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VC Final Exam questions with 100% correct answers rated A+ passed
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VC Final Exam questions with 100% correct answers rated A+ passed
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VC Final Examreasons why companies get sold - correct answer ✔✔- founder dies or wants to cash out
- company is sold to settle an estate or a divorce
- largest shareholder wants to cash out
why would the largest shareholder want to cash out? - correct answer ✔✔- they believe that the future
is not good for the business
- the market is overvaluing the business
- they need cash for some other reason
steps in the process of selling a business - correct answer ✔✔1. company hires IB to sell the company
2. IB does due diligence - investigates the company and its financials to see if there are any problems ,
gathers info for the sale process
3. IN values the company
4. IB drafts an offering memorandum - book about the company that will be read by potential bidders
5. IB and company put together a list of potential buyers - length of list is driven by a tradeoff between
desire to maximize price (large number of bidders) vs. desire to maintain secrecy (smaller number of
bidders)
6. distribute the offering memorandum to the potential buyers - buyers must sign a confidentiality
agreement to receive it
7. collect expressions of interest from potential buyers - these are non-binding bids that provide the
buyers preliminary thoughts about price and terms, will contain many contingencies (which gives bidder
the ability to walk away)
8. select finalist companies - based on price, best terms, and odds of completing the deal
9. finalists do due diligence and submit final bids - price and method of payment, proof of financing,
draft of purchase agreement (proposed details of the deal including contingencies) - buyers will often
require additional contracts to keep key employees, customers and suppliers in place after the deal
closes
10. winner is chosen - best price and terms
, 11. shareholders vote on deal - a merger proxy is sent to them to provide them with information about
the proposed deal
12. government approval may be required
13. deal closes (ownership changes hands)
financial buyers - correct answer ✔✔investors and financial institutions that want to buy the company as
an investment
strategic buyers - correct answer ✔✔companies in the same business or related business
potential problems in selling a company - correct answer ✔✔- buyers can find problems during due
diligence and back out
- buyers financing falls through
- government or unions can try to block the sale
- customers may object
- buyers share price can fall (in a stock deal)
- buyer can get confidential information and then use it against the seller
indemnification - correct answer ✔✔- guarantee by seller to reimburse buyer if specific future problems
occur
- risk of seller bankruptcy (seller would then be unable to pay)
tax considerations of selling a business - correct answer ✔✔- taxes are based on gain on sale (sale price -
cost basis)
- old businesses often have a low cost basis --> potential tax problem
what is a Leveraged Buyout (LBO)? - correct answer ✔✔in an LBO, a business is acquired by an equity
sponsor (aka private equity firm)
- the business being acquired can be a public company, a private company, a subsidiary of a company or
a division of a company
- if it is a public company, the deal must be approved by the existing shareholders
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