Ibt - Chapter 5

Front 1

____ are a big part of the corporate finance world.

Back 1

Mergers and acquisitions (M&A) and corporate restructuring

Front 2

this equation is the special alchemy of a merger or an acquisition.

Back 2

One plus one makes three

Front 3

When they're not creating big companies from smaller ones, corporate finance deals do the ___ and ___ companies through ___, _____ or ______.

Back 3

reverse and break up

spinoffs, carve-outs or tracking stocks

Front 4

The key principle behind buying a company is to create _____ over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A.

Back 4

shareholder value

Front 5

This rationale is particularly ___ to companies when times are tough.

Back 5

alluring

Front 6

Strong companies will act to buy other companies to create a more competitive, ____ company.

Back 6

cost-efficient

Front 7

The companies will ____ hoping to gain a greater market share or to achieve greater efficiency. Because of these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone.

Back 7

come together

Front 8

Types of Merger

Back 8

RELATIONSHIP MERGER

Horizontal merger

Vertical merger

Market-extension merger

Product-extension merger

Conglomeration

FINANCE MERGER

Purchase Mergers

Purchase Mergers

Front 9

Two companies that are in direct competition and share the same product lines and markets.

Back 9

Horizontal merger

Front 10

A customer and company or a supplier and company. Think of a cone supplier merging with an ice cream maker.

Back 10

Vertical merger

Front 11

Two companies that sell the same products in different markets.

Back 11

Market-extension merger

Front 12

Two companies selling different but related products in the same market

Back 12

Product-extension merger

Front 13

Two companies that have no common business areas.

Back 13

Conglomeration

Front 14

Acquiring companies often prefer this type of merger because it can provide them with a tax benefit.

Back 14

Purchase Mergers

Front 15

With this merger, a brand new company is formed and both companies are bought and combined under the new entity. The tax terms are the same as those of a purchase merger.

Back 15

Consolidation Mergers

Front 16

Acquired assets can be written-up to the actual purchase price, and the difference between the book value and the purchase price of the assets can depreciate annually, reducing taxes payable by the ____ company.

Back 16

acquiring

Front 17

Like mergers, ____ are actions through which companies seek economies of scale, efficiencies and enhanced market visibility.

Back 17

acquisitions

Front 18

all ____ involve one firm purchasing another - there is no exchange of stock or consolidation as a new company.

Back 18

acquisitions

Front 19

often congenial, and all parties feel satisfied with the deal.

Back 19

Acquisitions

Front 20

Other times, acquisitions are more ____.

Back 20

hostile

Front 21

___and___ is often known to be a single terminology defined as a process of combining two or more companies together. The fact remains that the so-called single terminologies are different terms used under different situations. Though there is a thin line difference between the two but the impact of the kind of completely different in both the cases.

Back 21

Merger and acquisition

Front 22

considered to be a process when two or more companies come together to expand their business operations.

Back 22

Merger

Front 23

In such a case the deal gets finalized on friendly terms and both the companies share ___ in the newly created entity.

Back 23

equal profits

Front 24

When one company takes over the other and rules all its business operations, it is known as ____.

Back 24

acquisitions

Front 25

In this process of restructuring, one company overpowers the other company and the decision is mainly taken during downturns in economy or during declining profit margins. Among the two, the one that is financially stronger and bigger in all ways establishes it power. The combined operations then run under the name of the powerful entity who also takes over the existing stocks of the other company.

Back 25

acquisitions

Front 26

usually two companies of different sizes come together to combat the challenges of downturn

Back 26

acquisition

Front 27

two companies of same size combine to increase their strength and financial gains along with breaking the trade barriers.

Back 27

merger

Front 28

A deal in case of an ____ is often done in an unfriendly manner, it is more or less a forceful or a helpless association where the powerful company either swallows the operation or a company in loss is forced to sell its entity.

Back 28

acquisition

Front 29

In case of a ___ there is a friendly association where both the partners hold the same percentage of ownership and equal profit share.

Back 29

merger

Front 30

There is no nationally recognized ___ specifically for merger and acquisition ("M&A") or business broker services.

Back 30

license

Front 31

Accordingly, most practitioners have relied upon state __& licenses for their transaction activities.

Back 31

real estate broker

Front 32

Most states require a ___ to sell a business property, and some states stipulate that a broker must hold a ___ to sell a business.

Back 32

realty license

Front 33

Over time, the real estate broker license became the ___ license for this niche service.

Back 33

defacto

Front 34

Reliance upon a real estate license, alone, has been problematic for some dealmakers for certain transactions. For instance, there are cases where a business broker sells a business that has locations or stores in multiple states where the broker may not be licensed. In those instances, they would either __ or ___ the fee for those properties. Additional confusion arose when a buyer was located from a different state from which the seller and broker were located. Issues like these were handled on a case-by-case basis between the principals involved and their attorneys, and in some cases the courts.

Back 34

co-broker or forgo

Front 35

One of the ___ advantages is to ride the experience curve ahead of the rivals and capture demand by creating a solid brand name.

Back 35

first mover

Front 36

A company can buy another company with __, ___, _____, or a combination of some or all of the three.

Back 36

cash, stock, assumption of debt

Front 37

The market for a number of products tends to ___ or ___ in the advanced countries. This often happens when the market potential has been almost fully tapped.

Back 37

saturate or decline

Front 38

Another type of acquisition is a ____, a deal that enables a private company to get publicly-listed in a relatively short time period.

Back 38

reverse merger

Front 39

_____ arise when an international firm, in attempt to gain the first mover advantage, spends considerable time to learn the systems of the host country.

Back 39

Pioneering costs

Front 40

___ buy the product from the manufacturer and so take the market risk on unsold products as well as the profit.

Back 40

Distributors