore: For Dummies
• Anno: 2018
• ISBN:
  9781119543909
• Edizione: 1
• Argomento: Business
• Categoria: Mergers & Acquisitions

Mergers & Acquisitions For Dummies (9781119543862) was previously published as Mergers & Acquisitions For Dummies (9780470385562). While this version features a new Dummies cover and design, the content is the same as the prior release and should not be considered a new or updated product.

The easy way to make smart business transactions

Are you a business owner, investor, venture capitalist, or member of a private equity firm looking to grow your business by getting involved in a merger with, or acquisition of, another company? Are you looking for a plain-English guide to how mergers and acquisitions can affect your investments? Look no further.

Mergers & Acquisitions For Dummies explains the entire process step by step—from the different types of transactions and structures to raising funds and partnering. Plus, you'll get expert advice on identifying targets, business valuation, doing due diligence, closing the purchase agreement, and integrating new employees and new ways of doing business.

• Step-by-step techniques and real-world advice for making successful mergers and acquisitions
• Covers international laws and regulations
• How to take advantage of high-value deals

Going beyond the case studies of other books, Mergers & Acquisitions For Dummies is your one-stop reference for making business growth a success.

Part 1

Mergers & Acquisitions 101

IN THIS PART …

This part delves into the basics of M&A: The players, their motivations, the terms, the nomenclature, the conventions of the industry, and the rules and regulations. I also discuss reasons to buy or sell a company, and I walk you through the generally accepted process of buying or selling a company on a step-by-step basis.

Chapter 1

The Building Blocks of Mergers and Acquisitions

IN THIS CHAPTER

Becoming familiar with the main vocabulary of mergers and acquisitions

Understanding the rules of the road

Opening your eyes to potential costs

Figuring out where your company fits

Mergers and acquisitions is a complicated field, so this chapter provides a basic overview: an introduction to the basic terms and phrases, a discussion of decorum and the basic M&A process, a look at the players and the category of deals, and my handy-dandy guide to helping business owners determine what kind of businesses they have.

Defining Mergers and Acquisitions

Mergers and acquisitions (or M&A for short — the M&A world is rife with acronyms and initialisms) is a bit of a catchall phrase. For all intents and purposes, M&A simply means the buying and selling of companies. When you think about it, mergers and acquisitions aren’t different; they’re simply variations on the same theme.

In the strictest sense, a merger is a combination of two or more entities where each merging entity has an equal stake in the new enterprise and each merging entity has a very clearly defined role in the new entity. This ideal is the vaunted merger of equals. Daimler’s 1998 combination with Chrysler was a merger of equals. In a more practical sense, so-called mergers of equals are rare; one side usually ends up controlling the enterprise. For example, the years following the Daimler-Chrysler merger showed that Daimler executives planned all along to control the combined entity.

Although actual mergers do occur, most of the activity in the M&A world centers on one company buying another company, or the acquisitions category. I like to think using the word merger keeps the uninitiated on their toes; plus, talking about combining two companies as equal partners rather than about committing a hostile takeover sounds much more egalitarian.

Mergers are far less common than acquisitions. An acquisition is when one company buys another company, a division of another company, or a product line or certain assets from another company. Actually, an acquisition is when any kind of business purchases another part (or all) of another business. Although some companies grow organically (from within by creating and selling products or services), an acquisition allows a company to bypass the growth stage by simply buying existing sales and profits. Starting up a new product line may be less expensive than buying an existing one, but the market may take a while to adapt to the new product, if it does at all. For this reason, buying other companies rather than relying on organic growth may make sense for a particular company.

The fact that one can transfer a company’s ownership through a sale often comes as a bit of surprise to many people (including many business owners, believe it or not). Business owners, especially owners of middle market and lower middle market companies (with revenues between $250 million and $1 billion [middle market] and between $20 million and $250 million [lower middle market]), have spent their careers building a company, so the process of selling a business is often something new and foreign to them.

In addition to being an activity, M&A is an industry. As this book illustrates, the steps to doing a deal, the names of documents and processes, the conventions, and the sundry tips and insights I provide are all based on de facto industry standards that have developed over time, and my humble hope is that this book helps introduce you to those standards and conventions.

Introducing Important Terms and Phrases

Like any topic, M&A has a language that you have to get a handle on to understand the field. Although I introduce many more terms and phrases throughout the book, the following words are part of the basic building blocks of M&A.

The lingua franca of M&A is an amalgam of accounting and banking terms sprinkled with initialisms, acronyms, and words and phrases adjusted and twisted to suit certain needs at certain times. Pay close attention to the terms I define throughout the book. Although some are tricky, I use them all for a reason.

Buyer

You can’t sell something unless you have a buyer for it. Although Buyers (both potential and actual) are typically companies or entities, I often refer to them as individuals for clarity.

In documents and contracts and agreements, you usually see Buyer as a defined term, which means it’s capitalized. When you read those documents, Buyer looks like the name of a person. In fact, to make it seem really formal, M&A professionals often drop the word the from Buyer.

“Buyer” isn’t a one-size-fits-all category. A Buyer may acquire all or part of a company, the stock of the company, or certain or all assets and even assume some of the liabilities. Despite this wide variety of possibilities, Buyers typically fall into four broad types:

• Strategic Buyers: These Buyers are other companies planning to combine operations of the two companies to some extent (as opposed to buying strictly for financial reasons). For example, when Oracle buys a company, Oracle is considered a strategic Buyer because it buys companies that have some sort of synergy to its business.
• Financial Buyers:Financial Buyers are funds of money that buy companies. Financial Buyers of middle market and lower middle market companies are typically private equity (PE) funds, which are essentially large pools of money (see Chapter 4 for more).
• Other companies backed by PE funds: The company will be the new owner of the acquired company, but another entity (the fund) is providing the dough to do the deal.
• Individuals: Although it happens, an individual buying a middle market or lower middle market company is rare. When individuals buy companies, those companies tend to be small retail shops, consulting firms, or construction companies. Typically, these companies have revenues of less than $1 million.

As a Seller, know that who’s on the other side of the negotiating table may change the way your M&A process works. Are the Buyers experienced deal people, or are they new to the process? For example, if your Buyer is a PE firm, rest assured that the people you’re negotiating with know exactly what they’re doing.

Seller

You can’t buy something unless you have a Seller. Like Buyers, Sellers usually aren’t individuals, though I often refer to them in the singular here for clarification purposes. Seller is a defined term, meaning it’s capitalized for the purposes of documents and contracts.

Here’s a quick look at the types of Sellers you may find in the world of M&A:

• The spinoff: A company may be divesting a division, a product line, or certain assets.
• The change of control: This company is selling enough of itself (more than 50 percent) to result in a change of control. In these cases, the owner or owners most likely receive the money. Colloquially, this approach is called taking some chips off the table.
• The recap: Sometimes an owner wants to take some chips off the table without giving up control of the company. This situation is called a recapitalization, or recap for short.
• The growth capital: A Seller may issue more stock for the purposes of raising capital to invest in the business. In this case, the owner isn’t actually selling the company but rather selling more stakes in the company. The money from the sale doesn’t flow to the owner; instead, the company retains the money to fund growth.

Remembering why the Seller is selling the company, how much of the company he or she is selling, and where the money goes is key. Follow the money.

Transaction (also known as the deal)

The transaction is when Buyer acquires a company from Seller. It’s an abstract concept, as in, “We’re working on a transaction that will sell ABC to XYZ.” It can also refer to the finished sale: “We completed the transaction yesterday.” (Don’t confuse the transaction with the purchase agreement, a contract that memorializes the transaction. See Chapter 15 for more on this document.)

Transaction is a more formal version of deal; most documents, agreements, and contracts use the word transaction (often capitalized as a defined term), but conversations and e-mails may use deal and transaction interchangeably. Think of deal as tran...