Mergers and Acquisitions Basics: The Key Steps of Acquisitions, Divestitures, and Investments

Large and mid-sized companies looking to avoid stagnation by growing and expanding need to execute effective mergers and acquisitions (M&A) deals with sophisticated strategies, solid structures, and beneficial outcomes for everyone involved. Mergers and Acquisitions Basics, Second Edition, is the up-to-date, dependable road map for navigating all the variables, roles, complexities, and potential pitfalls of this essential business transaction.

Executives and managers who want to stay competitive and become the major players driving the evolution of their organizations need to have a firm grasp on all the ins-and-outs of M&A. With this comprehensive resource, you have all the solutions and practical guidance you need to understand the particulars of the transaction and your role in it, including new insights on international M&A. Its accessible coverage also makes it an invaluable reference for novice investment bankers, lawyers, and consultants who need to establish a fundamental understanding of M&A to build on while pursuing a deeper expertise and specialty. Regardless of your role in M&A, keep this book at your fingertips for its ready-to-use checklists, forms, sample reports, and presentations to ensure you cover all the angles while streamlining every step in the process. Lead author and veteran executive Michael Frankel is joined by Larry Forman, who adds his talents for accelerating company growth, entering new markets, and creating sustainable value. Walk into any M&A deal with confidence and conviction knowing you have the skillset to:

• Identify and analyze the critical pros and cons of purchasing or selling a company
• Employ a practical fluency of the major players, their roles, and the intricate procedures of M&A
• Negotiate the most value and best terms for your deal, regardless of who is across the table

Get to the heart of this strategic transaction and make it work for you in the real world with Mergers and Acquisitions Basics, Second Edition.

Mergers and Acquisitions Basics provides complete guidance on the M&A process, with in-depth analysis, expert insight, and practical tools for success. This new second edition has been updated to reflect the current M&A landscape, giving busy executives the ideal resource for navigating each step in the process. Veteran executives relate guidelines, lessons learned, and mistakes to avoid as they explain how M&As work, identify the major players, and describe the roles involved in a successful transaction. Both buyer and seller must consider a broad range of factors, and this essential guide provides checklists, forms, sample reports, and presentations to help you avoid surprises and ensure your organization’s full preparation for the deal. Equity investments, valuation, negotiation, integration, legal aspects, and more are explained in detail to provide a foundational primer for anyone seeking to clarify their role in the process.

Mergers and acquisitions are becoming ever more critical to the growth of large and mid-sized companies. This book balances depth and breadth to provide a one-stop guide to maximizing the financial and operational value of the deal.

• Identify key drivers of purchase or sale
• Understand major roles, processes, and practices
• Avoid valuation detractors and negotiate effectively
• Overcome common challenges to successful integration

Effective M&As are highly strategic, solidly structured, and beneficial on both sides. It’s a complex process with many variables, many roles, and many potential pitfalls, but navigating the deal successfully can mean the difference between growth and stagnation. Mergers and Acquisitions Basics is the comprehensive resource every executive needs to understand the ins-and-outs of strategic transactions.

Table of Contents

Preface ix

Acknowledgments xi

CHAPTER 1 Introduction 1

Notes 8

CHAPTER 2 The Players 10

The Buyer 10

The Seller 17

Investors/Owners 19

Corporate Staff 29

Advisors 36

Regulators 46

Others 49

Notes 51

CHAPTER 3 Decision to Buy or Sell 55

Reasons to Buy 56

Choosing to Sell 70

Notes 84

CHAPTER 4 Buyer’s Preparation for the Deal 85

Developing a Strategy 85

Building a Capability 89

Devising a Process 95

Planning the Message 102

Notes 103

CHAPTER 5 Seller’s Preparation for the Deal 104

Building a Capability 104

Making the Business Most Sellable; Cleaning It Up 107

Setting Expectations with Constituents 130

Preparing the Business for Sale 134

Notes 145

CHAPTER 6 Deal Process 147

Determining the Universe of Buyers 148

Making the Approach 149

One-on-One Negotiation 151

Formal Auction 155

Informal Auction 159

Bankruptcy Auction 160

Direct versus Proxy 161

Relative Positions of Power 161

International M&A 162

Seller Behavior and Building Trust 167

Notes 173

CHAPTER 7 Due Diligence 174

Building a Team 174

What the Buyer Wants to Know 186

Notes 209

CHAPTER 8 Valuation 211

Standard Valuation Methods 212

Pro Forma: Finding and Splitting the Upside 228

Getting the Valuation and Pro Forma Done 239

Deal Structure and Consideration 255

Notes 259

CHAPTER 9 Integration Planning 261

Dedicating Resources 262

Linking Due Diligence to Integration Planning and Execution 263

Key Integration Issues 264

Notes 275

CHAPTER 10 Financing Issues 276

Cost of Capital 276

Lost Opportunities 285

Financing Contingency: “Bird in the Hand” 286

Notes 287

CHAPTER 11 Closing the Deal and After 288

How Is a Deal Closed? 288

Other Signing and Closing Events 291

Post-Closing Issues 294

Integration and Look Back (the Postmortem) 295

Note 296

APPENDIX A Standard Form Deliverables During a Strategic Transaction Example 297

APPENDIX B

B1: Due Diligence Report Table of Contents 298

B2: Due Diligence Report for Project X 299

APPENDIX C Standard Deal Process Checklist Example 301

APPENDIX D Standard Approval Process Example 303

APPENDIX E Approval of a Strategic Transaction: Key Topics in Presentation 304

APPENDIX F Generic Valuation Exercise 306

APPENDIX G Generic Acquisition Term Sheet for Acquisition by Public Buyer of Privately Held Target 307

APPENDIX H Generic Investment Term Sheet for Project “Moon” 313

APPENDIX I Notable Transaction Issues by Country/Territory 315

Index 325