M&A 101 Presented by Amy Wu June 3, 2014

Get ready to Test your M&A savvy Ready? Set, Go! YES or NO?

A merger is the same thing as an acquisition

QUESTION #1

Ready? Set, Go! YES or NO? QUESTION #2

Mergers and acquisitions only involve publically traded companies

It’s big news

• Pfizer lures AstraZeneca • Facebook Buys WhatApp $19 billion • Google snags Best Labs $3.2 billion • Global M&A transactions in 2013 was valued at

$2.91 trillion • 2014 number of deals up from 2013

•  Source: Dealogic

BIG DEAL AND LITTLE DEALS

• Major deals - $1 billion and upwards

• Middle market - $100 million -$500 million

• Small-cap deals – up to $50 million

What’s the difference between a merger and acquisition?

QUICK CHAT: IS IT A MERGER OR ACQUISITION?

•  Apple wants to buy Skullcandy and is using a portion of their stock in the purchase

• Merger or acquisition?

•  Acquisition. When stock is used as part of the currency, that's usually a good sign that company is the acquirer and it is not a merger.

DNA OF AN M&A STORY

THE BASICS • Is it a merger or acquisition? • How much is the merger or acquisition • Names of both companies and CEOs • Head quarters of both companies • How is the deal valued; stock vs. cash transactions • 

ACQUIRING THE INGREDIENTS

• Press conference

• Conference call

• Company websites: official press releases

•  Investor relations: provides investors with an accurate account of the company's affairs

• SEC’s (U.S. Securities and Exchange Commission) Edgar database

BEYOND THE BASICS

• Why is this deal significant? (the company, the price)

• Why is the timing important? Why now?

• How long have talks been going on for?

• What is the company’s strategy?

BEYOND THE BASICS II

• Research analysts at investment banks • Research firms e.g. Forrester

Research, Nielsen Group, Dealogic LLC

• The company (CEO, CFO, in-house lawyers)

• Universities and business schools

• 

GO DEEPER

•  How is the deal valued; stock vs. cash transactions

•  Who (founder and/or employees) is receiving the stock units, and how much?

•  Stock vs. cash transactions and what that suggests

•  Price of shares before, during and after the deal, what this means

AND EVEN DEEPER: HOW MERGERS AND ACQUISITIONS AFFECT STOCK PRICES

• Stock prices Can Change Even After A Merger Is Announced

• Acquiring company's stock will fall

• Target company’s stock will rise

• Uncertainty can lower prices

WHY ARE PRICES AFFECTED?

• Target company's stock usually goes up

• Acquiring company (typically) needs to pay a premium for the acquisition

• Acquiring company's stock usually goes down

• Acquiring company must pay more than the target company currently is

worth to help the deal go through

• Uncertainty and additional challenges

HOW TO GO DEEPER •  Investment banks who led the

deal

• Law firms who led the deal

• What banks and law firms advised both companies? What were the previous relationships with the companies?

AND EVEN DEEPER

•  Who is the winner and who is the loser, and why?

•  Which executives will remain in charge and who's packing? Same with directors

•  Where will company be based? •  How is the consumer impacted? •  How does this deal compare with the

companies’ previous deals? •  How does it compare with deals in the

same sector?

THE M&A PUZZLE GAME

•  A) Facebook, based in Menlo Park, Calif., will pay $4 billion in cash and $12 billion worth of shares for WhatsApp.

•  C) On Wednesday Facebook announced it would pay at least $16 billion for WhatsApp, a text messaging application.

•  B) The price shows that Facebook’s co-founder and chief executive, Mark Zuckerberg, will go to

protect his company’s turf as the dominant social network on the web.

• Put them in order of priority based on the letters of the puzzle

THE ANSWERS

• C

• A

• B

Ready? Set, Go! YES or NO? QUESTION #3 • Apple buys Skullcandy and Skullcandy’s stock rises after the

announcement and the stocks of Apple’s fall.

• Who is the acquirer?

• Apple

Ready? Set, Go! YES or NO? QUESTION #4

Mergers and acquisitions occur on the national, regional and local level

It is not just global, it’s local

ANATOMY OF AN M&A STORY

KEY TERMS

• Hostile takeover

• Bear hug

• Tender offer

• Private equity firm

• Poison pill

QUICK CHAT: THE SIX TERMS GAME READY, SET GO! WHAT KIND OF DEAL IS IT? •  In 2009, U.S. food company Kraft Foods bids

£10.5bn for Cadbury

•  Cadbury's chairman Roger Carr said the offer was an attempt to "buy Cadbury on the cheap"

•  Kraft ups the bid to £11.5bn, and says there will be no compulsory redundancies in manufacturing for two years

•  In 2010 the bid is accepted

•  After the deal is sealed in 2010 Kraft closes one of Cadbury’s factories and cuts 400 jobs

HOSTILE TAKEOVER

IN SUMMARY

• No deal is equal

• Mergers and acquisitions are not the same

• The five essentials of a deal story

• The various levels of a deal story

• Critical sources and where to find them

• Deal lingo

M&A IS A TREASURE CHEST OF STORIES

Thank you awu1@umd.edu LinkedIn: hk.linkedin.com/pub/amy-wu/3/746/962/ Facebook: https://www.facebook.com/amyhwu