PREPARED BY:JAMMIE ANN FEL IPE

MERGERS AND ACQUISITIONS

Merger Defined

The combination of two or more firms to form a single

firm.

Rationale for mergers

SYNERGYThe condition wherein the

whole is greater than the sum of its parts.

Rationale for mergers

TAX CONSIDERATION

S

Purchase of Assets below

Their Replacement

Cost

Rationale for mergers

DiversificationManager’s Personal IncentivesBreak up Value

Economic Types of mergers

HORIZONTAL MERGERVERTICAL MERGERCONGENERIC MERGERCONGLOMERATE

MERGER

Hostile vs. friendly turnovers

Acquiring CompanyA company that seeks to acquire another firm.

Target CompanyA firm that another company seeks to acquire.

Hostile vs. friendly turnovers

Merger analysis

The acquiring firm Performs an analysis to value the target company and then determines whether the target can be bought at that value or, preferably, for less than the estimated value.

The target company Accept the offer if the price exceeds either its value if it continued to operate independently or the price it could receive from some other bidder.

Valuing the target firm

Discounted Cash Flow AnalysisMarket Multiple Analysis

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