Merger & Acquisition at Universität zu Köln

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Study with flashcards and summaries for the course Merger & Acquisition at the Universität zu Köln

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

How are CDOs organized? (5)

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

Merger Definition (2)

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

Acquisition Definition (2)

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

Divestiture Definition (2)


Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

Drivers of M&A waves (5)

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

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

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

Effective synergy management
(value creation) (3)

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

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

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

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

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

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

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

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

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

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

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

Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

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

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Exemplary flashcards for Merger & Acquisition at the Universität zu Köln on StudySmarter:

Merger & Acquisition

How are CDOs organized? (5)

• 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)

Merger & Acquisition

Merger Definition (2)

• 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

Merger & Acquisition

Acquisition Definition (2)

• 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

Merger & Acquisition

Divestiture Definition (2)


• 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)

Merger & Acquisition

Drivers of M&A waves (5)

  • 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)

Merger & Acquisition

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

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

Merger & Acquisition

Effective synergy management
(value creation) (3)

• finding a partner with high potential synergies

Effective synergy measurement

 Effective integration management

Merger & Acquisition

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

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

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

Merger & Acquisition

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

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

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

Merger & Acquisition

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

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

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

Merger & Acquisition

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

• 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)

Merger & Acquisition

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

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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