Summary M&A complete - Zusammenfassung Mergers & Acquisitions PDF

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Mergers & Acquisition - Summary

DEFINITIONS:

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CHAPTER 1: INTRODUCTION, PRE-INTEGRATION, PMI

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CHAPTER 2: VALUATION

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CHAPTER 3: SELL-SIDE M&/A: DIVESTITURES

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CHAPTER 4: LBOS

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CHAPTER 5: PRIVATE EQUITY: INSIDE/OUT

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Definitions: Abnormal return: R(Abnormal) = R(Actual) – R(Normal)  normal return on an investment can be a forecasted return or it can be the return on an index, e.g. Dow Jones during the same period (e.g. analysts expected firm XYZ to experience a return of 10% for that year but stock XYZ experiences a 20% return in this given year  XYZ experiences a positive abnormal return of 10% during that year)  the abnormal return measures how an investment performed over a given period of time; in this respect, it is useful to investors as a valuation tool and for comparing returns to market performance. Activist investor: An activist investor is an individual or group that purchases large numbers of a public company's shares and/or tries to obtain seats on the company's board with the goal of effecting a major change within the company. A company can become a target for activist investors if it is mismanaged, has excessive costs and could be run more profitably as a private company or has another problem that the activist investor believes it can fix to make the company more valuable. Anchoring: Anchoring is the tendency to give too much weight to the first number put on the table and then inadequately adjust from that starting point. Asset deal: Purchase of all tangible and intangible assets per single legal transfer succession Binding offer: A binding offer refers to an offer made by a bidder to acquire a target company (or seller) after the due diligence phase of a sale process is complete. Bolt-on acquisition: A bolt-on acquisition refers to a company that is added by a private equity (PE) firm to one of its platform companies. Typically, a PE firm will partner with a larger company that has a position in a particular market. This larger company becomes a platform to expand into the market because it has the management capabilities, infrastructure and systems that allows for organic or acquisition growth. The platform company will look for bolt-on acquisitions that provide complementary services, technology or geographic footprint diversification and can be quickly integrated into the existing management infrastructure. Bookbuilding: Auktionsverfahren für neu an die Börse zu bringende Aktien, bei dem die Preisspanne vorgegeben wird, in der die Gebote abgegeben werden müssen. Die Investoren werden somit direkt in die Preisfindung miteinbezogen. Der tatsächliche Emissionskurs wird letztlich aus dem Durchschnitt der Gebote gebildet. Durch das Bookbuilding-Verfahren soll ein fairer Interessenausgleich zwischen Emittent und Investor bezüglich der Höhe des Emissionspreises herbeigeführt werden.

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Book value: The book value of an asset is its original purchase cost, adjusted for any subsequent changes, such as for impairment or depreciation. Market value is the price that could be obtained by selling an asset on a competitive, open market. There is nearly always a disparity between book value and market value, since the first is a recorded historical cost and the second is based on the perceived supply and demand for an asset, which can vary constantly. Break-up value: the breakup value is what a company would be worth if its component parts were sold off and the liabilities were paid. For example, a certain company may have multiple subsidiary businesses operating in different industries. It may have a computer division, a food division, and an entertainment division. To determine the breakup value, you would need to figure out what the total assets are for each subsidiary, minus the total liabilities. Buy-and-build strategy: B&B is a transaction in which PE investors acquire a firm serving as a "platform" for further acquisitions. The follow-on acquisitions ("add-ons") are usually facilitated by the PE investors as well. CAGR:  Compound Annual Growth Rate Captive Fund: Fonds, der Teil einer größeren Finanzinstitution ist oder ihr gehört. Gegensatz: Independent Fund. Conglomerate: A conglomerate is a corporation that is made up of a number of different, seemingly unrelated businesses. In a conglomerate, one company owns a controlling stake in a number of smaller companies, which conduct business separately. Each of a conglomerate's subsidiary businesses runs independently of the other business divisions, but the subsidiaries' management reports to senior management at the parent company. Corporate Venture Capital: durch Industrieunternehmen oder deren Tochtergesellschaften, die selber keine Finanzinstitutionen sind, hauptsächlich für junge, nicht börsennotierte Wachstumsunternehmen bereitgestelltes Venture-Capital. Dabei verfolgen die Kapitalgeber oftmals nicht nur finanzielle Ziele, sondern auch strategische Ziele wie Stärkung von Geschäftsfeldern, Zugang zu (technischen) Innovationen und Diversifikation. Neben der Bereitstellung von Eigenkapital werden bei strategischen Investitionen meist auch Ressourcen und Managementunterstützung zur Verfügung gestellt. Cyclical industry: A cyclical industry is a type of industry that is sensitive to the business cycle, such that revenues generally are higher in periods of economic prosperity and expansion and are lower in periods of economic downturn and contraction. Companies in cyclical industries can deal with this type of volatility by implementing employee layoffs and cuts to compensate during bad times and paying bonuses and hiring en masse in good times. Divestiture: A divestiture is the partial or full disposal of a business unit through sale, exchange, closure or bankruptcy. A divestiture most commonly results from a management decision to cease operating a business unit because it is not part of a core competency. 3

Dry Powder: The term "dry powder" is used in reference to investors, too. In this case, "dry powder" still refers to cash reserves, but it also can include other liquid assets, such as money market funds that an investor may have set aside for investment purposes. Many financial advisors warn their clients against investing 100% in the stock market and encourage them to be prudent by maintaining plenty of dry powder. Dry powder of this kind comes in handy during periods of steep market decline, because you can fall back on these savings when needed. Moreover, it can be especially beneficial to the investor who chooses to buy stocks at substantially lower prices during such periods of decline. Due Diligence: Due diligence is the process of being able to evaluate and understand a potential acquisition, partner or buyer. In the business environment, due diligence enables organizations to investigate a prospective investment in order to gather as much detail as possible. The information is then used to determine the attractiveness of the investment. The process of due diligence means that a business can establish if a transaction is worthwhile. Enterprise Value: The enterprise value (which can also be called firm value, or asset value) is the total value of the assets of the business (excluding cash). EV (Enterprise Value) = (share price x # of shares) + total debt – cash  Gesamtunternehmenswert des operativen Geschäfts  Setzt sich zusmamen aus dem gesuchten Marktwert des Eigenkapitals (“Equity Value”) und den Nettofinanverbindlichkeiten (Net Debt”)

Entity Value: Enterprise Value + nicht-betriebsnotwendiges Vermögen

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Equity Value: Part of the Enterprise Value: The equity value (or net asset value) is the value that remains for the shareholders after any debts have been paid off. Equity Value = (share price) x (number of shares) Equity Carve-Out:  a method of divestiture: Bei einem Carve-Out verkauft die Muttergesellschaft in der Regel einen Minderheitsanteil an einer Tochtergesellschaft im Rahmen eines Börsengangs (IPO) an interessierte Investoren. Im Gegensatz zum Spin-Off erhält die Muttergesellschaft also im Rahmen eines Carve-Outs einen Mittelzufluss (Cash Inflow), was meist auch die Hauptmotivation für einen solchen Teil-IPO darstellt. Equity Story: Equity Story bezeichnet das Argumentationskonzept, mit dem bei Kapitalmarktteilnehmern für eine Eigenkapitalinvestition geworben wird; sie ist somit hauptsächlich an Investoren und Analysten adressiert. Die Equity Story besteht aus der zusammenfassenden Darstellung eines Unternehmens. Die Equity Story formuliert dabei die Schlüsselkompetenzen, Erfolgsfaktoren und Perspektiven des Unternehmens. Die Darstellung der Erfolgsgeschichte des Unternehmens, die von der Vergangenheit in die Zukunft projiziert werden soll, ist für Unternehmen wichtig, da das Interesse von Investoren geweckt werden muss, um so eine Nachfrage für dieses zu generieren. Besonders beleuchtet werden dabei die Strategie, Ertragskraft, Vision, Philosophie und Kultur des Unternehmens. Diese Informationen dienen potenziellen Investoren dazu, das Unternehmen eigenständig zu beurteilen. Financial Investors:  opposite of strategic investors Financial investors or buyers can generally be classified as investors interested in the return they can achieve by buying a business. They are interested in the cash flow generated by a business and the future exit opportunities from the business. They are typically individuals or companies with money to invest, and who are willing to look at many different types of businesses or industries. Their goals may include growing cash flow through revenue enhancement, expense reductions, or creating economies of scale by acquiring other similar companies. Their exit plans may include an IPO (initial public offering), where the business is “taken public” (hopefully at a higher multiple of earnings than paid at acquisitions), or selling the company at a future date. Financial buyers include private equity firms (also known as “financial sponsors”), venture capital firms, hedge funds, family offices, and high net worth individuals. Free Cash Flow (FCF):  i.e. cash income after required capital expenditure Innerhalb einer Periode erarbeitete Mittel, die weder für das operative Geschäft, noch für Investitionen benötigt werden. Der Free Cash Flow beziffert die Summe der Mittel, die dem Unternehmen nach allen Ausgaben innerhalb einer Periode frei zur Verfügung stehen. Operativer Cash Flow - Investitionen + Desinvestitionen ______________________ = Free Cash Flow 5

Bei der indirekten Berechnung wird der Cashflow korrigiert, indem ausgehend vom Jahresüberschuss alle nicht zahlungswirksamen Aufwendungen hinzu gerechnet und alle nicht zahlungswirksamen Erträge abgezogen. Um den Cashflow direkt ermitteln zu können, müssen also zunächst alle Posten innerhalb einer Periode, die keinen monetären Wert haben, wie Rückstellungen und Abschreibungen, aus dem Überschuss gestrichen werden. Intrinsic value: Intrinsic value is an estimate of the actual true value of a company. Market value is the current value of a company as reflected by the company's stock price. IPO (Initial Public Offering): "Erstes öffentliches Angebot"; es werden erstmalig Aktien eines Unternehmens interessierten Anlegern öffentlich zum Kauf angeboten. Allgemein ist mit einem IPO eine Börsenzulassung des Aktienkapitals und die Aufnahme der Börsennotierung verbunden. Durch einen IPO verschafft sich ein Unternehmen Risikokapital von außen durch Nutzung der Aktie als Finanzierungsinstrument. Leveraged buy-out (LBO): A leveraged buyout is the purchase of a company by a small group of investors using a high percentage of debt financing Management buy-in (MBI): A management buy-in is an action in which an outside manager/manager team purchases a controlling ownership stake in an outside company. Management buy-out (MBO): A Management Buyout is the acquisition of a company by its own managers. In most cases, the management team seeks the support of PE investors to buy the shares of the company Market capitalization: Die Marktkapitalisierung spiegelt den aktuellen Börsenwert einer börsennotierten Firma wieder. Marktkapitalisierung = (Aktueller Aktienkurs )x (Gesamtanzahl der Aktien) (Market) Multiple: The ratio of a market price variable to a particular value driver of a firm. Operativer cash flow: Die in einem bestimmten Zeitraum durch die Geschäftstätigkeit erwirtschafteten liquiden Mittel. In den operativen Cash Flow gehen der Jahresüberschuss, die Veränderung der Abschreibungen, der Rückstellungen und des Umlaufvermögens ein. Perpetual growth rate:  ewige Wachstumsrate: Sie stellt die angenommene Wachstumsrate eines Unternehmensgewinns oder einer Zahlung (z. B. einer Dividende) dar. Die Höhe richtet sich üblicherweise nach dem Durchschnitt der in der Vergangenheit erzielten Wachstumsraten. Secondary buyout: financial sponsor or PE firm sells its investment in a company to another financial sponsor or PE firm, thereby ending its involvement with the company. Sell-Off: A sell-off, also known as a divestiture, is the outright sale of a company subsidiary. Normally, selloffs are done because the subsidiary doesn't fit into the parent company's core strategy. The market may be undervaluing the combined businesses due to a lack of synergy between the 6

parent and subsidiary. As a result, management and the board decide that the subsidiary is better off under different ownership. Share Deal: Purchase of all parts of the target Spin-Off: Bei einem Spin-Off gliedert eine bestehende Firma einen Teil des Unternehmens als eigenständige Firma aus. Als Ausgleich für die Abgabe dieses Firmenteils erhalten die alten Aktionäre Aktien des neuen Unternehmens gratis oder zumindest das Recht, diese neuen Aktien zu kaufen. Macht der Aktionär von diesem Recht keinen Gebrauch, kann er das Kaufrecht ebenfalls an der Börse verkaufen (Bezugsrechthandel). In beiden Fällen (Ausgabe von Neu-Aktien oder Verkauf von Bezugsrechten) sollten dem Alt-Aktionär keine finanziellen oder rechtlichen Nachteile entstehen. Spin-Offs bieten Unternehmen die Möglichkeit, durch Umwandlung eines Unternehmensteils in eine Beteiligung, kurzfristig Kapital zu erlangen. Spin-Offs können auch der erste Schritt zu einem kompletten Verkauf eines Unternehmensteils sein. Strategic Investors:  opposite of financial investors. Strategic investors or buyers are operating companies that are often competitors, suppliers, or customers of your firm. Their goal is to identify companies whose products or services can synergistically integrate with their existing P/L to create incremental, long-term shareholder value. In other words, their primary incentive for the acquisition is strategic, hence the moniker. These buyers can also be unrelated to your company and looking to grow in your market to diversify their revenue sources. Tax Shield: A tax shield is a reduction in taxable income for an individual or corporation achieved through claiming allowable deductions such as mortgage interest, medical expenses, charitable donations, amortization and depreciation. These deductions reduce a taxpayer's taxable income for a given year or defer income taxes into future years. Tax shields lower the overall amount of taxes owed by an individual taxpayer or a business. Terminal Value (TV): TV is the projected value of the company at the end of the forecast period.

Weighted average cost of capital (WACC): = gewichteter Kapitalkostensatz. Der Ansatz gehört zu den Kapitalwertmethoden und wird zur Unternehmensbewertung verwendet. Unternehmensbewertungen sind unter anderem dann wichtig, wenn ein Unternehmen zum Verkauf steht oder an die Börse geht (Initial Public Offering, IPO). Der WACC beschreibt die durchschnittlichen gewichteten Kosten, die ein Unternehmen für Kapital aufwenden muss. Diese setzen sich zusammen aus den durchschnittlichen Kosten für Fremdkapital (zum Beispiel Zinsen bei einem Bankkredit) und den durchschnittlichen Kosten für Eigenkapital (Gewinnausschüttungen und Steuern = kalkulatorische Zinsen). Die Gewichtung von 7

Eigenkapital und Fremdkapital in der WACC-Rechnung erfolgt nach den Anteilen am Gesamtkapital des Unternehmens.

Chapter 1: Introduction, Pre-integration, PMI Overview: 1.) Motives, types, outcomes 2.) Acquisition Process: Pre-integration 3.) Acquisition Process: PMI

1.) INTRODUCTION TO M&A – MOTIVES, TYPES, AND OUTCOMES Become familiar with main acquisition motives and types Acquisition Motives: Seeking improved financial performance shareholder value)  Operational synergies  Increased revenue / market share  Cross-selling  Economies of scale / scope  Taxation (“inversion deals”)  Geographical / product diversification  Resource transfer  Vertical integration  Technological know-how / IP

(add Acquiring other firms with irrational motives (no added shareholder value)  Defensive diversification  Manager’s hubris and compensation  Empire-building

Acquisition Types:

1. Overcapacity M&A

2. Geographic Roll-up M&A

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MOTIVE The acquiring company (part of an industry with excess capacity) will eliminate capacity, gain market share, and create a more efficient operation

A successful company expands geographically; operating units remain local

PRACTICAL ADVICE  Decide what to eliminate quickly  If the acquired company is as large as the acquiring one and its processes and values differ greatly, expect trouble.  If it’s a merger of equals, expect both companies’ management groups to fight for control  Overcapacity M&A tend to be onetime events, so they’re especially hard to pull off  Members of the acquired group may welcome your streamlined processes. If they don’t, you can afford to ease them in slowly  If a strong culture is in place, introduce new values with extreme care.  Geographic Roll-up M&A’s are win-win scenarios, and they often

3. Product/ Extension

Market

Acquisitions extend a company’s product line or its international coverage

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4. M&A as R&D

Acquisitions are used in lieu of inhouse R&D to build a market position quickly

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5. Industry Convergence M&A

A company bets that a new industry is emerging and tries to establish a position by culling resources from existing industries whose boundaries are eroding

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go smoothly Know what you’re buying: the farther you get from home, the harder it’s to be sure Expect cultural and governmental differences to interfere with integration The bigger you’re relative to your target company, the better your chances for success The more practice you have, the better your chances of success Build industrial-strength evaluation processes so that you buy firstclass businesses This category allows no time for slow assimilation, so cultural due diligence is a must Put first-rate, well-connected executives in charge of integration. Make it a high-visibility assignment Above all else, hold on to the talent if you can Give the acquired company a wide berth. Integration should be driven by specific opportunities to create value, not by a perceived need to create a symmetrical organization. As a top manager, be prepared to make the call about what to integrate and what to leave alone; also, be ready to change that decision

Motives identified in prior research (by Haleblian et al., 2009): 1. Value Creation (Market power, efficiency, resource redeployment, market discipline) 2. Managerial Self-Interest /Value Destruction (Compensation, Hubris, Target defense tactics) 3. Environmental Factors (Environmental uncertainty, regulation, imitation, resource dependence, networks ties) 4. Firm Characteristics (acquisition experience, firm strategy and position) Acquisition types:     

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Related vs. unrelated o Related deals usually outperform unrelated deals Public vs. private o Information asymmetries in case of public targets which results in a discount on the price...