Understanding of Mergers & Acquisitions

N’golo Ali Koulibaly By N’golo Ali Koulibaly, 25th Jun 2018 | Follow this author | RSS Feed | Short URL http://nut.bz/3q3fabws/
Posted in Wikinut>Business>Accounting & Finance

Nowadays, many people are talking about M&A. Willing to understand what it is about, I decided to do some researches and summarize the knowledge I have obtained through courses, certificates and more.

Steps to an Acquisition.

M&A refers to Mergers & Acquisitions. In fact, It is focusing on two different strategies. While Merger is about combining two similar firms, Acquisition is the process in which a larger company buys a smaller company and make it a subsidiary.

The ten steps of an acquisition are:

1. Acquisition strategy.

2. Acquisition Criteria.

3. Targeting Company.

4. Acquisition planning Method.

5. Valuation and Evaluation based on Financial information Received by sellers.

6. Negotiating with sellers in order to get the best selling price.

7. Due diligence in order to ensure that the Company finance are same as expected to be.

8. Purchasing and selling contract.

9. Financing can be important because most cases involve debt. Therefore, you have to be able to issue for instance, shares or bonds to compensate.

10. Finally, proceed to the Implementation.

Types of Buyers.

In my understanding, there are two types of buyers in M&A:

1. Strategic buyers which could be competitors or operating companies. These buyers aim identifying and delivering operating synergies such as, hard synergies “cost saving” or
soft synergies “Increasing in revenue” but also focus on vertical “buying suppliers or
competitors“, horizontal “buying competitors“ and product “complementary products”
extensions.

2. Financial buyers which could be private equity or financial sponsors. These buyers are
not applying synergies method. Instead, they are willing to borrow the maximum amount
of money so as they could increase equity returns.

Process of Evaluating an Acquisition.

Furthermore, I have noticed two methods in order to process an acquisition evaluation.

What are they?

- The first one is valuing the target company as a stand-alone business enterprise value which is the entire value of a business considering it capital structure. As a result, it would be important to take a close look at sales, EBIT margin, growth, changes in working capital, capital expenditures…

- The second one is to value the synergies we believe that could be achieved. According to this method it is important to look at overhead reductions, efficiency tax...

Acquisition Analysis.

Based on the ten steps of an acquisition, types of buyer and acquisition valuation process, I believe that it would most definitely be easy for you to proceed to an acquisition analysis which could be resumed as:

1. Stand-alone enterprise value.

2. Synergy methods: Hard, soft and also financial synergy which consists of lowering debt
in order to leverage up businesses.

3. Deduct transaction cost. Indeed, the Investment bank which has proceed the
intermediation will have to receive investment banking fees, legal fees…

4. The value of the opportunity which will be determined based on the net synergies and
the stand-alone enterprise value that has occurred.

5. The consideration which will be taken into consideration if the purchase price is less than the value of the opportunity so as the investment bank could create value for itself.

Issues when structuring a deal.

Ultimately, there are many issues to be considered when structuring a deal:

- Transaction environment which is made up by contract, accounting, tax, security,
antitrust…

- Structuring environment which is made up according to the business plan, market
condition, transaction characteristics and preferred finance.

Only establishing transaction and structuring environment will properly lead to the deal.

Financing.

To conclude, I will mention that financing merger, buyout or acquisitions can occurred through the capital stack​ which is composed of:

- Senior debt which is the most secure type of debt with the lowest rate of return.

- Subordinated debt which is has a higher risk and interest rate.

- Equity in order to ensure that investors have rights to buy the business.

Tags

Bank Jobs, Banking System, Corporate, Editors, Education, Finances, Investment Bank, Learning Process, Mergers And Acquisitions, Youth

Meet the author

author avatar N’golo Ali Koulibaly
My name is N’golo Ali Koulibaly, and I am from Côte d'Ivoire located in West Africa. I was born on august 28th, 1992.
I will focus my researches in finance especially Corporate Finance.

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Comments

author avatar Jose marte Lopez
3rd Jul 2018 (#)

Excellent article ,very well organized . With a lot information...congratulation ,,,ALI

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author avatar N’golo Ali Koulibaly
21st Jul 2018 (#)

Thank you José!

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author avatar Jose marte Lopez
3rd Jul 2018 (#)

Excellent article, very well organized with a lot information l will like to recommend this article to all my friends .l will read this article again,congratulations ALI

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author avatar Kouassi Guy Serge Maxime
3rd Jul 2018 (#)

Entreprendre de faire comprendre à l'opinion publique Le M&À, par le biais d'une plume est vraiment magnifique ! Vous avez notre soutien Mr Ali. Grand merci ! Félicitations !

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author avatar N’golo Ali Koulibaly
21st Jul 2018 (#)

Merci beaucoup Serges. Que Dieu nous aide tous

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author avatar Kouassi Guy Serge Maxime
3rd Jul 2018 (#)

Excellent !

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author avatar Yakherah L.
8th Aug 2018 (#)

Thank you Aly for helping us to understand some finance concepts. Easy to read and to understand.

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