Mergers and Acquisitions Exam 1
Questions and Correct Answers
Intro to M&A ✅- M&A is highly cyclical
- Median deal sizes are increasing
- Valuations: at or near record highs and stable
- Covid initially slowed down market activity, but now fourth quarter activity is improving
quickly
Paths to drive growth ✅Build it => Research & development
Buy it => Mergers & Acquisitions
M&A failure rate ✅65% to 85%
- poor strategy
- poor integration
M&A objective ✅Add value to business, maximize shareholding wealth
- improve company's sustainable competitive advantage
- realization of synergies
- effective integration
Revenue synergies ✅Increase and diversify sources of revenue by the acquisition of
new and complementary product and service offerings
Operational / Cost synergies ✅- Increase production capacity through acquisition of
workforce and facilities
- Increase operational efficiency and expertise
- Increase research and development expertise and programs
Market Synergies ✅Increase market share and economies of scale
Financial Synergies ✅Reduction of financial risk and potentially lower borrowing costs
SWOT Analysis ✅Strengths, weaknesses, opportunities, Threats
Porter's 5 forces ✅Industry rivalry- Bargaining power of suppliers, threats of
substitutes, bargaining power of buyers, threats of new entrants
what is the business model? ✅PEST: political, economic, social, technology
MOST: Mission, objectives, strategies, and tactics
Core strengthening acquisition ✅Buying the competition and geographical target
- high degree of relatedness to core business
, - high degree of synergy potential
- High level of required integration
Core extension acquisition ✅Related (constrained) and value chain acquisition
- Medium degree of relatedness to core business
- Medium synergy potential
- Medium level of required integration
Core Shifting acquisition ✅Related (linked) and Unrelated conglomerate acquisition
- Low degree of relatedness to core business
- Low synergy potential
- Low level of require integration
Horizontal Merger ✅When 2 businesses combine that operate in the same industry or
sector (ex: Coca Cola decides to merge with Pepsico)
Vertical Merger ✅When a company decides to purchase its supplier or distributor. (ex:
when Pepsico decided to purchase the company that bottles their products)
Conglomerate M&A ✅When a company decides to purchase a business in a different
industry or sector. (EX: when Altria a tobacco company decided to purchase Kraft which
primarily operates in the food industry)
Friendly takeover ✅When a company acquires a target company after the target
company's board of directors accepts the acquisition offer
Hostile takeover ✅When a company acquires a target company after the target
company's board of directors rejects the acquisition offer. The acquirer may pursue a
tender offer for the target's outstanding shares directly to its shareholders at a premium
to the target's share price.
Reverse takeover ✅When a private company acquires a public company and therefore
avoids the IPO process while gaining access to the public markets
Concentrated growth (grand strategies) ✅Single dominant product - increase present
product sales in present market
Market development ✅Sell existing products in New markets
Product development ✅new products for present markets
Innovation ✅create new product
Horizontal acquisition ✅similar firms in same stage of production / marketing chain
Questions and Correct Answers
Intro to M&A ✅- M&A is highly cyclical
- Median deal sizes are increasing
- Valuations: at or near record highs and stable
- Covid initially slowed down market activity, but now fourth quarter activity is improving
quickly
Paths to drive growth ✅Build it => Research & development
Buy it => Mergers & Acquisitions
M&A failure rate ✅65% to 85%
- poor strategy
- poor integration
M&A objective ✅Add value to business, maximize shareholding wealth
- improve company's sustainable competitive advantage
- realization of synergies
- effective integration
Revenue synergies ✅Increase and diversify sources of revenue by the acquisition of
new and complementary product and service offerings
Operational / Cost synergies ✅- Increase production capacity through acquisition of
workforce and facilities
- Increase operational efficiency and expertise
- Increase research and development expertise and programs
Market Synergies ✅Increase market share and economies of scale
Financial Synergies ✅Reduction of financial risk and potentially lower borrowing costs
SWOT Analysis ✅Strengths, weaknesses, opportunities, Threats
Porter's 5 forces ✅Industry rivalry- Bargaining power of suppliers, threats of
substitutes, bargaining power of buyers, threats of new entrants
what is the business model? ✅PEST: political, economic, social, technology
MOST: Mission, objectives, strategies, and tactics
Core strengthening acquisition ✅Buying the competition and geographical target
- high degree of relatedness to core business
, - high degree of synergy potential
- High level of required integration
Core extension acquisition ✅Related (constrained) and value chain acquisition
- Medium degree of relatedness to core business
- Medium synergy potential
- Medium level of required integration
Core Shifting acquisition ✅Related (linked) and Unrelated conglomerate acquisition
- Low degree of relatedness to core business
- Low synergy potential
- Low level of require integration
Horizontal Merger ✅When 2 businesses combine that operate in the same industry or
sector (ex: Coca Cola decides to merge with Pepsico)
Vertical Merger ✅When a company decides to purchase its supplier or distributor. (ex:
when Pepsico decided to purchase the company that bottles their products)
Conglomerate M&A ✅When a company decides to purchase a business in a different
industry or sector. (EX: when Altria a tobacco company decided to purchase Kraft which
primarily operates in the food industry)
Friendly takeover ✅When a company acquires a target company after the target
company's board of directors accepts the acquisition offer
Hostile takeover ✅When a company acquires a target company after the target
company's board of directors rejects the acquisition offer. The acquirer may pursue a
tender offer for the target's outstanding shares directly to its shareholders at a premium
to the target's share price.
Reverse takeover ✅When a private company acquires a public company and therefore
avoids the IPO process while gaining access to the public markets
Concentrated growth (grand strategies) ✅Single dominant product - increase present
product sales in present market
Market development ✅Sell existing products in New markets
Product development ✅new products for present markets
Innovation ✅create new product
Horizontal acquisition ✅similar firms in same stage of production / marketing chain
