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P4-[C] Acquisition and mergers - Coggle Diagram
P4-[C] Acquisition and mergers
I. Acquisition and mergers versus other growth strategies
2. Acquisition targets
Types of synergy
Sales synergy (share sales outlets, etc)
Cost synergy (share R&D, etc)
Financial synergy (lower risk, lower tax bill, etc)
Working relationship
Culture, strategy
Due diligence (legal/financial, commercial)
1. Growth strategies
Advantages and disadvantages of acquisitions vs internal development
Advantages: speed, synergies, acquisition of intangible assets
Disadvantages: acquisition premium, lack of control, integration problems
Advantages and disadvantages of acquisitions vs joint ventures
Advantages: reliability, autonomy (quyen tu quyet)
Disadvantages: cost and risk, access to overseas markets
3. Reasons for failure of acquisitions
Clash (xung dot) of cultures
Uncertainty among staff
Customer uncertainty - fear of problems leads to a fall in sales
Assets or staff prove to be lower quality than expected
Paying too high a price for the target - empire building
Risk can be managed by a clear integration strategy and by due diligence
4. Reverse takeovers
(a private company buys a public company)
Advantages and disadvantages of reverse takeover vs an IPO
A smaller quoted company (S Co) takes over a larger unquoted company (L Co) by a share for share exchange
A reverse takeover is a route to a stock market listing
Reverse takeover has a number of advantages compared to an IPO:
.Speed - can be completed in a few months
.Cost - have significantly lower issue costs
.Availability - >< difficult to attract investors to an IPO
6. Defence against a takeover
Pre-bid defences
Poison pills: Potential targets use this tactic in order to make them look less attractive to the potential acquirer
Golden parachutes: these are significant payments made to board members when they leave. In many counties, these schemes are illegal/non-compliant with local codes (eg the City Code in the UK)
Post-bid defences
White knights: this would involve inviting a firm that would rescue (giai cuu) the target from the unwanted bidder - as a friendly counter-bidder
Crown jewels: selling valuable assets is making the firm less attractive as a target
Litigation or regulatory defence: inviting an investigation by the regulatory authorities or through the courts
5. Regulation of takeovers
UK regulation - the City Code
EU Takeovers Directive
II. Valuation for acquisitions and mergers
2. Approaches to business valuation
Market-based models (market data)
Cash-based models (discounted value of future cash flows)
Asset-based models
1. The overvaluation problem
Behavioural finance and overvaluation
Agency issues and overvaluation
4. Market-based models
P/E method:
Earnings of target x P/E ratio
Post-acquisition P/E valuation
Earning of group x P/E ratio
5. Cash-based models
Dividend basis
Free cash flows and free cash flows to equity
Post-acquisition cash flow valuation
Adjusted present value
5. Valuing start-ups
Market multiples
Discounted cash flow approach
Replacement value of assets
Black-Scholes option pricing model (BSOP)
and company valuation
3. Asset-based models
Net asset value (NAV)
Ignores futures profits
Ignores value of intangibles
Book value 'plus'
Multiple of profit, or
Valuation off intangibles - Calculated intangible value (CIV)
III. Financing acquisitions and mergers
2. Paper offer/mixed offer
1. Cash offer
3. Evaluating an offer
4. Impact on acquirer
Impact on earnings
Impact on statement of financial position