M&A 101 Presented by Amy Wu June 3, 2014
Get ready to Test your M&A savvy Ready? Set, Go! YES or NO?
A merger is the same thing as an acquisition
QUESTION #1
Ready? Set, Go! YES or NO? QUESTION #2
Mergers and acquisitions only involve publically traded companies
It’s big news
• Pfizer lures AstraZeneca • Facebook Buys WhatApp $19 billion • Google snags Best Labs $3.2 billion • Global M&A transactions in 2013 was valued at
$2.91 trillion • 2014 number of deals up from 2013
• Source: Dealogic
BIG DEAL AND LITTLE DEALS
• Major deals - $1 billion and upwards
• Middle market - $100 million -$500 million
• Small-cap deals – up to $50 million
What’s the difference between a merger and acquisition?
QUICK CHAT: IS IT A MERGER OR ACQUISITION?
• Apple wants to buy Skullcandy and is using a portion of their stock in the purchase
• Merger or acquisition?
• Acquisition. When stock is used as part of the currency, that's usually a good sign that company is the acquirer and it is not a merger.
DNA OF AN M&A STORY
THE BASICS • Is it a merger or acquisition? • How much is the merger or acquisition • Names of both companies and CEOs • Head quarters of both companies • How is the deal valued; stock vs. cash transactions •
ACQUIRING THE INGREDIENTS
• Press conference
• Conference call
• Company websites: official press releases
• Investor relations: provides investors with an accurate account of the company's affairs
• SEC’s (U.S. Securities and Exchange Commission) Edgar database
BEYOND THE BASICS
• Why is this deal significant? (the company, the price)
• Why is the timing important? Why now?
• How long have talks been going on for?
• What is the company’s strategy?
BEYOND THE BASICS II
• Research analysts at investment banks • Research firms e.g. Forrester
Research, Nielsen Group, Dealogic LLC
• The company (CEO, CFO, in-house lawyers)
• Universities and business schools
•
GO DEEPER
• How is the deal valued; stock vs. cash transactions
• Who (founder and/or employees) is receiving the stock units, and how much?
• Stock vs. cash transactions and what that suggests
• Price of shares before, during and after the deal, what this means
AND EVEN DEEPER: HOW MERGERS AND ACQUISITIONS AFFECT STOCK PRICES
• Stock prices Can Change Even After A Merger Is Announced
• Acquiring company's stock will fall
• Target company’s stock will rise
• Uncertainty can lower prices
WHY ARE PRICES AFFECTED?
• Target company's stock usually goes up
• Acquiring company (typically) needs to pay a premium for the acquisition
• Acquiring company's stock usually goes down
• Acquiring company must pay more than the target company currently is
worth to help the deal go through
• Uncertainty and additional challenges
HOW TO GO DEEPER • Investment banks who led the
deal
• Law firms who led the deal
• What banks and law firms advised both companies? What were the previous relationships with the companies?
AND EVEN DEEPER
• Who is the winner and who is the loser, and why?
• Which executives will remain in charge and who's packing? Same with directors
• Where will company be based? • How is the consumer impacted? • How does this deal compare with the
companies’ previous deals? • How does it compare with deals in the
same sector?
THE M&A PUZZLE GAME
• A) Facebook, based in Menlo Park, Calif., will pay $4 billion in cash and $12 billion worth of shares for WhatsApp.
• C) On Wednesday Facebook announced it would pay at least $16 billion for WhatsApp, a text messaging application.
• B) The price shows that Facebook’s co-founder and chief executive, Mark Zuckerberg, will go to
protect his company’s turf as the dominant social network on the web.
• Put them in order of priority based on the letters of the puzzle
THE ANSWERS
• C
• A
• B
Ready? Set, Go! YES or NO? QUESTION #3 • Apple buys Skullcandy and Skullcandy’s stock rises after the
announcement and the stocks of Apple’s fall.
• Who is the acquirer?
• Apple
Ready? Set, Go! YES or NO? QUESTION #4
Mergers and acquisitions occur on the national, regional and local level
It is not just global, it’s local
ANATOMY OF AN M&A STORY
KEY TERMS
• Hostile takeover
• Bear hug
• Tender offer
• Private equity firm
• Poison pill
QUICK CHAT: THE SIX TERMS GAME READY, SET GO! WHAT KIND OF DEAL IS IT? • In 2009, U.S. food company Kraft Foods bids
£10.5bn for Cadbury
• Cadbury's chairman Roger Carr said the offer was an attempt to "buy Cadbury on the cheap"
• Kraft ups the bid to £11.5bn, and says there will be no compulsory redundancies in manufacturing for two years
• In 2010 the bid is accepted
• After the deal is sealed in 2010 Kraft closes one of Cadbury’s factories and cuts 400 jobs
HOSTILE TAKEOVER
IN SUMMARY
• No deal is equal
• Mergers and acquisitions are not the same
• The five essentials of a deal story
• The various levels of a deal story
• Critical sources and where to find them
• Deal lingo
M&A IS A TREASURE CHEST OF STORIES
Thank you [email protected] LinkedIn: hk.linkedin.com/pub/amy-wu/3/746/962/ Facebook: https://www.facebook.com/amyhwu