461 Class Notes

461 Class Notes - FIN 461 Class Notes 1/11 Notes Investment...

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Unformatted text preview: FIN 461 Class Notes 1/11 Notes Investment Banking- Help firms raise capital (done with an IPO, etc.)- Advising (M&A)- Market Makers- Compile market research- Transactions for clients (Trading) Why are there peaks and valleys in M&A activity?- Liquid capital markets easy financing opportunities- Changes in value- Technology shifts in uses of technology, or lots of start-ups- Regulatory changes- Competition- Opportunities for synergies (at a more deal-level) Synergies- Operational synergies o Power over suppliers/customers o Access to new markets o Acquiring brands o Eliminate redundancies o Distribution savings- Financial synergies o Lower the cost of capital Lowers it for one, raises it for the other. Look to lower the cost of capital for the company that has higher growth potential and needs additional financing Diversification- Tends to destroy value o Management team is less focused on their core competencies o Less efficient allocation of resources Spending money on a branch that doesnt deserve the attention o Inefficient decision making Strategic motives- First mover advantage, or may want to eliminate some of the potential competition Hubris- Confidence in the area. Sometimes can be over-confidence Buying undervalued assets Mismanagement- The new controlling group can manage the firm more efficiently Mangerialism- Manager is trying to build an empire. He has significant personal financial motivation Tax Considerations- Apply the losses of the target company to bidders gains to offset tax implication of bidder Strategic Buyer- Two operating companies (Dell + 3PAR)- Tend to be motivated by synergies Financial Buyer- PE firm buys an operating company- Tend NOT to be motivated by synergies 1/13 Notes Corporate law is dictated at the state level. - Many firms are incorporated in Delaware o Tax Laws o Other favorable laws o Many just follow the precedent set. All the issues have typically arisen before General Regulatory considerations- Federal security laws- Antitrust- Environmental- Racketeering- Employee benefits Industry Specific- Public utilities o As close to a monopoly as there is. Additional infrastructure is inefficient- Insurance- Banking o Dodd Frank- Broadcasting- Telecom o Before the 80s, it was a monopoly, now its broken up- Defense- Transportation Important Company Filings All companies >10M$ and >500 shareholders must register with the SEC- Facebook article as example. Getting close to 500 shareholders Williams act (1968)- protect firms from rapid fire takeovers- People who start building significant stakes in firms must report it. HHI index (Herfindahl-Hirschman index) measure of the degree of competition in the industry- The sum of the squares of the market shares of each firm in an industry- Range of values: 0 - 10,000 o 0 represents lots of companies in industry, 10,000 is a monopoly o If industry HHI<1000, that is an un-concentrated market. Likely to be no concerns o If 1000 <HHI <1800, that is a moderately concentrated industry. It is a concern if If 1000 <HHI <1800, that is a moderately concentrated industry....
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461 Class Notes - FIN 461 Class Notes 1/11 Notes Investment...

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