Should we acquire?

(M&A)
Here are 2 possible approaches when considering an M&A case.
Remember to tailor your approach to the case and be specific as
possible in your answers!
• Discounted cash flow
• Industry multiple
Standalone value • Market comparison
• Assets vs liabilities

• New markets
• Diversification
Revenue • Distribution channels
• New customers
Synergies
• Fixed
Cost • Variable

• Team/organisational structure Benefits of a merger Benefits of an acquisition

Culture • Strategic priorities Economies of scale New market/business area
• Marketing positioning/branding Vertical integration Increase in capacity
• Philosophy Horizontal integration Supply chain control ( costs)
Reduced competition Removed competition
• Have we merged before? Increase capabilities Expansion of distribution
• How will customers respond? channels
• How will competitors respond?
Risks
• Any tax/regulatory implications?

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Is the demand there?
Is the asset’s market
attractive?
Is there a favourable
competitive landscape?
• What is the market size?
• Is the market growing?
• Who are the key players?
• What market share do they own?
M&A
Diversification: a strategy to produce
new products, enter new markets or
enter new industries. This reduces the
exposure and risk of any 1 asset

• Profit analysis
Financial • Valuation
What is the asset’s
standalone value?
Non-financial • E.g. brand loyalty, patents, talent etc.

What are the potential • Revenue synergies

Are the financials attractive synergies? • Cost synergies
after the proposition?
Is the price attractive? • Assess value after considering synergies

• Have we merged before?

Do we have the capabilities?
/Are the risks too high?
• Culture risk
• How will customers respond?
• How will competitors respond? Private Equity (PE): PE firms invest in
• Will there be any tax/regulatory implications? businesses with the goal of increasing
its value over time before eventually
selling it (usually between 3-5 years)

• Do we need an exit strategy? (e.g. in private equity firms) If so, when

Other considerations and how?
• Opportunity costs – other targets? Organically grow? Etc.

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 M&A
• Access to complementary markets (new locations and/or
customer type)
• Access to better/more distribution channels
Volume • More products, access to IP and patents Synergies
• Optimised marketing force + branding
• Access to talent
•  premium product mix Synergies = when the combined value and
Price •  quality of production performance of 2 companies is greater than
•  in pricing power the sum of the aggregate parts.
Revenue
In an M&A case, you should consider if the 2
companies have synergies that make the
• Tax optimisation
Synergies Financial • Higher debt capacity
purchase worthwhile.

• Economies of scale Remember to consider risks that might

• Access to proprietary technology and patents mitigate the synergies e.g. cultural fit,
Cost • Consolidation of capital cannibalisation, regulation, experience etc.
• Consolidation of talent, lower salary costs
• Increase in efficiency

Valuation
• The industry ratio between a financial metric (e.g. profit)
Industry and the value
multiple • Value = annual profit x industry multiple You might be asked to value a company or a
proposition as part of your analysis to decide if
it is worthwhile.
Methods of Industry • Compare price with other similar businesses that
Valuation comparison have recently been sold Here are 3 methods you can mention. The most
likely method to come up would be a simplified
• This values all future cash flows at today’s value, by applying version of the net present value analysis,
a discount rate, taking into account the time value of money
Net present assuming perpetuity.
• The thought process: how much money do you need to put in
value You can assume cashflow = profits
the bank today to generate the same amount of cash flow
each year from the interest?
𝑬𝒙𝒑𝒆𝒄𝒕𝒆𝒅 𝒂𝒏𝒏𝒖𝒂𝒍 𝒄𝒂𝒔𝒉 𝒇𝒍𝒐𝒘 Remember to ask for any missing data before
• Value = your calculation.
𝑫𝒊𝒔𝒄𝒐𝒖𝒏𝒕 𝒓𝒂𝒕𝒆 (𝒐𝒓 𝒊𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝒓𝒂𝒕𝒆)

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