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