Miami University FIN 461 Exam 2025

Why does M&A tend to occur in waves? - -(1) Strong correlation between S&P performance and the amount of M&A activity. (2) Companies can use their stock to make acquisitions when their stock price is high. 4 Factors that contribute to M&A waves - -(1) Liquidity; most recent factor in M&A wave (2) Disruptive Technology; 1990's (3) Regulation/Deregulation; 1980's (4) 'Shocks'; oil prices Motives for why firms engage in M&A transactions - -(1) Synergies (2) Diversification Horizontal Integration - -driven by economies of scale & scope Vertical Integration - -motive is greater control over production and distribution Backward Integration (Vertical Integration) - -upstream; raw material supplies, manufacturing/production Forward Integration (Vertical Integration) - -downstream; distribution, end user Conglomeration - -driven by desire to diversify Who wins in an M&A transaction? - -the target firm Who loses in an M&A transaction? - -the acquiring firm What factors DO matter in creating value for the acquirer? - -(1) Financing structure (2) Target company status (3) Earnings growth (4) Foreign vs domestic acquisitions What factors DO NOT matter in creating value for the acquirer? - -(1) EPS impact (2) Transaction size (3) Profitability & volatility (4) Credit rating impact (5) Industry The functions performed by investment banks - -(1) M&A advisory (2) Underwriting (3) Sales & Trading (4) Research FIN 461 FIN 461 (5) Syndicate How do investment banks get paid for their work? - -different fees for advising and providing fairness opinion The role played by investment banks in M&A transactions - -(1) Identify strategic alternatives (2) Value maximization (3) Speed of execution (4) Certainty of completion League tables - -list of investment banks that ranks them in terms of fees generated Porter's Competitive Forces Model - -(1) Rivalry among existing competitors (2) Threat of new entrants (3) Bargaining power of buyers (4) Threat of substitute products or services (5) Bargaining power of suppliers Channel Research - -is a method of analysis whereby information is gleaned from the company's distribution channels (i.e., suppliers and customers) and is an attempt to determine whether the use/purchase of the target company's product or service changed, increased, or decreased Four Forces underlying a Broad Factors Analysis (PEST analysis) - -(1) Political (2) Economic (3) Technological (4) Socio-demographic SWOT Analysis for a firm - -(1) Strengths; advantage over competitors (2) Weaknesses; disadvantageous relative to competitors (3) Opportunities; elements that allow company to formulate and implement strategies to increase profitability (4) Threats; elements that could endanger the integrity and profitability of the business 1933 Securities Act - -(1) required investors to receive financial and other significant information concerning securities being offered for public sale. (2) prohibited deceit, misrepresentations, and other fraud in the sale of securities Glass-Steagall Banking Act of 1933 - -(1) effectively barred commercial banks from operating IB businesses (2) created the FDIC Securities Act of 1934 - -(1) supervision of new security offerings (2) ongoing reporting requirements (e.g., 10-K, 10-Q) (3) created the SEC FIN 461 FIN 461 Gramm-Leach-Biley Act of 1999 - -(1) overturned the Glass-Steagall Act (2) provides more stable and countercyclical business models for banks (3) allows U.S. banks to better compete with international counterparts (4) led to the formation of U.S.-based universal banks Sarbanes-Oxley Act (2002) - -(1) corporate governance disclosure, and conflicts of interest (2) executives must "certify" company financial statements (3) criminal penalties for fraud (4) separated stock analysis from underwriting activities (5) created Public Company Accounting Oversight Board Foreign Investment Risk Review Modernization Act of 2018 - -(1) updated the statute authorizing CFIUS reviews CFIUS - -The Committee on Foreign Investment in the United States is an interagency committee authorized to review certain transactions involving foreign investment in the United States, in order to determine the effect of such transactions on the national security of the United States List of Antitrust Laws - -(1) Sherman Act 1890 (2) Clayton Act 1914 (3) Hart-Scott-Rodino Act 1976 Control share statutes (antitakeover) - -effectively forces a shareholder vote to proceed with a hostile bid Fair price statutes (antitakeover) - -requires bidders to pay all shareholders the same price for their shares, regardless of then they are tendered Business combination statutes (antitakeover) - -imposes a waiting period for combining the assets of the bidder and target after shareholder reaches certain threshold Position pill statutes (antitakeover) - -dilutes the bidder's ownership stake by allowing target firm shareholders to purchase more shares at a discount (when triggered) Constituencies statues (antitakeover) - -allows management to take into consideration constituencies other than shareholders when evaluating a takeover proposal Pre-bid (discourage bids) takeover defenses - -(1) Posion pills (2) Staggered boards (3) Anti-greenmail provisions (4) Dual class voting structures Post-bid (fight bids) takeover defenses - -(1) Greenmail FIN 461 FIN 461 (2) White knights (3) Leveraged recap (4) Restructuring (5) Litigation (6) Share repurchases Two schools of thought regarding takeover defenses - -(1) they entrench underperforming managers at shareholders' expense (2) they benefit shareholders by improving managers' bargaining power in a takeover contest Pros of a comparable companies analysis - -(1) Market based; information used to derive valuation for the target is based on actual public market data, thereby reflecting the market's growth and risk expectations (2) Relativity; easily measurable and comparable versus other companies (3) Quick & convenient; valuation can be determined on the basis of a few easy-to calculate inputs (4) Current; valuation is based on prevailing market data Cons of comparable companies analysis - -(1) Market-based; valuation that is completely market-based can be skewed during periods of irrational exuberance or bearishness (2) Absence of relevant comparable; "pure-play" comparable may be difficult to identify or even non-existent (3) Potential disconnect from cash flow; valuation based on prevailing market conditions or expectations may have significant disconnect from the valuation implied by a company's projected cash flow generation (4) Company-specific issues; valuation of the target is based on the valuation of other companies, which may fail to capture target-specific strengths, weaknesses, opportunities, and risks Premise of a precedent transactions analysis - -(1) multiples paid in prior M&A transactions provide relevant reference point for valuing target (2) under normal market conditions, precedent transactions tend to provide a higher multiple range than comparable companies (precedents impound the premium offered for the targets) Why do buyers pay premiums? - -(1) synergies (2) control Pros of a precedent transactions analysis - -(1) Market-based; analysis is based on actual acquisition multiples and premiums paid for similar companies (2) Current; recent transactions tend to reflec