Matching Pairs M and V 3Online version mergers and valuations by alex kellett 1 Merger Cycle 2 signature event 2 Event studies 3 Merger phase 1 4 3rd wave: Subprime aka 5 Epstein 6 Merger cycle 3 signature event 7 MergVal 8 Qualitatives 9 Revenue synergies 10 Merger cycle 1 signature event 11 Merger cycle 3 12 Merger cycle 4 13 Merger cycle 4 signature event 14 Merger Monday 15 Gearing ratio 16 A 25% phase 4 APP 17 Merger Cycle 2 18 Merger Cycle 1 19 Merger Phase 3 20 Merger success: selling company 21 White Knight 22 Merger Success: Dealmakers, bankers, advisers etc. 23 Merger phase 2 24 Merger Phase 4 25 Merger success from the perspective of continuing major shareholders 26 Why TAPP Sellers seek to maximise the pv of cash equivalent returns over the period at which the board deems the company eligible to entertain offers (eg 6 months). (AMS: bidders + rounds) evaluated on a cash flow effect basis only (as with all syn). Facebook and LinkedIn IPOs typically allows subsidiary company to run their own operations (preserves subsidiary structure). They agree to limit their role to providing financing and developmental support as needed. (15% conglom discount) narrow self-interest. close as many deals as possible (deal flow and financial volume). No fee unless deals close; only min legal and no financial liability for value-destructive merger advice. Netscape and Worldnet IPOs economy still perceived as in recession by many. A few 1-2 year cash paybook deals. APP 10-18% qualitative. Only one subject: Chase/Bank one RJR Nabisco Acquisition 1982-90: LBO 5 year min ownership position. reflects primacy of the party putting up risk capital: RMT: a) returns vs cost of capital. b) The deficit (APP) vs the pv of conservatively and independently determined NRS. 1996-00: Dot Com 1 Merger boom legitimised, laggards criticised. Catch up deals. APP% quickly over 50%. % of long term debt to total capital. The after tax cost of equity is 2-2.5 times that of debt. WACC Financial Times: 13.01.2014. 'The date it is safe to do mergers again'. 3 major acquisitions announced on this date. December 2011-19: Megaboom reflecting the synergy vs premium principles of modern best practice merger valuation (VG and IVE) Late cycle deals often over 100% APP until: increasing failures; declining target quality + reduced merger financing cause exhaustion peak Countrywide financial acquisition 2002-08: Subprime merger evaluators who solely rely on subjective criteria CF and synergies remain constant/increase very gradually during an M&A cycle but share price may triple. It better illustrates the importance of anticipatory purchase premium on APP (financial >%) Universal Banking (Travelers/Citicorp). led to repeal of US Glass-Steagall Law. (Deregulation spurred merger activity) Commercial banks chasing IP profit and prestige. may be equiv to 3x the financial APP as the comparable %APP consummated in Phase 1 Share prices of target are always expected to increase following a serious bidder's EOI. This usually corresponds to a near-exact matching decline in the share price of acquirer (pay control premium) RMT. Financing more available as overall M&A vol grows. APP = 20-35%
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