Mergers and Acquisitions:

Understanding M&A
Welcome to this comprehensive presentation on Mergers and
Acquisitions (M&A). We'll explore the intricate world of corporate
consolidations, their types, strategies, and key differences. This
presentation will provide you with a clear understanding of M&A
activities and their impact on the business landscape.
Types of M&A: Mergers and Acquisitions
Merger Acquisition

Two or more companies agree to unite, giving up their A company undertakes activities to gain control over
initial legal identities to form a completely new another company.
company.
Example: In 2014, Kinder Morgan merged its entire • Friendly Acquisition: The target company agrees to
network of oil and gas subsidiaries into a unified be acquired, such as a small company looking to
corporation. grow but lacking capital.
• Hostile Acquisition: The target company opposes
the acquisition, often referred to as a hostile
takeover.
Acquisition Strategies and
Tactics
Tactics to Counter "Dawn Raid"
Hostile Takeovers
The acquirer attempts to
The target company may purchase a large number
seek another company to of the target's shares on
merge with or be acquired the open market as soon
by, known as a White as the market opens to
Knight strategy. minimize a spike in share
price.

Shareholder Decision
The target company's shareholders have the final say and
typically agree if the management recommends the
acquisition and it offers a profitable outcome.
Payment Methods in M&A

Cash Shares
The buyer pays cash directly to The buyer issues new shares to
the shareholders of the target exchange for the target
company in exchange for company's shares. This method
shares. This method provides can help minimize tax
immediate profit to the obligations for shareholders
shareholders but may be but dilutes the ownership of
subject to higher taxes the buyer's existing
compared to stock payment. shareholders. Represents a
Provides immediate profits. long-term investment.
Example: In 1985, Philip Morris spent $5.6 billion to acquire
General Foods.
Merger vs. Consolidation
Merger
One company absorbs another, and only the
acquiring company continues to exist (A + B = A).

Consolidation
Two or more companies form an entirely new entity,
with all original companies dissolving (A + B = C).
Examples of Consolidation
1 1986
Burroughs and Sperry consolidated to create Unisys.

2 2014
Kinder Morgan consolidated its oil and gas
enterprises into a single entity, Kinder Morgan Inc.,
enabling larger M&A activities.
Key Differences and
Conclusion
Consolidation Size Matters
In consolidation, the The term "consolidation" is
original companies cease to generally applied when the
exist, and their combining companies are of
shareholders become similar size, whereas
shareholders in the new "merger" is used when
company. there is a significant size
disparity.

In practice, the distinction between mergers and acquisitions can

often blur, with the terms being used interchangeably.
Why Companies Merge
and Acquire
This presentation explores the various reasons companies engage
in mergers and acquisitions (M&A). We'll delve into the strategic
rationales, operational drivers, and key concepts that guide these
important business decisions. Understanding these motivations is
crucial for mastering the dynamics of M&A in today's complex
business landscape.
Key Concepts in M&A
Rationales Drivers

High-level strategic reasoning guiding the decision Mid-level operational factors supporting the decision
(e.g., implementing strategy, market entry). (e.g., capacity control, resource access).

Companies merge or acquire others for various strategic and operational reasons.
M&A Example and
Significance
Example Rationale
Company A acquires Achieving strategic
Company B to address over- objectives through
capacity in their shared acquisition.
sector.

Driver
Gaining control over industry capacity.

Significance: Understanding these motivations is essential for

mastering M&A dynamics.
Strategic Rationale for
M&A
Purpose
Achieving strategic objectives like market entry, capacity
control, or defense against competitors.
Examples of Strategic Rationale

Market Entry
Acquiring a company in a new market to gain expertise.

Defensive Mergers
Maintaining competitiveness amidst industry consolidation (e.g., UK banks,
global oil producers).

Internal R&D
Development as an alternative to acquisitions (e.g., Sony's investment in gaming).
Speculative Rationale for
M&A
Purpose
Viewing the target company as a high-risk investment or
commodity.

Approaches
Buying, developing, and reselling companies for profit.

Splitting and selling acquired company parts for higher returns.

Risks
Market changes, loss of key personnel, and potential
devaluation of assets.
Management Failure
Rationale
1 Purpose
Correcting strategic misalignments caused by
errors or changing conditions.

2 Example
Merging with or acquiring companies to realign
with new strategic goals.
Financial Necessity Rationale

1 Financial Stability

2 Merging with Successful Companies

3 Acquiring Smaller, Profitable Firms

Purpose: Addressing financial instability or shareholder concerns by merging with successful companies or
acquiring smaller, profitable firms.
Political Rationale for M&A

Purpose Examples
Responding to UK public sector mergers
government policies (e.g., health trusts,
encouraging or mandating universities).
mergers.
Australian banks pursuing
international acquisitions
due to domestic
restrictions.
Key Drivers of Mergers
and Acquisitions
In this presentation, we will explore the various factors that drive
mergers and acquisitions (M&A) in the business world. These
drivers play a crucial role in shaping corporate strategies and
influencing the global economic landscape. We'll examine ten key
factors, ranging from the need for specialized skills to the impact
of globalization, providing insights into why companies choose to
merge or acquire others.
Requirement for Specialist
Skills or Resources
Explanation Example
Companies merge or A tech company acquiring
acquire to gain specific a startup with cutting-
skills or resources that edge AI technology to
would take significant enhance its product
time and investment to offerings.
develop internally.
Influence of National and International Stock
Markets
Explanation Example

Fluctuations in stock prices drive M&A activities. A corporation leveraging high stock prices to acquire a
competitor during a stock market rally.
• Booming Markets: Companies prefer share-based
acquisitions due to increased share values.
• Falling Markets: Targets become cheaper, making
cash purchases attractive.
Globalisation as a Driver

Explanation Example
The ease of communication and UK high street banks acquired
reduced geographical barriers by major Australian banks due
encourage mergers across to global market integration.
countries.
Diversification
Explanation
Companies diversify into new sectors to balance
risks, although recent trends show skepticism about
its effectiveness.

Example
A food company acquiring a beverage firm to expand
its product portfolio.
Industry and Sector
Pressures
Explanation Example
Intense competition or Oil industry consolidations
trends in specific industries such as BP-Amoco (1998)
encourage mergers to and ExxonMobil 1999).
remain competitive.
Capacity Reduction
1 Explanation
M&A activities help control total sector output,
ensuring profitability by addressing overproduction
issues.

2 Example
A steel manufacturer acquiring a competitor to
control production volume and stabilize prices.
Vertical Integration

1 Vertical Integration

2 Secure Supply Chain

3 Reduce Risks

Explanation: Companies merge with suppliers or distributors to secure the supply chain and reduce risks.

Example: A car manufacturer acquiring a tire supplier to ensure uninterrupted production.

Increasing Management Effectiveness and
Efficiency

1 Identify Gaps

2 Acquire Expertise

3 Improve Efficiency

Explanation: M&A can fill gaps in management expertise, especially in growth areas or strategic objectives.

Example: A retail firm acquiring a company with strong e-commerce capabilities to expand online operations.
Acquiring New Markets and Entering Growth
Sectors
Acquiring New Markets or Customer Bases Entering Growth Sectors or Markets

Explanation: M&A provides quick access to new and Explanation: M&A is often a strategic route into
established markets. promising sectors or markets.

Example: The merger of two banks, one with a Example: A traditional energy company acquiring a
corporate focus and the other with a domestic renewable energy firm to position itself in the growing
customer focus, to expand their reach. green energy sector.
M&A Trends in the Early
21st Century: A Detailed
Analysis
This presentation offers a comprehensive examination of Mergers
and Acquisitions (M&A) trends during the early 21st century. We'll
explore the boom period of 2003-2007, the impact of the 2008
financial crisis, and the subsequent recovery phase from 2010 to
2016. Our analysis will provide insights into the factors
influencing the M&A market across different regions, including
the United States, Europe, and Asia.
1.3.1. Boom Period (2003–2007)
1 Remarkable Growth
Following the early 2000s recession, the global M&A market experienced a strong recovery and unprecedented growth starting in 200

2 Peak in 2007
The value and volume of M&A transactions steadily increased, peaking in 2007 before the global financial crisis.

3 Supporting Data
Figure 1.1 highlights this growth trend, with M&A values in the US and Europe surging during 2003–2007.
Driving Factors of the
Boom Period
Favorable Economic Low Interest Rates
Context
Loose monetary policies in
A robust global economic many countries led to
recovery created ideal lower borrowing costs,
conditions for businesses enabling large-scale M&A
to expand through M&A. deals.

Market Confidence
Rising investor confidence boosted capital flows into the
M&A market.

Top 10 Global M&A Deals: Table 1.1 lists the top 10 largest global
M&A deals during this period, reflecting a vibrant market.
1.3.2. Impact of the
Financial Crisis (2008–
2009)
Sharp Decline Illustration in Figure 1.1
The 2008 global financial
crisis severely impacted the The figure shows a marked
M&A market, causing decline, especially in 2009,
significant drops in with M&A values in the US
transaction values and and Europe hitting multi-
volumes. year lows.

Double Impact in Europe

Europe faced greater challenges due to the sovereign debt
crisis, slowing M&A recovery compared to the US.
Main Causes of M&A Market
Decline
Credit Crisis
The financial crisis triggered a credit crunch, restricting
bank lending and complicating financing for M&A
transactions.

Economic Recession
The global recession prompted businesses to delay or
cancel M&A plans amid bleak economic prospects.

Investor Confidence Decline

Investor confidence plummeted, leading to capital
withdrawals from the M&A market.
1.3.3. Recovery Period (2010–2016)
Slow and Uneven Recovery United States

The global M&A market began recovering in 2010 but Strong Recovery: The US M&A market rebounded
at a slow pace and with regional disparities. more robustly than Europe, reaching new highs in
2015.
Supportive Factors: This recovery was driven by
rapid US economic recovery and the Federal Reserve's
loose monetary policies.
Regional M&A Recovery Trends

Europe Asian Market

Slower Recovery: Europe's M&A Similar Trends: M&A trends in
market recovered sluggishly due to the Australia, China, Japan, South Korea,
sovereign debt crisis and political Taiwan, and India mirrored those in the
instability. US and Europe, with strong pre-crisis
Below Pre-Crisis Levels: In 2015,
growth, declines during the crisis, and
European M&A values remained
subsequent recovery.
significantly lower than the 2007 peak. China's Potential: While promising,
China's M&A market faced regulatory
challenges.
Top M&A Deals by Region
Top 10 European M&A Deals Top 10 Asian M&A Deals

Table 1.2 highlights the top 10 largest M&A deals in Europe, showcasing the Table 1.3 lists the top 10 largest M&A deals in Asia, reflecting the dynamism of the
market's recovery after the crisis. M&A market in this region.
M&A Trends: Conclusion
Sensitivity to Influence of Multiple
Economic Factors
Fluctuations
Economic growth, interest
M&A trends in the early rates, investor confidence,
21st century reveal the government policies,
market's high sensitivity regulations, and
to macroeconomic geopolitical factors
changes. significantly impact M&A
activities.

Need for Close Monitoring

Understanding these trends is essential for business
managers, investors, and M&A professionals to make
strategic decisions, seize opportunities, and mitigate risks in
the M&A market.
Types of Mergers:
Understanding Corporate
Consolidation
In the world of business, mergers play a crucial role in shaping
corporate landscapes and driving growth. This presentation
explores the various types of mergers, their definitions, and real-
world examples to provide a comprehensive understanding of
corporate consolidation strategies.
Horizontal Merger
Definition Examples
Two companies operating Exxon and Mobil merged
in the same industry and in 1998 to create the giant
offering similar oil and gas corporation
products/services merge ExxonMobil.
to increase market share,
Pfizer and Wyeth, two
expand scale, and
pesticide manufacturers,
leverage economies of
merged in 2009.
scale.
Vertical Merger
Definition Example

One company acquires another in its supply chain, Luxottica, the Italian eyewear company, expanded
such as a supplier, distributor, or producer of raw significantly in the U.S. by acquiring companies within
materials. The goal is to control supply sources, the eyewear supply chain, from lens producers to
distribution channels, and optimize operational retail chains.
efficiency.
Conglomerate Merger

1 Definition

2 Diversify Investment Portfolios

3 Reduce Business Risk

4 Gain Competitive Advantages

5 Leverage Synergies Across Sectors

Two companies from different industries merge to diversify their investment portfolios, reduce business risk, and
gain competitive advantages by leveraging synergies across various sectors.
Examples of Conglomerate
Mergers

Philip Morris and General Foods General Electric (GE)

General Electric (GE) engaged in
Philip Morris acquired General several conglomerate mergers,
Foods for $5.6 billion in 1985. General creating a diverse portfolio from
Foods was a food and beverage electrical equipment manufacturing to
company, while Philip Morris was financial services.
primarily in the tobacco business.
Co-generic Mergers
Definition Example: Disney and
Pixar
A co-generic merger is a
type of merger in which two Disney's acquisition of Pixar
or more companies are brought together two
associated in some way, companies in the
either through their entertainment industry that
production processes, shared animation
business markets, or basic technologies and creative
required technologies. storytelling.
Merger Professionals: Key
Players in the M&A
Process
In the complex world of mergers and acquisitions, a diverse team
of professionals plays crucial roles in ensuring successful
outcomes. This presentation will explore the key experts involved
in the merger process, their specialized skills, and how they
contribute to navigating the intricate landscape of corporate
consolidation.
The Role of Investment
Bankers

Merger Strategies Company Valuation

Advise on strategic approaches to Provide expertise in determining
mergers company worth

Finding Investors Negotiations

Assist in locating potential investors Support in deal negotiations and closing

Investment Bankers: Advise both the buyer and the seller on merger
strategies, company valuation, finding potential investors, and assist in
negotiations and closing the deal.
Legal Advisors in Mergers
Draft Legal Documents
Create and review all necessary legal paperwork for the transaction

Ensure Compliance
Verify adherence to all relevant legal regulations

Resolve Legal Issues

Address and solve any legal challenges that arise during the
merger process

Legal Advisors: Draft the legal documents related to the transaction,

ensure compliance with legal regulations, and help resolve legal issues
that arise during the merger process.
The Crucial Role of
Accountants
Financial Due Asset and Liability
Diligence Valuation
Conduct thorough financial Determine the fair value of
due diligence on the target assets and liabilities
company

Merger Financial Statements

Assist in preparing the merger financial statements

Accountants: Conduct financial due diligence on the target

company, determine the fair value of assets and liabilities, and
assist in preparing the merger financial statements.
Additional Merger Specialists
1 Valuation Experts
Provide specialized knowledge in determining company and
asset values

2 Tax Consultants
Offer guidance on tax implications and strategies related to the merger

3 Management Consultants
Advise on organizational structure and integration strategies
post-merger

In addition to these core professionals, other specialists such as valuation

experts, tax consultants, and management consultants may also be involved,
depending on the specific needs of the transaction.
Merger Arbitrage: An
Investment Strategy
Merger arbitrage is a sophisticated investment strategy that
capitalizes on price differentials during corporate mergers and
acquisitions. This presentation will explore the mechanics,
potential benefits, and risks associated with this approach.
The Merger Arbitrage
Process
Step 1: Identify Opportunity
Arbitrageurs buy the target company's shares at a lower
market price than the offer price.

Step 2: Await Merger Completion

After the merger is completed, they sell the shares to the
buyer at the higher offer price, profiting from the price
difference.

Step 3: Profit or Risk

However, this strategy carries risks, as the merger deal
may fail, causing the target company's share price to
drop.
Understanding Leveraged
Buyouts (LBOs) and
Private Equity
1.7. Leveraged Buyout (LBO) Transactions An LBO is a type of
acquisition where the buyer uses financial leverage (debt) to fund
most of the transaction value. The buyer typically borrows money
from banks or investment funds to finance the acquisition.
Goals and Examples of
LBOs
Generate High Restructure and
Returns Improve
To generate high returns To restructure the target
from the investment by company to improve
using financial leverage to operational efficiency and
amplify profits. increase its value.

Example: One of the largest LBO transactions in history was

Kohlberg Kravis Roberts & Co. (KKR) acquiring RJR Nabisco for
$25.5 billion in 1989.
Private Equity Market Overview
Private Equity Market Definition LBOs in Private Equity

The private equity market is where private equity Private equity firms often use LBOs to acquire target
firms raise capital from institutional and wealthy companies.
individual investors to invest in privately held
companies.
Role of Private Equity Firms in LBOs

Provide Capital Manage and Restructure Exit Investment

Provide capital to the buyer to Participate in managing and Exit the investment after a certain
execute the transaction. restructuring the target company. period to realize profits.

LBO Trend: The value of LBO transactions globally saw a strong recovery from 2013 to 2017.
Corporate Restructuring:
Improving Efficiency and
Profitability
1.8. Corporate Restructuring

Corporate restructuring is the process of changing the

organizational structure and operations of a company to improve
efficiency and profitability.
Key Activities in Corporate
Restructuring
Divestitures Spin-offs
Selling off non-core or Splitting a business unit
underperforming business into a separate
units. independent company.

Mergers and Acquisitions (M&A)

Merging with or acquiring other companies to expand scale,
increase market share, or diversify the investment portfolio.
Goals of Corporate
Restructuring

Improve operational efficiency

Strengthen competitive capability

Create value for shareholders

1.9. Types of acquisitions
Friendly Acquisition Features
Collaborative Process Respect for Target Company
Collaborative process with mutual agreement The acquiring company respects the target
between both companies. company's management and strategies.
Friendly Acquisition Example: Google and YouTube
Recognized Synergies
1
Enhanced video content and advertising strategies

Board Approval
2
Both companies' boards approved the acquisition

No Resistance
3
Employees embraced the partnership

Example:

Google and YouTube (2006)

• Why it's Friendly:

o Both companies recognized synergies: Google saw YouTube as a way to enhance its video content and advertising strategies, while YouTube gained resources fo

o The boards of directors for both companies approved the acquisition.

o There was no resistance or conflict, and employees embraced the partnership.

Friendly Acquisition
Example: Disney and Pixar
1 Disney and Pixar Merger (2006)
Disney and Pixar agreed to a friendly acquisition deal in 2006.

2 Pixar's Motivation
Pixar agreed to the deal as it allowed the continuation of
its creative independence while benefiting from Disney's
financial and marketing power.

3 Mutual Benefits
The acquisition combined Pixar's creative prowess with
Disney's extensive resources and distribution network.
Reverse Acquisition
Features
Private Company Avoids IPO Process
Takes Over Public
It avoids the lengthy and
Company
costly IPO process.
A private company takes
over a public company to
gain public status.
Reverse Acquisition Example:
Burger King and Justice Holdings
Burger King and Justice Holdings (2012)
This case exemplifies a reverse acquisition strategy.

Why it's Reverse:

• Burger King, a private company, wanted to return to being
publicly traded but bypassed the IPO process.
• Justice Holdings, a publicly listed investment vehicle, acquired
Burger King and enabled it to relist on the stock exchange.
• This gave Burger King faster access to public capital markets.

Strategic Outcome
Burger King successfully returned to public trading status through
this reverse acquisition, avoiding the lengthy IPO process.
Reverse Acquisition Example: Miller Energy
Resources

1 Gain Public Status

2 Raise Capital

3 Acquire Distressed Firm

Other Example:

• Miller Energy Resources (2009):

o A private oil company acquired a distressed public firm to quickly gain public status and raise capital for operations.
Backflip Acquisition

The acquiring company Typically done when the

becomes a subsidiary or adopts acquired company has stronger
the name/branding of the market recognition or brand
acquired company. equity.

Key Features:
• The acquiring company becomes a subsidiary or adopts the
name/branding of the acquired company.
• Typically done when the acquired company has stronger
market recognition or brand equity.
Backflip Acquisition Example: NationsBank and Bank of America
NationsBank Acquires Bank of America (1998)
NationsBank acquired Bank of America but chose to operate under the "Bank of America" name due to its established reputation.

Branding Strategy
While NationsBank was the buyer, it became a "subsidiary" in terms of branding and public perception.

Strategic Benefits
This allowed the newly merged entity to gain credibility and expand nationwide.
Backflip Acquisition Example: Fiat and
Chrysler

1 Fiat acquires Chrysler

2 Chrysler leads U.S. operations

3 Chrysler name retained

Other Example:

• Fiat and Chrysler (2009):

o Fiat acquired Chrysler but allowed it to lead operations in the U.S. under the Chrysler name due to its
established market presence.
Hostile Acquisition Features
Bypassing Management Resistance

The acquiring company bypasses management and directly approaches Resistance from the target company's management and employees is common.
shareholders or uses aggressive tactics.
Hostile Acquisition
Example: Kraft Foods and
Cadbury
1 Kraft Foods and Cadbury (2010)
Example of a hostile acquisition in the food industry.

2 Why it's Hostile:

• Cadbury's board rejected Kraft's initial offers,
arguing the company was undervalued.
• Kraft circumvented management by appealing
directly to shareholders and sweetening the offer.
• Despite protests from Cadbury's leadership, Kraft
eventually acquired the company for £11.5 billion.
Hostile Acquisition Example: Oracle and PeopleSoft
Aggressive Takeover
1
Oracle launched tender offer to shareholders

Persistent Pursuit
2
Oracle persisted through lawsuits and regulatory hurdles

Forced Agreement
3
PeopleSoft eventually agreed to $10.3 billion acquisition

Other Example:

• Oracle and PeopleSoft (2003-2005):

o Oracle launched an aggressive takeover attempt by issuing a tender offer directly to shareholders after PeopleSoft's management
repeatedly opposed the deal.

o Oracle persisted through lawsuits and regulatory hurdles, eventually forcing PeopleSoft to agree to a $10.3 billion acquisition.