M&A Deals and Merger Models Questions & Answers 100% Correct!!
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M&A Deals and Merger Models
Institution
M&A Deals And Merger Models
Why do you buy another company ? - ANSWER because you believe that you will be better off in the sense that you grow profits and cash flows to a similar level but it would take more time and more money to do this independently
When should you purchase a company ? - ANSWER when the asking price...
M&A Deals and Merger Models
Questions & Answers 100% Correct!!
Why do you buy another company ? - ANSWER because you believe that you will be better off in the
sense that you grow profits and cash flows to a similar level but it would take more time and more
money to do this independently
When should you purchase a company ? - ANSWER when the asking price <intrinsic value and the
IRR> WACC
Companies prefer to pursue deals that are _____ to EPS meaning - ANSWER accretive which is good
for shareholders
financial reasons why you may acquire another company - ANSWER economies of scale/
consolidation, geographic expansion, gain market share, seller is undervalued, acquire customers or
distribution channels, tax reductions, product expansion or diversification
Economies of scale - ANSWER biggest and second biggest companies in the market combine and get
better deals with suppliers and save money.
gain market share - ANSWER neither the buyer nor the seller is growing because the market is
competitive and the products/services are nearly the same.
if one company acquires another, it instantly captures market share
seller is undervalued - ANSWER asking price seems attractive because its share price has fallen
significantly and the buyer sees an opportunity to purchase a cheap asset
, how does purchasing a company have tax reductions? - ANSWER buyer could "invert" by acquiring a
seller in a low tax jurisdiction like Ireland and then claiming it is headquartered there
Fuzzy Reasons for M&A deals - ANSWER intellectual property/patent/key technology
defensive acquisition
acqui-hire
intellectual property/patent/key technology - ANSWER wants something the target has, can't
determine exactly how much revenue, profit, or cash flow this thing will produce
defensive acquisition - ANSWER acquirer is fearful of fast-growing competitors and acquires it to
prevent disruption of its main business.
acqui-hire - ANSWER recruiting top-notch employees is expensive. why not just shortcut the whole
process by buying an entire, smaller company and hiring everyone like that ? which explains the
rationale behind buying tech startups
sell-side process - ANSWER 1) plan the process and create the marketing materials which includes
sending the confidential information memorandum and offering memorandum.
2) contact the initial set of buyers and send the confidential information memorandum
3) set up management meetings and presentations with those buyers who have remained interested
4) solicit initial and subsequent bids from buyers: set a deadline for indications of interest
5) conduct final negotiations, arrange financing and close the deal in which buyers will conduct due
diligence and reach a definitive agreement
due diligence - ANSWER reviewing your company's financial statements, taxes, customer contracts
etc.
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