Walk me through the process of M&A
- initial contact and fire side chat - pitching
- preliminary valuation and analysis (NDA, preliminary due diligence), investment memo
- Negotiation key terms
- bidding process
- Due diligence
- Binding offers
- Deal structuring and financing
- Final negotiations and third party approvals
- Closing deal
- Post merger integration
walk me through a M&A model
- assumptions of purchase price, andother uses of fund: refinancing debt, paying transaction fees
- assumptions of sources of funding: cash, issue debt, issue equity of combination of both
- adjust acquier’s balance sheet to reflect integration of target. Add working capital tgt. Calculating goodwill created.
- income statement combined, accretive or dilutive
if an all stock deal, how would you determine if its accretive or dilutive
buyer has bigger P/E = accretive
what are the effects of an acquisition
5 changes
1. foregone interest in cash
2. additional interest in debt - if it uses debt for the deal
3. additional shares out standing if it is a stock deal
4. combined financial statements
5. creation of goodwill and intangibles: premium paid, IP, patents
All else being equal, which method would a company prefer to use when acquiring another company – cash, stock, or debt?
- cash is cheaper, interest on cash is lower than debt, so forgon interest on cash is lower than debt
- cost of debt is lower than cost of equity.
- stocks may be volatile and fluctuate
What is the difference between Goodwill and Other Intangible Assets?
- goodwill not amortized
- patent and IP is amortized
If a company were capable of paying 100% in cash for another company, why would it choose NOT to do so?
- low on cash
- cash needs to b e used elsewhere such as operational cash
- low cost of debt financing
- stocks are high
Why do Goodwill & Other Intangibles get created in an acquisition?
- premiums paid
- intangibles like brand name, IP, patent
