M&A Types

Question 1

5 types of mergers?

Answer 1

horizontal mergers
vertical mergers
market-extension mergers
congeneric mergers
conglomerate mergers

Question 2

horizontal merger?

Answer 2

a merger between two companies operating in a similar industry

may/may not be direct competitors

Question 3

vertical merger?

Answer 3

merger between two companies in the same supply chain

e.g., a company and its supplier
e.g., a company and its distributor
e.g., ice cream maker merging with cone supplier

Question 4

congeneric merger?

Answer 4

two companies serving same consumer base in different ways

e.g., TV manufacturer and cable network merging together

Question 5

market-extension merger?

Answer 5

two companies that sell the same product in different markets

Question 6

conglomerate merger?

Answer 6

usually done for diversification

merger between companies in unrelated industries

Question 7

forms of acquisition?

Answer 7

• stock purchase
• asset purchase

Question 8

stock purchase?

Answer 8

acquirer pays the target’s shareholders cash or shares in exchange for shares in the target

target’s shareholders receive compensation

Question 9

asset purchase?

Answer 9

acquirer purchases target’s assets and pays the target company directly

(i.e., their balance sheet increases in cash, opposed to the shareholders receiving payment directly)

Question 10

3 types of M&A integrations?

Answer 10

• statutory
• subsidiary
• consolidation

Question 11

statutory integration?

Answer 11

occurs when the acquirer is much larger than the target

acquires the targets assets and liabilities and they cease to exist

Question 12

subsidiary integration?

Answer 12

target is acquired by the acquirer, and is retained as a subsidiary

target continues to operate as a separate business

Question 13

consolidation integration?

Answer 13

both companies cease to exist upon the deal’s completion, and a new entity is formed

Question 14

what is a hostile takeover?

Answer 14

when an acquirer bypasses the board and goes straight to the shareholders and purchases the company

Question 15

board of directors?

Answer 15

a group within a company who decides what the company’s going to do

e.g., whether they buy another company or sell to another company

i.e., if >50% of the board vote in favour of an acquisition, it can go ahead

Question 16

how is a hostile takeover executed for a public company?

Answer 16

• make a tender offer by announcing intention to buy the shares at a certain price (usually a premium)
• this entices shareholders, from whom the shares can then be bought, until >50% ownership is attained, and the board can be ignored

Question 17

proxy fight?

Answer 17

used in a hostile takeover event

when an acquirer launches a publicity campaign to convince shareholders to vote out board members opposing an acquisition