View
26
Download
1
Category
Preview:
DESCRIPTION
Mergers & Acquisitions: The Process. Prof. Ian Giddy New York University. The Acquisition Process. Application: The “Stop and Shop” Deal Motivation for Takeover: Market Value vs. "Realizable Value" Hostile vs. Friendly Takeover vs Management Buy Out - PowerPoint PPT Presentation
Citation preview
Prof. Ian GiddyNew York University
Mergers & Acquisitions:The Process
Copyright ©1999 Ian H. Giddy M&A 2
The Acquisition Process
Application: The “Stop and Shop” Deal Motivation for Takeover: Market Value vs. "Realizable
Value" Hostile vs. Friendly Takeover vs Management Buy Out Restructuring of Debt and Equity Structure Leveraging and De-Leveraging Debt Covenants vs. Equity Control Use of High-Yield Bonds, Bank Debt, Private
Placements and Bridge Loan Pricing and Placing the Securities Subsequent Refinancing
Copyright ©1999 Ian H. Giddy M&A 5
M&A Advisory Services:1. Role of the Seller's Advisor
Develop list of buyers Analyze how different buyers would evaluate company Determine value of the company and advise seller on
probable selling price range Prepare descriptive materials showing strong points Contact buyers Control information process Control bidding process Advise on the structure of the transaction to give value to
both sides Ensure all nonfinancial terms are settled early Smooth postagreement documentation
Copyright ©1999 Ian H. Giddy M&A 6
M&A Advisory Services:2. Role of Buyer's Advisor
Thoroughly review target & subs Advise on probable price range Advise on target's receptiveness Evaluate target's options and anticipate actions Devise tactics Consider rival buyers Recommend financial structure and plan financing Advise on initial approach and follow-up Function as liason Advise on the changing tactical situation Arrange the purchase of shares through a tender offer Help arrange long term financing and asset sales
Copyright ©1999 Ian H. Giddy M&A 7
Case Study: Citigroup
Questions: How would evaluate the probabilty that there
will be positive net economic value out of the combination of Citicorp and Travelers?
Where will the value come from? How long should it take for the value to be
realized? What factors could destroy value?
Copyright ©1999 Ian H. Giddy M&A 8
Value Based Management
An Integrative Process
Focus business planning around value creation
Develop value oriented targets and performance measurement
Restructure compensation system with an emphasis on creating shareholder value
Evaluate strategic investment decisions in terms of their impact on value
Communicate value of corporate plans to investors and analysts
A CreativeMindset
Improve strategic and operational decision making
Widen scope of VBM to cover all organizational processes
Focus on key drivers of corporate value
Utilize the Economic Profit and Discounted Cash Flow valuation techniques
Copyright ©1999 Ian H. Giddy M&A 9
Analytic Framework For Diagnosing Market Performance
1. Review market performance Determine returns to shareholders compared with other
investments
2. Analyze comparative corporate performance Develop initial picture of company performance that underlies
market performance
3. Understand corporate cash flow Identify where the corporation has been generating and
investing cash and the return this investment is generating
4. Synthesize market views Identify assumptions that form basis for current market value
Copyright ©1999 Ian H. Giddy M&A 10
Impact Of Value Based Management On Performance, Examples
Business
Retail Householdgoods
Insurance
Banks
Change in Behaviour
Shifted from broad national growth program to focus on building regional scale before expanding
Repositioned product portfolio to emphasize products most likely to create value
Chose growth versus harvest strategy, even though five-year return on equity very similar
Impact 30-40% potential
value increase
25% potential value increase
124% potential value increase
Copyright ©1999 Ian H. Giddy M&A 11
Impact Of Value Based Management On Performance, Examples
Business
Oil Production
Change in Behaviour
Used new planning and control process to help drive major change program; dramatic improvement in corporate-business dialogue
Impact
Multimillion dollar reduction in planning function through streamlining
Acquisition that likely would not have otherwise happenned
Exposed nonperforming managers
Copyright ©1999 Ian H. Giddy M&A 12
Impact Of Value Based Management On Performance, Examples
Business
Telecommunications
Change in Behaviour Generated ideas for
value creation New service
Premium pricing
Around 40% of planned development projects in one business unit discontinued
Sales force expansion plans completely revised after discovering how much value expansion can destroy
Impact
240% potential value increase in one unit
246% potential value increase in one unit
n/a
n/a
Copyright ©1999 Ian H. Giddy M&A 13
Framework For PostAcquisition Integration: Steps 1 and 2
1. Clarify purpose/set expectations
Establish a transition mechanism Manage expectations of acquired management Reach agreement on top organizational issues Plan and schedule first postacquisition actions
2. Communicate, control, and plan integration Reassure key constituencies Agree on a “get-acquainted” stage Take the necessary control actions Plan integration process
Copyright ©1999 Ian H. Giddy M&A 14
Framework For PostAcquisition Integration: Steps 3 and 4
3. Develop strategy/basic structure Organize fact-finding task forces Establish and test initial working hypothesis Build a fact-based understanding of the comparative
business systems and market positions of the companies Identify opportunities for growth and enhancement of
competitive advantage Rank priorities
4. Refine organization/strategy review initial strategy, including test of anticipated
operating synergies Review organizational similarities and differences Implement strategic and organizational change
www.stern.nyu.edu
www.giddy.org
Recommended