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