Walking The M&A Path
written by William F Bryant |
Areas of Interest
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Mergers & Acquisitions: Strategic Structure
[A brief note. M&A transactions often involve a substantial amount of regulatory, legal and taxation considerations and, as such, legal and tax professionals should be consulted for in-depth explanations any specifics in these areas. Although the following article may make mention of legal documentation or taxation elements, it is to present types of documents that one may expect as this process is initiated. The specific area of consulting expertise is in areas of corporate finance, valuations and operations.]
Mergers and acquisition transactions have been used as a business strategy for some time. you may have heard something of these transactions if you have every owned shares of a company involved in a merger or even watch pop culture movies and television shows. I am certain you have heard statements in press conferences stressing the potential profit or savings increases as a result of the synergies from just such a transaction. For those of you ‘disgusted’ by the word, I often wonder if there was any correlation, or even causation, to the increased use of the word ‘synergy’ in the business world as a result of an increased interest in mergers through the 90’s. On the other end, perhaps you have seen the ‘Hollywood’ movies that portrayed characters as ‘investment bankers’ making deals in hostile takeovers. But regardless of terms, catchphrases or entertainment portrayals, these are very real-world transactions that happen on every scale, public and private. Mergers and acquisitions get grouped together because the same basic premise holds, while there are numerous ways to complete these transactions, a company wants to own rights to the productive capacity, corresponding potential revenue and competitive differential of another company’s assets. In a nutshell, this is what happens. It is also exactly what happens when you purchase a share of stock, although, on a much smaller scale and the value of earnings potential has all but been forgotten. Differences arise, not just in scale of the equity purchase, but also by medium of exchange as a publicly traded corporation may also use their own shares as a medium or even us an entirely different entity as the purchaser. As you can see, this is overly simplified and will vary on the finer points of the transaction and given that the entire organizational structure may also change, how the acquiring company wants to structure its post-deal corporate structure. Do not think that a deal entirely rests on the acquiring company, it does not. The desired company and equity holders have rights and there are state governance laws to adhere to by the acquirer that must be followed as well; specifically, for those times a company wants to buy another company that does not wish to be purchased. This is a very interesting realm of corporate finance and strategy. Deals are not generally dramatic. Deals usually happen because a company’s board decides that it would like to sell the company or consider a proposition for purchase from another company, especially in private industry. This can be straight forward, however, like any deal of this magnitude the ‘pain is in the details’. You can continue to read through more of the Basics and Due Diligence, but perhaps you wonder why go through a merger or acquisition. Companies can benefit from mergers or acquisitions through capturing efficiencies or bargains, not the least of which, may be an asset only purchase from a competitor at less than replacement cost of your own company’s PPE. Other efficiencies could include, operational, financial, managerial or even taxation. I am certain market share, market power or even monopolies come to mind when discussing reasons for mergers and acquisitions, but in actuality very few of these transactions are going to occur with this in mind. A company needs to compete. In order to compete, a company must differentiate itself from its competitors. Any strategy a company takes moving forward must adhere to this principle. |
Financial Analysis
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