Class 25 MA BSBA 2011 Legal DD (1)

Class 25 MA BSBA 2011 Legal DD (1) - BSBA599 Mergers &...

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Spring 2011 1 Prof. David Ravenscraft Kenan-Flagler Business School University of North Carolina Session 25: Legal and Due Diligence
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2 Acquisition Process STRATEGY - DOES THE MERGER CREATE VALUE? DEAL PROCESS- CAN THE BIDDER CAPTURE THE VALUE? HOW TO PREVENT INTEGRATION PROBLEMS FROM DESTROYING VALUE? -Strategic Planning Corp. Level Strategy Industry Analysis Acq. Strat. (Synergy) Merger Environment Stock Market Eval. -Origination or Sourcing Target Initiated (IB) -Pre-valuation analysis - Financing Decision -Tax & Accounting - Antitrust & Regulation -Initial Contact - Confidentiality Agreement - Prelim Due Diligence -Detailed Valuation -Deal Approval Pitch - Letter of Intent - Extensive Due Diligence -Starts with Due Diligence -Integration Manager Teams -Integration Plan - Integration Speed, Autonomy, Assimilation -Focus on Problem Solving
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M&A Synergies and Valuation
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Valuation Formula (Rappaport) Maximum Premium = Value of synergies created Maximum acceptable = purchase price Stand-alone value of the seller Value of the acquisition synergies + If synergy is a bad word, then so is M&A. M&A is all about synergy
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Easy Valuation Example Three Firms in an Industry 2 Bidder and 1 Target Stand Alone Value of Target is $700 Synergies for both bidders is $600 Sources of Synergies equally divided between Reduced Excess Capacity, Economies of Scale, Capturing a new untapped market, and cross-selling to competitors customers What is the maximum you should
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6 COMPETITIVE BIDDING FOR TARGET FIRM 2 800 900 800 50 50 -400 400 FIRM 1 900 400 -400 0 0 Values in matrix are in millions of dollars Assumption: Target worth $700 million as a stand alone and $600 million in synergies to the winning firm. $400 million of those synergies comes from a competitive advantage the winning firm gains over the losing firms. (I.e., the $400 million comes out of the losing firms profits.)
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This note was uploaded on 02/13/2012 for the course BUSI 599 taught by Professor Ravenscraft during the Fall '10 term at UNC.

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Class 25 MA BSBA 2011 Legal DD (1) - BSBA599 Mergers &...

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