Evaluating Corporate Governance Policies and Procedures
Some benefits of effective corporate governance are: Better access to credit. Improved profitability. High returns and growth. Sustainable dividends. Good long-term share performance. Lower cost of capital. Some drawbacks to companies with ineffective corporate governance are: Reputational damage. Reduced competitiveness….
Global Variations in Ownership Structures
Mismanagement of finite resources and environmental degradation from manufacturing processes can lead to corporate events that negatively impact security prices. Therefore, companies have seen the need to integrate such factors in their investment analysis. Dispersed vs Concentrated Ownership Dispersed ownership…
Reasons for Restructuring
Sometimes mergers do not work out as expected, or the companies fail to get the synergies they had estimated, and they end up undoing the merger or restructuring. The following are some of the common reasons for restructuring: Change in…
Corporate Restructuring: Equity Carve-Outs, Spin-Offs, Split-Offs, and Liquidation
Corporate restructuring is the act of modifying a company’s capital structure or operations by selling, splitting off, or shedding operating assets. Divestiture occurs when a company decides to liquidate or spin-off a division or a subsidiary. Restructuring can take the…
Characteristics of M&A Deals that Create Value
The following are characteristics of deals that create value: The buyer is strong: Acquirers with a high average growth rate three years before the merger will earn significant positive returns on the announcement. The transaction premiums are relatively low: Acquirers…
Effects of Price and Payment Method in M&A Transactions
The form of payment and the price in a merger determine the distribution of benefits and risk. Acquiring managers will prefer to pay with cash if they are confident that estimated synergies will be realized. However, the target management will…
Estimated Post-Acquisition Value
In a merger and acquisition transaction, the acquirer will always want to get the best possible price for the target, while the target will always want to sell at a higher price. As such, the acquirer usually pays a premium…
Target Company Valuation
Discounted cash flow analysis, comparable company analysis, and comparable transactions are valuation techniques used by companies to value companies’ mergers and acquisitions. 1. Discounted Cash Flow (DCF) Analysis Discounted cash flow (DCF) analysis derives an estimated company’s estimated value by…
