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…
Takeovers
The premium over the market price offered by the acquirer for the target’s shares is the key driving factor used by the target to determine if it will support or resist the takeover. After deciding to resist, the target company…
Transaction Characteristics
The form of acquisition, payment method, and mindset of target management plays a major role in determining how transactions will be valued, how the transactions will occur, how the transaction will be taxed, and which regulatory rule may apply. Form…
Mergers and Industry Life Cycle
As an industry proceeds through its life cycle, the type of merger and the motivation behind the merger will vary. $$\small{\begin{array}{l|l|l|l} \textbf{Industry Life Cycle Stage} & \textbf{Industry Characteristics} & \textbf{Merger Motivations} & \textbf{Types of Mergers}\\ \hline\textbf{Pioneer/development} & {\text{Slowly increasing sales}\\…
Bootstrapping Earnings
Bootstrapping earnings (or bootstrap effect) occurs when a company’s earnings increase because of the merger transaction instead of the resulting economic benefit of the merger. Example: Bootstrapping Earnings Axon Ltd. has identified an opportunity to merge with Symbian systems to…
Motivations behind Mergers
Synergy Synergy is the concept that the combined performance and value of two companies will be greater than the sum of the separate parts. Synergies created through mergers will either increase revenues or reduce costs through economies of scale in…
