Mergers & Acquisitions: Understanding M&A Processes for Large- and Medium-Sized Companies (Management for Professionals)

Mergers & acquisitions are an essential instrument of strategic corporate management for companies of all sizes. The success of an M&A project highly depends on an optimal transaction preparation, fast execution and the experience of all parties involved. Due to numerous endogenous and exogenous influences, no two M&A transactions are alike at the detailed level. This book is designed as a practical M&A guide for students and professionals alike. In addition to dealing with important basics of mergers & acquisitions, the focus is on a structured and in-depth examination of the individual process steps of a typical company sale. At various points in this book, specific differences between a company sale of medium-sized companies (mid-caps) and large companies (large-caps) are discussed in detail. Preface References Contents Abbreviations List of Figures List of Tables 1: The Foundation of the Consideration 1.1 The Term ``Mergers and Acquisitions ́ ́ 1.2 The Market for Mergers and Acquisitions 1.2.1 The Phenomenon of US Merger Waves 1.2.2 Current Developments in the M&A Market 1.3 Strategy Development in the Context of M&A Projects 1.3.1 Motives for M&A Transactions 1.3.2 Takeover Techniques 1.3.2.1 Friendly Takeover 1.3.2.2 Hostile Takeover 1.3.3 Goals in an M&A Process 1.3.4 Types of Company Acquisition 1.3.4.1 Share Deal 1.3.4.2 Asset Deal 1.3.5 Common Success and Failure Factors of M&As 1.3.5.1 Success Factors of Corporate Transactions 1.3.5.2 Failure Factors of Corporate Transactions References 2: David and Goliath: Mid-cap and Large-cap Companies 2.1 Medium-sized Companies (Mid-caps) 2.2 Large Companies (Large-caps) References 3: M&A Sales Process 3.1 Phase I: Preparation Phase 3.1.1 From the Sales Idea to the Starting Signal 3.1.1.1 Important Questions Prior to the Starting Signal Question Question Question Question 3.1.1.2 Common Sales Concerns 3.1.1.3 Vendor Due Diligence 3.1.1.4 Universe of Advisors Investment Banks and M&A Boutiques Auditors and Tax Advisors Legal Advisors Other Advisors Differences in the Choice of Advisors for Medium-Sized Companies and Large Enterprises 3.1.1.5 Checklist: The 10 most Important Basic Rules of a Proper Sales Strategy Important 3.1.2 The Starting Signal: Beauty Contest 3.1.2.1 Pitch Book 3.1.2.2 Differences in a Beauty Contest for Medium-sized Companies and Large Companies 3.1.2.3 Checklist: Beauty Contest Important 3.1.3 Mandate Agreement 3.1.3.1 Typical Contents of a Mandate Agreement 3.1.3.2 Checklist: Mandate Agreement Important 3.1.4 Selection of a Suitable M&A Procedure 3.1.4.1 Exclusive Procedure 3.1.4.2 Parallel Procedure 3.1.4.3 Auction Controlled Competitive Auction Full Public Auction 3.1.4.4 Differences in Process Selection for Medium-sized Companies and Large Enterprises 3.1.4.5 Checklist: Process Selection Important 3.1.5 Comprehensive Data Collection and Company Analysis 3.1.5.1 Obtaining Comprehensive Data 3.1.5.2 Company Analysis 3.1.5.3 Differences in Data Acquisition and Business Analysis for Medium-sized Companies and Large Companies 3.1.5.4 Checklists: Data Procurement, Company Analysis Important Important 3.1.6 Buyer Universe and Identification of Suitable Buyers 3.1.6.1 Buyer Universe Management Team Management Buy-out Management Buy-in Typical Criteria for MBOs and MBIs Financial Investors Strategic Investors 3.1.6.2 Identification of Suitable Buyers From Long List to Short List Differences in the Identification of Suitable Buyers for Medium-sized Companies and Large Corporations 3.1.6.3 Checklists: Filter Criteria for a Long List and for a Short List Important Important 3.1.7 Documentation 3.1.7.1 Information Memorandum 3.1.7.2 Short Profile 3.1.7.3 Confidentiality Agreement 3.1.7.4 Differences in the Documentation for Medium-sized Companies and Large Companies 3.1.7.5 Checklists: Information Memorandum, Anonymous Short Profile, and Confidentiality Agreement Important Important 3.2 Phase II: Market Approach: Point of No Return 3.2.1 Addressing Potential Buyers 3.2.2 Letter of Intent 3.2.3 Selection of Preferred Potential Buyers 3.2.4 Checklist: Letter of Intent Important 3.3 Phase III: Examination of Financial Aspects 3.3.1 Due Diligence 3.3.1.1 Motives for a Due Diligence 3.3.1.2 Key Functions of a Due Diligence Reduction of Information Asymmetries Identification and Review of Synergy Potentials Link between Strategic Planning and Post-merger Integration (PMI) 3.3.1.3 Parties Involved in a Due Diligence Process 3.3.1.4 Sources of Information Regarding a Due Diligence Internal Sources of Information Management Presentation Data Room Expert Interviews Site Visits External Sources of Information 3.3.1.5 Elements of a Due Diligence Strategic Due Diligence Assessment of the Forecasts of the Target Company Preparation of a Business Plan What Happens to the Business Plan? Assessment of the Business Plan Financial Due Diligence Examination of the Internal Control System Audit of Corporate Reports Legal Due Diligence The Legal Basis Legal Risks Internal Legal Relationships External Legal Relationships Tax Due Diligence 3.3.1.6 Differences in a Due Diligence for Mid-cap and Large-cap Companies 3.3.1.7 Checklist: Due Diligence Important 3.3.2 Company Valuation 3.3.2.1 Discounted Cash Flow Method WACC Approach (or Entity Approach) Adjusted Present Value Approach Equity Approach Strengths and Weaknesses of Discounted Cash Flow Methods 3.3.2.2 Multiples Methods Equity Value and Enterprise Value Multiples Trading Multiples and Transaction Multiples Trading Multiples Method Transaction Multiples Method Strengths and Weaknesses of Multiples Methods 3.3.2.3 Differentiation between Value and Price 3.3.2.4 Output of a Company Valuation 3.3.2.5 Differences in Business Valuation for Medium-sized Companies and Large Companies 3.3.2.6 Checklists: Company Valuation, Discounted Cash Flow Method and Multiples Method Important Important Important 3.3.3 Structuring of the Transaction 3.3.3.1 Overriding Features of Transaction Structuring 3.3.3.2 Checklist: Ten Guiding Principles for Successful Transaction Structuring Important 3.3.3.3 Acquisition Financing Challenges in Acquisition Financing Goals of Capital Providers Equity Investors Debt Capital Providers General Conditions for Acquisition Financing in Corporate Buyouts Sources of Financing for the Purchase Price Transaction Volume Direct and Indirect Acquisition Share Deal Versus Asset Deal Assessment Basis for Acquisition Financing: Debt Service Capability Requirements for an Optimal Acquisition Structure Choice of Suitable Financing Instruments Financing Instruments in the Context of Corporate Buy-outs Internal Financing Instruments Open and Silent Self-financingOpen and Silent Self-financing Asset ReallocationsAsset Reallocations External Financing Instruments Debt Financing InstrumentsDebt Financing Instruments Senior Term LoansSenior Term Loans Working Capital LoanWorking Capital Loan Hybrid Financing Instruments (Mezzanine)Hybrid Financing Instruments (Mezzanine) Shareholder LoanShareholder Loan Vendor LoanVendor Loan Earn-out FinancingEarn-out Financing High Yield BondsHigh Yield Bonds Procedure of Acquisition Financing Differences in Acquisition Financing for Medium-sized and Large Target Companies in Corporate Buyouts Checklists: Overview of Acquisition Financing, General Conditions of Acquisition Financing, Financing Instruments, and Process... Important Important Important Important 3.4 Phase IV: Closing Phase 3.4.1 Contract Negotiations 3.4.2 Binding Offer 3.4.3 Purchase Agreement 3.4.4 Closing 3.4.5 Differences in the Closing Phase of a Sales Transaction for Medium-sized Companies and Large Companies 3.4.6 Checklists: Contract Negotiations, Signing, and Closing Important Important References Appendix Appendix 1: Calculation of Operating Free Cash Flow for Detailed Planning Period (Ernst et al., 2010, p. 32) Appendix 2: Calculation of Weighted Average Cost of Capital (WACC) (Ernst et al., 2010, p. 45) Appendix 3: Calculation of Net Financial Liabilities (Net Debt) (Ernst et al., 2010, p. 25) Appendix 4: Calculation of Cash Flow to Equity for Detailed Planning Period (Ernst et al., 2010, p. 36) Reference Glossary