Merger & Acquisition at AKAD Hochschule Stuttgart | Flashcards & Summaries

Lernmaterialien für Merger & Acquisition an der AKAD Hochschule Stuttgart

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How are CDOs organized? (5)

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• Multi-disciplinary team
• 3-8 FTEs
• Report to CEO or CFO
• Generate about 80% of deal opportunities
• Contribute about 50% of M&A tasks (mostly planning & transaction phase)

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Certain Tasks of Corporate Development Organization (CDO) in large firms (3)

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1. Strategic Tasks

- inform and advise the firm on the transaction opportunities to enhance strategic vision

- inform and advise on potential strategic course corrections


2. Operational Tasks

-  opportunity identification, planning and structuring of transactions, valuation, and negotiation


3. Coordination tasks

- financial diligence, legal, tax diligence, and tax structuring

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Drivers of M&A waves (5)

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TESTE DEIN WISSEN
  • Low cost of capital
  • High stock market valuations and over-valued acquirers (instead of buying with cash, over-value the target company -> stock-based buying)
  • Limited organic growth opportunities or high growth period (because faster growth through external growth)
  • Industry shocks (technological, regulatory, etc.) that disrupt competitive market positions (e.g. acquire companies with disruptive technologies/more productive production processes)
  • Copy-cat behavior (M&A to keep up with competitors, e.g. because they enter new markets you follow)
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Divestiture Definition (2)


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• The sale of a firm (or parts of it) to another firm [A-B=A’].
• The selling firm’s shareholders stop to be owners of that firm (or of the parts sold).
-> e.g. Bayer & BMS (Covestro)

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Do mergers and acquisitions pay off for employees? (3)

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• Increased risk of lay-off


• Remaining employees have greater career prospects in a larger firm


• Remaining employees may benefit from improved firm competitiveness (greater job security)

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Who should benefit from an acquisition, and how? (4 stakeholder)

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TESTE DEIN WISSEN

Firm A should acquire Firm B if the stakeholders in both firms will be better off.


For shareholders:

Increase in share value, i.e. the combined value of A+B > the stand-alone value of A + stand-alone value of B + the benefits - cost of executing the merger or acquisition


Bondholders:

Reduction of default risk


Management:

Job security and prospects


Employees:

Job security and prospects

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TESTE DEIN WISSEN

Synergy Management Pitfalls: How to identify and avoid them (1. Mirage)

-> When? Where? What? Why? (4) How to avoid? (3)

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TESTE DEIN WISSEN

When?
Due-diligence


Where?

Potential synergy


What?

Overestimating of synergy value


Why?

- Agency conflicts

- Hubris (Überheblichkeit)

- Inter-firm causal ambiguity 

- Ineffective assessment models


How to avoid?

- Assess the “expected synergy” carefully

- Use a risk-management approach for board-level discussion

- Conduct a careful analysis of the reasons for an M&A

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TESTE DEIN WISSEN

Effective synergy management
(value creation) (3)

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TESTE DEIN WISSEN

• finding a partner with high potential synergies


Effective synergy measurement


 Effective integration management

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TESTE DEIN WISSEN

Synergy Management Pitfalls: How to identify and avoid them (2. Gravity Hill)

-> When? Where? What? Why? (4) How to avoid? (3)

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TESTE DEIN WISSEN

When?
Due-diligence


Where?

Integration costs


What?

Overestimation the synergy value / Underestimating the integration costs


Why?

- Lack of attention

- Hubris

- Inappropriate background of the management involved

- High costs of coordination


How to avoid?

- Build cross-functional teams from technical, operational and financial positions

- Carefully assess the “integration costs”

- Obtain M&A insurance

Lösung ausblenden
TESTE DEIN WISSEN

Synergy Management Pitfalls: How to identify and avoid them (3. Amnesia)

-> When? Where? What? Why? (4) How to avoid? (3)

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TESTE DEIN WISSEN

When?

Post-merger integration


Where?

Realized synergy


What?

Failure to achieve synergy value


Why?

- Lack of attention

- Intra-firm causal ambiguity

- Cultural differences

- Absence of integration plans


How to avoid?

- Pay attention to the action plan

- Carefully analyze and organize the cultural integration

- Select the correct integration approach


Lösung ausblenden
TESTE DEIN WISSEN

Acquisition Definition (2)

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TESTE DEIN WISSEN

• The purchase of one firm of another (or of parts of it) [A+B=A’].
• The acquired firm’s shareholders stop to be owners of that firm.

-> e.g. Bayer & Monsanto

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TESTE DEIN WISSEN

Merger Definition (2)

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• The consolidation or combination of one firm with another [A+B=A’ or C].
• The shareholders of the combining firms often remain as joint owners of the combined entity.

-> e.g. Daimler & Chrysler

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Q:

How are CDOs organized? (5)

A:

• Multi-disciplinary team
• 3-8 FTEs
• Report to CEO or CFO
• Generate about 80% of deal opportunities
• Contribute about 50% of M&A tasks (mostly planning & transaction phase)

Q:

Certain Tasks of Corporate Development Organization (CDO) in large firms (3)

A:

1. Strategic Tasks

- inform and advise the firm on the transaction opportunities to enhance strategic vision

- inform and advise on potential strategic course corrections


2. Operational Tasks

-  opportunity identification, planning and structuring of transactions, valuation, and negotiation


3. Coordination tasks

- financial diligence, legal, tax diligence, and tax structuring

Q:

Drivers of M&A waves (5)

A:
  • Low cost of capital
  • High stock market valuations and over-valued acquirers (instead of buying with cash, over-value the target company -> stock-based buying)
  • Limited organic growth opportunities or high growth period (because faster growth through external growth)
  • Industry shocks (technological, regulatory, etc.) that disrupt competitive market positions (e.g. acquire companies with disruptive technologies/more productive production processes)
  • Copy-cat behavior (M&A to keep up with competitors, e.g. because they enter new markets you follow)
Q:

Divestiture Definition (2)


A:

• The sale of a firm (or parts of it) to another firm [A-B=A’].
• The selling firm’s shareholders stop to be owners of that firm (or of the parts sold).
-> e.g. Bayer & BMS (Covestro)

Q:

Do mergers and acquisitions pay off for employees? (3)

A:

• Increased risk of lay-off


• Remaining employees have greater career prospects in a larger firm


• Remaining employees may benefit from improved firm competitiveness (greater job security)

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Q:

Who should benefit from an acquisition, and how? (4 stakeholder)

A:

Firm A should acquire Firm B if the stakeholders in both firms will be better off.


For shareholders:

Increase in share value, i.e. the combined value of A+B > the stand-alone value of A + stand-alone value of B + the benefits - cost of executing the merger or acquisition


Bondholders:

Reduction of default risk


Management:

Job security and prospects


Employees:

Job security and prospects

Q:

Synergy Management Pitfalls: How to identify and avoid them (1. Mirage)

-> When? Where? What? Why? (4) How to avoid? (3)

A:

When?
Due-diligence


Where?

Potential synergy


What?

Overestimating of synergy value


Why?

- Agency conflicts

- Hubris (Überheblichkeit)

- Inter-firm causal ambiguity 

- Ineffective assessment models


How to avoid?

- Assess the “expected synergy” carefully

- Use a risk-management approach for board-level discussion

- Conduct a careful analysis of the reasons for an M&A

Q:

Effective synergy management
(value creation) (3)

A:

• finding a partner with high potential synergies


Effective synergy measurement


 Effective integration management

Q:

Synergy Management Pitfalls: How to identify and avoid them (2. Gravity Hill)

-> When? Where? What? Why? (4) How to avoid? (3)

A:

When?
Due-diligence


Where?

Integration costs


What?

Overestimation the synergy value / Underestimating the integration costs


Why?

- Lack of attention

- Hubris

- Inappropriate background of the management involved

- High costs of coordination


How to avoid?

- Build cross-functional teams from technical, operational and financial positions

- Carefully assess the “integration costs”

- Obtain M&A insurance

Q:

Synergy Management Pitfalls: How to identify and avoid them (3. Amnesia)

-> When? Where? What? Why? (4) How to avoid? (3)

A:

When?

Post-merger integration


Where?

Realized synergy


What?

Failure to achieve synergy value


Why?

- Lack of attention

- Intra-firm causal ambiguity

- Cultural differences

- Absence of integration plans


How to avoid?

- Pay attention to the action plan

- Carefully analyze and organize the cultural integration

- Select the correct integration approach


Q:

Acquisition Definition (2)

A:

• The purchase of one firm of another (or of parts of it) [A+B=A’].
• The acquired firm’s shareholders stop to be owners of that firm.

-> e.g. Bayer & Monsanto

Q:

Merger Definition (2)

A:

• The consolidation or combination of one firm with another [A+B=A’ or C].
• The shareholders of the combining firms often remain as joint owners of the combined entity.

-> e.g. Daimler & Chrysler

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