Wall Street Prep – M&A Questions and Answers

WALL ST. PREP - M&A QUESTIONS AND
ANSWERS
1. Potential reasons to acquire another company: * Value Creation from Revenue and n n n n n n n n n n n




CostSynergiesOwnershipofTechnologyAssets(IP,Patents,ProprietaryTech-nology)
n n n n n n n n n n n




* TalentAcquisitions(NewSkilledEmployees) n n n n




* Expansion in Geographic Reach or into New Product/Service Markets n n n n n n n n




* Diversificationin RevenueSources(LessRisk,LowerCostof Capital) n n n n n n n n n




* ReduceTime to Market with New Product Launches n n n n n n n




* Increased Number of Channels to Sell Products/Services n n n n n n




* Market Leadership and Decreased Competition (if Horizontal Integration)
n n n n n n n




* AchieveSupplyChainEfficiencies(ifVerticalIntegration) n n n n n n




* TaxBenefits(ifTargethasNOLs)
n n n n n




2. Broad auction:In a broad auction, the sell-side bank will reach out to as many
n n n n n n n n n n n n n n




prospectivebuyersaspossibletomaximizethenumberofinterestedbuyers.Since
n n n n n n n n n n n n




competition directly correlates with the valuation, the goal is to cast a wide net
n n n n n n n n n n n n n n




tointensifyanauction'scompetitivenessandincreasethelikelihoodoffindingthe highest
n n n n n n n n n n n n




possible offer (i.e., removing the risk of "leaving money on the table")
n n n n n n n n n n n n




3. Targeted auction: In a targeted auction, the sell-side bank (usually under the client's n n n n n n n n n n n n




direction)willhaveashortlistofbuyerscontacted.Thesecontactedbuyers may already
n n n n n n n n n n n n n




have a strong strategic fit with the client or a pre-existing relationship with the seller.
n n n n n n n n n n n n n n n




4. Negotiatedsale:Anegotiatedsaleinvolvesonlyahandfulofpotentialbuyersand is n n n n n n n n n n n n n




mostappropriatewhenthere'saspecificbuyerthesellerhasinmind.Apotential reason
n n n n n n n n n n n n n n n




for this type of sale approach could be the seller intends to stay on and strongly values the
n n n n n n n n n n n n n n n n n n




partnership and growth opportunities.
n n n n




Underthisapproach,thespeedofcloseandconfidentialityaretwodistinctbenefits. These
n n n n n n n n n n n n n




deals are negotiated "behind-closed-doors" and generally on friendlier terms based on
n n n n n n n n n n n




the best interests of the client.
n n n n n n




5. CommonreasonswhyM&Adealsfailtocreatevalue:1.Overpaying/overes- n n n n n n n n n n




timating synergies
n n




2. Inadequate due diligence n n




3. Lackof a strategic plan n n n n




4. Poorexecution/integration n




6. Examplesofmaterialadversechanges(MACs):1.Significantchangesin n n n n n n n n n




economic conditions, financial/credit/capital markets
n n n n




2. Changesinregulation,GAAP,ortransactionlitigation(ex:anti-trust) n n n n n n n n




3. Natural disasters, geopolitical change n n n




1/9 n n

, 4. Missing financial performance targets
n n n




7. Asset sale:Inanassetsale,thesellerwillselltheassetstothebuyerwitheach asset
n n n n n n n n n n n n n n n n n




contractuallysold.Oncethebuyerholdsalltheassets,itcontrolsthebusiness
n n n n n n n n n n n n n




2/9 n n