Matching Pairs M and V 3Online version mergers and valuations by alex kellett 1 Merger phase 1 2 Merger cycle 3 signature event 3 Why TAPP 4 Merger Cycle 1 5 Qualitatives 6 Merger Monday 7 Merger success from the perspective of continuing major shareholders 8 Merger phase 2 9 White Knight 10 A 25% phase 4 APP 11 3rd wave: Subprime aka 12 Epstein 13 Revenue synergies 14 Merger cycle 3 15 Event studies 16 Merger cycle 4 17 Merger Success: Dealmakers, bankers, advisers etc. 18 Gearing ratio 19 Merger cycle 4 signature event 20 Merger Phase 4 21 MergVal 22 Merger Cycle 2 signature event 23 Merger Phase 3 24 Merger cycle 1 signature event 25 Merger Cycle 2 26 Merger success: selling company Universal Banking (Travelers/Citicorp). led to repeal of US Glass-Steagall Law. (Deregulation spurred merger activity) Commercial banks chasing IP profit and prestige. % of long term debt to total capital. The after tax cost of equity is 2-2.5 times that of debt. WACC Merger boom legitimised, laggards criticised. Catch up deals. APP% quickly over 50%. 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. 2002-08: Subprime Financing more available as overall M&A vol grows. APP = 20-35% may be equiv to 3x the financial APP as the comparable %APP consummated in Phase 1 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. 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) 1982-90: LBO Late cycle deals often over 100% APP until: increasing failures; declining target quality + reduced merger financing cause exhaustion peak 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) December 2011-19: Megaboom Facebook and LinkedIn IPOs 1996-00: Dot Com 1 qualitative. Only one subject: Chase/Bank one reflecting the synergy vs premium principles of modern best practice merger valuation (VG and IVE) RJR Nabisco Acquisition Netscape and Worldnet IPOs Financial Times: 13.01.2014. 'The date it is safe to do mergers again'. 3 major acquisitions announced on this date. evaluated on a cash flow effect basis only (as with all syn). Countrywide financial acquisition merger evaluators who solely rely on subjective criteria 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. economy still perceived as in recession by many. A few 1-2 year cash paybook deals. APP 10-18% 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 >%)
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