© 2008 robert h. smith school of business university of maryland m&a prof. alex triantis robert...

© 2008 Robert H. Smith School of BusinessUniversity of Maryland

M&A

Prof. Alex Triantis

Robert H. Smith School of Business

September 18, 2008

© 2008 Robert H. Smith School of Business, University of Maryland

The Good (for so long)

Source: moneycentral.msn.com


The Bad (turned good)



The Ugly



The way it should be

• Create shareholder value by having the discipline to:

– Select the right target(s)• A company that the buyer can manage more effectively than the seller• A company that provides significant synergistic gains on the top line, or through

operating efficiencies.

– Negotiate the right price• Ensure that some of the value creation through the acquisition is allocated to

the buyer! Don’t pay too large a premium for the target relative to the ability to create synergistic gains.

– Structure the right deal• Negotiations revolve around more than just price

– Integrate well and realize the value creation• Disciplined approach


Common sources of synergies

• Revenue Enhancement Synergies– Cross-selling by the two firms’ sales forces; leverage distribution channels– Cross-branding between the target’s and buyer’s products – Leveraging technology (combined R&D) and technical expertise (personnel, IP, etc.)

• Cost Reduction Synergies– Economies of scale (horizontal mergers)– Greater purchasing power vis-à-vis suppliers– Elimination of supply chain intermediaries (vertical mergers)– Logistics and distribution improvements– Closing the target’s HQ– Transfer of technology/know-how– Other G&A cost takeout

• Other synergies– Tax related efficiencies– Relax financial constraints– Reduce cash buffer


Success Factors• Disciplined strategy: make vs. buy – what is the fundamental economic rationale

for buying, and at what price? (Alternatives include minority investment, JVs, strategic alliances, long-term contracts.)

• Rinse and repeat: Serial acquirers are more successful. They get better at estimating synergies that can realistically be captured, and better at PMI. “String of pearls”…

• Proactively seek (private) targets, and not through an IB-organized auction.

• Stick close to home: “bolt-on acquisitions”. This also avoids chasing hot sectors. • Pay with cash rather than stock.

• Earn-outs and other incentives for target management.

• Management of acquirer has skin in the game.


Current state of M&A

• Are deals getting done in this environment?

• How does deal volume in 2008 compare to prior years? • Comparable to 2007?

» OR

• Fewer than half of the deals as in 2007?» OR

• Worst year in the last two decades?


Key M&A drivers to consider

• Liquidity affects ability to do deals– Credit supply drying up; structured debt market is dormant

• Financial buyers have drastically curtailed acquisitions

• Strategic buyers in key industries are still acquiring– But, deals are much more tentative

• Risk affects appetite to do deals

• Other common drivers of M&A cycles:– Rapid technological change? Yes – Regulatory changes? Not so much


What deals are getting done?

• Rescue (workout) M&A– JP Morgan / Bear Stearns; BofA / Merrill; Barclay / Lehman

• Value investment (Mars / Wrigley)– Better deals in colder M&A markets

• Commodities/materials (proposed BHP / Rio Tinto)

• Cross-border deals (weak $): InBev / Anheuser-Busch


Deal structure and execution

• Big MAC attack!– Options are valuable when risk is high!– Material Adverse Change with exclusions (which ones?)

• Corporate Governance in a post-SOX world

• Due Diligence, as always– “In God we trust, everyone else must bring data!”– Scrutinize legal, accounting, tax, IP, environmental,

insurance, property, finance, operational, HR and IT issues


Thank You

Alex TriantisProfessor and Department Chair, Finance

[email protected]

© 2008 robert h. smith school of business university of maryland m&a prof. alex triantis robert...

Documents