Before committing a deal ➤ check the financial report!!
A well done one needs to have:
1. Background & motivation
2. Clearly stated proposal
3. All 5 forms of analysis (below)
-
4. A strong conclusion that refers back to evidence to make the case for a proposed
action or inaction.
Negotiating with the counterparty:
- You have to offer more premium than $2 stock increase to respect the counter party.
Scaling vs Scoping: The US firm's scope and scale are expanding over time.
Scaling:
- Selling twice the amount of the same product
,Scoping:
- Scope is increasing in product variety.
- It is better to acquire similar companies that share similar functions to expand scope,
otherwise there would be management problems.
- Divested: if the core and the periphery are in very different industries and have no
synergies. (-10% return since you have to pay premium)
,M&A deals in the market:
- International deals are reaching the same size as US deals now.
- If the stock price goes up by a factor of two, the M&A will go up by four or five. (Hyper
cyclical growth)
- When the economy changes, for example, there is new technology coming up
(disruptions), some companies will have assets they no longer need and some
companies will need new stuff, resulting in more deals in M&A.
- When there is recession, the interest rate goes up, causing private equity firms to go
bankrupt since they have high leverage
- Deals don’t go away in recession, the amount is just smaller.
- Divestitures still exist during recession because companies would want to sell their
peripheral assets for liquidity in order to avoid bankruptcy.
- PE deals are sensitive to credit cycles.
- Covid brings a lot of tech deals. In 2008 it was hard to raise capital. You can offer to pay
an installment. You also considered spin off divestitures or stock swap mergers. Private
equity firms buy back their own bonds since the banks that were holding it were selling
them at a discount, so PE firms earned 20% return during the financial crisis.
,
A well done one needs to have:
1. Background & motivation
2. Clearly stated proposal
3. All 5 forms of analysis (below)
-
4. A strong conclusion that refers back to evidence to make the case for a proposed
action or inaction.
Negotiating with the counterparty:
- You have to offer more premium than $2 stock increase to respect the counter party.
Scaling vs Scoping: The US firm's scope and scale are expanding over time.
Scaling:
- Selling twice the amount of the same product
,Scoping:
- Scope is increasing in product variety.
- It is better to acquire similar companies that share similar functions to expand scope,
otherwise there would be management problems.
- Divested: if the core and the periphery are in very different industries and have no
synergies. (-10% return since you have to pay premium)
,M&A deals in the market:
- International deals are reaching the same size as US deals now.
- If the stock price goes up by a factor of two, the M&A will go up by four or five. (Hyper
cyclical growth)
- When the economy changes, for example, there is new technology coming up
(disruptions), some companies will have assets they no longer need and some
companies will need new stuff, resulting in more deals in M&A.
- When there is recession, the interest rate goes up, causing private equity firms to go
bankrupt since they have high leverage
- Deals don’t go away in recession, the amount is just smaller.
- Divestitures still exist during recession because companies would want to sell their
peripheral assets for liquidity in order to avoid bankruptcy.
- PE deals are sensitive to credit cycles.
- Covid brings a lot of tech deals. In 2008 it was hard to raise capital. You can offer to pay
an installment. You also considered spin off divestitures or stock swap mergers. Private
equity firms buy back their own bonds since the banks that were holding it were selling
them at a discount, so PE firms earned 20% return during the financial crisis.
,
