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15 Cards in this Set
- Front
- Back
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What does "synergy" refer to?
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Synergies –
Where Value Creation Comes From
Revenue Synergies: Marketing & Selling complementary products Cross-selling into new customer base or channel Access to new markets Decreased competition Cost Synergies: Increased purchasing power Elimination of surplus facilities Decreased overhead costs Headcount reductions Cost Synergies are easier to achieve! |
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What are the 5 ways to help profit from an acquisition?
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Improving Target Company Performance
This is what Private Equity firms are good at Consolidate to Remove Excess Capacity from Industry Example: Airline Industry Accelerate Market Access for Target’s Products Example: Google’s Acquisition of Nest Labs Acquire Skills or Technology Faster/Cheaper than Building It This is what Cisco does Pick Winners Early in their Lifecycle SEE READING |
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What is the Foreign Corrupt Practice Act?
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Foreign Corrupt Practice Act (FCPA)
It is a federal criminal offense for any: Domestic concern (US person or entity) Issuer (registered with the SEC) Foreign persons acting in the US Prohibits bribery of foreign government or political officials for purpose of obtain business Requires SEC-registered companies to maintain accurate books and records (and implement adequate internal controls) |
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What is classified as a bribe as the Foreign Corrupt Practice Act?
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Not just “cash in an envelope”
Gifts Use of materials, equipment, facilities Transportation and hospitality Offers of employment Scholarships and access to education None of these would show up on a company’s financial statements! |
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What are some enforcement trends regarding the Foreign Corrupt Practice Act?
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Dramatic rise in enforcement actions by Department of Justice and the SEC (against corporations and individuals)
5 actions in 2004 40 actions in 2009 74 actions in 2010 140 actions in 2011 170 actions in 2012 Record penalties: Siemens ($800 million) – bribery (Argentina) Alcatel/Lucent ($137 million) – bribery (Latin America and Asia) BAE Systems ($400 million) – bribery (Saudi Arabia) ENI/Snamprogetti ($365 million) – bid rigging (Nigeria) Another cautionary tale: Wal-Mart – illegal payments to open new stores in Mexico This is bribery Company officials found out, but didn’t self-report |
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What is the difference between a merger and an acquisition?
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Relates to how the deals are structured
Merger: Two companies legally combine to operate as one company going forward Example: Delta and Northwest combined to form the world’s largest airline Acquisition: One company buys another company’s stock or assets for cash, stock, or other forms of consideration Example: Kraft Foods acquired Cadbury in a stock purchase valued at approximately $19 billion; created the world’s second largest food company Don’t necessarily need to purchase 100% of other company Owning more than 50% of another company equals controlling ownership |
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What are some ways for a company to identify and mitigate corruption?
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Review internal controls
Educate executives and staff Evaluate contracts Due diligence on vendors/suppliers and customers Background checks Understand culture |
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Why would a company merge with or acquire another company?
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1 + 1 = 3
The key principle behind buying a company is to create value 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. |
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What are some potential challenges regarding mergers and acquisitions? What are some negative synergies?
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Negative Synergies:
Revenue overlaps Competitors jump in Different policies and procedures Challenges Affecting Realization of Value: Delays in integration Underestimated costs and complexities of integration Overestimation of synergies Culture clashes |
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What are strategic alliances and joint ventures?
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Long-term partnerships
Joint Ventures (JVs) involve 2 or more companies creating a new company for the venture Other alliances can be simply based on a contract |
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What is the purpose of a strategic alliance and joint venture? What advantages does it have over mergers and acquisitions?
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Purposes:
Research & development activities Production with shared inputs Selling product Entry point to emerging markets Less risky than M&A Good for projects with a limited life span (e.g., a construction project) |
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What is a divestiture?
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Sale of a free-standing corporation
Sale of a subsidiary (such as Google selling Motorola to another company, since it had previously acquired Motorola) Sale of a division or other piece of a business |
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What are some tips for a seller interested in a divestiture?
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Prepare – strategy (don’t be the Underpants Gnomes!)
Know the entity being divested Sell-side due diligence (preparing the business to sell) Strengths and weaknesses Minimize reliance on Transition Services Agreements (TSAs) – Contracts that make transition to new owners smooth (e.g., use of computer systems) Beware of "stranded costs" (sometimes when you sell a business, you think you sold anything but there are still some ongoing costs that you did not consider) Attract more, high quality buyers Earn a better price Keep the process smooth But cut the cord Don’t strengthen the competition |
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What are the stages of distress?
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Healthy
Underperforming Distressed (difficulty meeting debt obligations, paying employees, etc.) Bankruptcy (official legal state) Post-reorganization |
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What are some signs that a company is in distress?
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Overextended borrowing
Unable to pay Unable to restructure/refinance Asset values that securitize debt had been declining Other liquidity problems Unable to pay other parties (employees, suppliers) Profitability issues Revenues falling Expenses are fixed and cannot be cut Shrinking customer base and customers aren’t paying |
