Mergers and acquisitions From Wikipedia

Mergers and acquisitions From Wikipedia, the free encyclopedia HYPERLINK https// l mw-head HYPERLINK https// l p-search INCLUDEPICTURE https// MERGEFORMATINET It has been suggested that this article be HYPERLINK https// o WikipediaSplitting splitinto articles titled HYPERLINK https// o Takeover TakeoverandMergers and acquisitions. ( HYPERLINK https// l Refactor o TalkTakeover Discuss)(February 2018)For The Sopranos episode, see HYPERLINK https// o Mergers and Acquisitions (The Sopranos) Mergers and Acquisitions (The Sopranos). For other uses, see HYPERLINK https// o Merge (disambiguation) Merge (disambiguation)and HYPERLINK https// o Acquisition (disambiguation) Acquisition (disambiguation). INCLUDEPICTURE https// MERGEFORMATINET hideThis article has multiple issues.Please help HYPERLINK https// improve itor discuss these issues on the HYPERLINK https// o TalkMergers and acquisitions talk page.( HYPERLINK https// o HelpMaintenance template removal Learn how and when to remove these template messages) This article includes a HYPERLINK https// o WikipediaCiting sources list of references, butits sources remain unclearbecause it hasinsufficient HYPERLINK https// l Inline_citations o WikipediaCiting sources inline citations.(April 2015) Some of this articles HYPERLINK https// o WikipediaCiting sources listed sourcesmay not be HYPERLINK https// o WikipediaIdentifying reliable sources reliable.(April 2015) HYPERLINK https// o Corporate finance Corporate finance HYPERLINK https// o Looking north from the Empire State Building, New York City, 2005 INCLUDEPICTURE https// MERGEFORMATINET HYPERLINK https// o Working capital Working capital HYPERLINK https// o Cash conversion cycle Cash conversion cycle HYPERLINK https// o Return on capital Return on capital HYPERLINK https// o Economic value added Economic value added HYPERLINK https// o Just-in-time (business) Just-in-time HYPERLINK https// o Economic order quantity Economic order quantity HYPERLINK https// o Discounts and allowances Discounts and allowances HYPERLINK https// o Factoring (finance) FactoringSections HYPERLINK https// o Managerial finance Managerial finance HYPERLINK https// o Financial accounting Financial accounting HYPERLINK https// o Management accounting Management accounting Mergers and acquisitions HYPERLINK https// o Balance sheet Balance sheet analysis HYPERLINK https// o Business plan Business plan HYPERLINK https// o Corporate action Corporate actionSocietal components HYPERLINK https// o Financial market Financial market HYPERLINK https// o Financial market participants Financial market participants HYPERLINK https// o Corporate finance Corporate finance HYPERLINK https// o Personal finance Personal finance HYPERLINK https// o Peer-to-peer lending Peer-to-peer lending HYPERLINK https// o Public finance Public finance HYPERLINK https// o Bank Banks and banking HYPERLINK https// o Financial regulation Financial regulation HYPERLINK https// o Clawback Clawback HYPERLINK https// o TemplateCorporate finance v HYPERLINK https// o Template talkCorporate finance t HYPERLINK https// eMergers and acquisitions(MA) are transactions in which the ownership of HYPERLINK https// o Company companies, other business organizations or their operating units are transferred or combined. As an aspect of HYPERLINK https// o Strategic management strategic management, MA can allow enterprises to grow, shrink, and change the nature of their business or competitive position. From a legal point of view, a merger is a legal consolidation of two entities into one entity, whereas an acquisition occurs when one entity takes ownership of another entitys HYPERLINK https// o Stock stock, HYPERLINK https// o Equity (finance) equity interestsor HYPERLINK https// o Asset assets. From a commercial and economic point of view, both types of transactions generally result in the HYPERLINK https// o Consolidation (business) consolidationof assets and liabilities under one entity, and the distinction between a merger and an acquisition is less clear. A transaction legally structured as an acquisition may have the effect of placing one partys business under the indirect ownership of the other partys shareholders, while a transaction legally structured as a merger may give each partys shareholders partial ownership and control of the combined enterprise. A deal may be HYPERLINK https// o Euphemism euphemisticallycalled amerger of equalsif both HYPERLINK https// o Chief executive officer CEOsagree that joining together is in the best interest of both of their companies, while when the deal is unfriendly (that is, when the management of the target company opposes the deal) it may be regarded as an acquisition. Contents hide HYPERLINK https// l Acquisition 1Acquisition HYPERLINK https// l Legal_structures 2Legal structures HYPERLINK https// l Documentation 3Documentation HYPERLINK https// l Business_valuation 4Business valuation HYPERLINK https// l Financing 5Financing HYPERLINK https// l Cash 5.1Cash HYPERLINK https// l Stock 5.2Stock HYPERLINK https// l Financing_options 5.3Financing options HYPERLINK https// l Specialist_advisory_firms 6Specialist advisory firms HYPERLINK https// l Motivation 7Motivation HYPERLINK https// l Improving_financial_performance_or_reducing_risk 7.1Improving financial performance or reducing risk HYPERLINK https// l Other_types 7.2Other types HYPERLINK https// l Different_types 8Different types HYPERLINK https// l By_functional_roles_in_market 8.1By functional roles in market HYPERLINK https// l By_business_outcome 8.2By business outcome HYPERLINK https// l Arms_length_mergers 8.3Arms length mergers HYPERLINK https// l Strategic_mergers 8.4Strategic mergers HYPERLINK https// l Acqui-hire 8.5Acqui-hire HYPERLINK https// l Merger_of_equals 8.6Merger of equals HYPERLINK https// l Research_and_statistics_for_acquired_organizations 9Research and statistics for acquired organizations HYPERLINK https// l Brand_considerations 10Brand considerations HYPERLINK https// l History 11History HYPERLINK https// l The_Great_Merger_Movement_1895E280931905 11.1The Great Merger Movement 18951905 HYPERLINK https// l Short-run_factors 11.1.1Short-run factors HYPERLINK https// l Long-run_factors 11.1.2Long-run factors HYPERLINK https// l Objectives_in_more_recent_merger_waves 11.2Objectives in more recent merger waves HYPERLINK https// l Largest_Deals_in_history 11.3Largest Deals in history HYPERLINK https// l Cross-border 12Cross-border HYPERLINK https// l Introduction 12.1Introduction HYPERLINK https// l In_emerging_countries 12.2In emerging countries HYPERLINK https// l Failure 13Failure HYPERLINK https// l Major 14Major HYPERLINK https// l See_also 15See also HYPERLINK https// l References 16References HYPERLINK https// l Further_reading 17Further reading Acquisition HYPERLINK https// o Edit section Acquisition edit Main article HYPERLINK https// o Takeover Takeover Anacquisitionortakeoveris the HYPERLINK https// o Purchase purchaseof one business or company by another company or other business entity. HYPERLINK https// l cite_note-1 1Specific acquisition targets can be identified through myriad avenues including market research, trade expos, or sent up from internal business units, among others. HYPERLINK https// l cite_note-2 2Such purchase may be of 100, or nearly 100, of the assets or ownership equity of the acquired entity.Consolidationoccurs when two companies combine to form a new enterprise altogether, and neither of the previous companies remains independently. Acquisitions are divided into private and public acquisitions, depending on whether the acquiree or merging company (also termed atarget) is or is not listed on a HYPERLINK https// o Stock exchange public stock market. Some public companies rely on acquisitions as an important value creation strategy. HYPERLINK https// l cite_note-3 3An additional dimension or categorization consists of whether an acquisition is HYPERLINK https// l Friendly_takeovers o Takeover friendlyor HYPERLINK https// o Hostile takeover hostile. Achieving acquisition success has proven to be very difficult, while various studies have shown that 50 of acquisitions were unsuccessful. HYPERLINK https// l cite_note-4 4Serial acquirers appear to be more successful with MA than companies who make an acquisition only occasionally (see Douma Schreuder, 2013, chapter 13). HYPERLINK https// l cite_note-5 5The new forms of buy out created since the crisis are based on serial type acquisitions known as an ECO Buyout which is a co-community ownership buy out and the new generation buy outs of the MIBO (Management Involved or Management Institution Buy Out) and MEIBO (Management Employee Involved Buy Out). INCLUDEPICTURE https// MERGEFORMATINET Look up HYPERLINK https// o wiktionarymerger mergerin Wiktionary, the free dictionary.Whether a purchase is perceived as being a friendly one or hostile depends significantly on how the proposed acquisition is communicated to and perceived by the target companys board of directors, employees and shareholders. It is normal for MA deal communications to take place in a so-called confidentiality bubble wherein the flow of information is restricted pursuant to confidentiality agreements. HYPERLINK https// l cite_note-6 6In the case of a friendly transaction, the companies cooperate in negotiations in the case of a hostile deal, the board and/or management of the target is unwilling to be bought or the targets HYPERLINK https// o Board of directors boardhas no prior knowledge of the offer. Hostile acquisitions can, and often do, ultimately become friendly, as the acquiror secures endorsement of the transaction from the board of the acquiree company. This usually requires an HYPERLINK https// o Bargaining improvement in the termsof the offer and/or through negotiation. Acquisition usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger and/or longer-established company and retain the name of the latter for the post-acquisition combined entity. This is known as a HYPERLINK https// o Reverse takeover reverse takeover. Another type of acquisition is the HYPERLINK https// o Reverse merger reverse merger, a form of transaction that enables a HYPERLINK https// o Private company private companyto be publicly listed in a relatively short time frame. A reverse merger occurs when a privately held company (often one that has strong prospects and is eager to raise financing) buys a publicly listed shell company, usually one with no business and limited assets. The combined evidence suggests that the shareholders of acquired firms realize significant positive abnormal returns while shareholders of the acquiring company are most likely to experience a negative wealth effect. HYPERLINK https// l cite_note-7 7The overall net effect of MA transactions appears to be positive almost all studies report positive returns for the investors in the combined buyer and target firms. This implies that MA creates economic value, presumably by transferring assets to management teams that operate them more efficiently (see Douma Schreuder, 2013, chapter 13). There are also a variety of structures used in securing control over the assets of a company, which have different tax and regulatory implications The buyer buys the shares, and therefore control, of the target company being purchased. Ownership control of the company in turn conveys effective control over the assets of the company, but since the company is acquired intact as a HYPERLINK https// o Going concern going concern, this form of transaction carries with it all of the liabilities accrued by that business over its past and all of the risks that company faces in its commercial environment. The buyer buys the assets of the target company. The cash the target receives from the sell-off is paid back to its shareholders by dividend or through liquidation. This type of transaction leaves the target company as an HYPERLINK https// o Shell corporation empty shell, if the buyer buys out the entire assets. A buyer often structures the transaction as an asset purchase to cherry-pick the assets that it wants and leave out the assets and liabilities that it does not. This can be particularly important where foreseeable liabilities may include future, unquantified damage awards such as those that could arise from litigation over defective products, HYPERLINK https// o Employee benefits employee benefitsor terminations, or environmental damage. A disadvantage of this structure is the tax that many jurisdictions, particularly outside the United States, impose on transfers of the individual assets, whereas stock transactions can frequently be structured as like-kind exchanges or other arrangements that are tax-free or tax-neutral, both to the buyer and to the sellers shareholders. The terms HYPERLINK https// o Demerger demerger, HYPERLINK https// o Corporate spin-off spin-off and spin-out are sometimes used to indicate a situation where one company splits into two, generating a second company which may or may not become separately listed on a stock exchange. As per knowledge-based views, firms can generate greater values through the retention of knowledge-based resources which they generate and integrate. HYPERLINK https// l cite_note-8 8Extracting technological benefits during and after acquisition is ever challenging issue because of organizational differences. Based on the content analysis of seven interviews authors concluded five following components for their grounded model of acquisition Improper documentation and changing implicit knowledge makes it difficult to share information during acquisition. For acquired firm symbolic and cultural independence which is the base of technology and capabilities are more important than administrative independence. Detailed knowledge exchange and integrations are difficult when the acquired firm is large and high performing. Management of executives from acquired firm is critical in terms of promotions and pay incentives to utilize their talent and value their expertise. Transfer of technologies and capabilities are most difficult task to manage because of complications of acquisition implementation. The risk of losing implicit knowledge is always associated with the fast pace acquisition. An increase in acquisitions in the global business environment requires enterprises to evaluate the key stake holders of acquisition very carefully before implementation. It is imperative for the acquirer to understand this relationship and apply it to its advantage. HYPERLINK https// o Employee retention Employee retentionis possible only when resources are exchanged and managed without affecting their independence. HYPERLINK https// l cite_note-9 9 Legal structures HYPERLINK https// o Edit section Legal structures edit Corporate acquisitions can be characterized for legal purposes as either asset purchases in which the seller sells business assets to the buyer, or equity purchases in which the buyer purchases equity interests in a target company from one or more selling shareholders. Asset purchases are common in technology transactions where the buyer is most interested in particular HYPERLINK https// o Intellectual property intellectual propertyrights but does not want to acquire liabilities or other contractual relationships. HYPERLINK https// l cite_note-10 10An asset purchase structure may also be used when the buyer wishes to buy a particular division or unit of a company which is not a separate legal entity. There are numerous challenges particular to this type of transaction, including isolating the specific assets and liabilities that pertain to the unit, determining whether the unit utilizes services from other units of the selling company, transferring employees, transferring permits and licenses, and ensuring that the seller does not compete with the buyer in the same business area in the future. HYPERLINK https// l cite_note-mckenna-11 11 Structuring the sale of a financially distressed company is uniquely difficult due to the treatment of non-compete covenants, consulting agreements, and business goodwill in such transactions. HYPERLINK https// l cite_note-12 12 Mergers, asset purchases and equity purchases are each taxed differently, and the most beneficial structure for tax purposes is highly situation-dependent. One hybrid form often employed for tax purposes is atriangular merger, where the target company merges with a HYPERLINK https// o Shell company shell companywholly owned by the buyer, thus becoming a subsidiary of the buyer. In a forward triangular merger, the buyer causes the target company to merge into the subsidiary a reverse triangular merger is similar except that the subsidiary merges into the target company. Under the U.S. HYPERLINK https// o Internal Revenue Code Internal Revenue Code, a forward triangular merger is taxed as if the target company sold its assets to the shell company and then liquidated, whereas a reverse triangular merger is taxed as if the target companys shareholders sold their stock in the target company to the buyer. HYPERLINK https// l cite_note-13 13 Documentation HYPERLINK https// o Edit section Documentation edit The documentation of an MA transaction often begins with a HYPERLINK https// o Letter of intent letter of intent. The letter of intent generally does not bind the parties to commit to a transaction, but may bind the parties to confidentiality and exclusivity obligations so that the transaction can be considered through a HYPERLINK https// o Due diligence due diligenceprocess involving lawyers, accountants, tax advisors, and other professionals, as well as business people from both sides. HYPERLINK https// l cite_note-mckenna-11 11 After due diligence is completed, the parties may proceed to draw up a definitive agreement, known as a merger agreement, share purchase agreement or asset purchase agreement depending on the structure of the transaction. Such contracts are typically 80 to 100 pages long and focus on five key types of terms HYPERLINK https// l cite_note-14 14 Conditions, which must be satisfied before there is an obligation to complete the transaction. Conditions typically include matters such as regulatory approvals and the lack of any HYPERLINK https// o Material adverse change material adverse changein the targets business. HYPERLINK https// l Representations_versus_warranties o Contract Representations and warrantiesby the seller with regard to the company, which are claimed to be true at both the time of signing and the time of closing. Sellers often attempt to craft their representations and warranties with knowledge qualifiers, dictating the level of knowledge applicable and which seller parties knowledge is relevant. HYPERLINK https// l cite_note-15 15Some agreements provide that if the representations and warranties by the seller prove to be false, the buyer may claim a refund of part of the purchase price, as is common in transactions involving privately held companies (although in most acquisition agreements involving public company targets, the representations and warranties of the seller do not survive the closing). Representations regarding a target companys net working capital are a common source of post-closing disputes. HYPERLINK https// o Covenant (law) Covenants, which govern the conduct of the parties, both before the closing (such as covenants that restrict the operations of the business between signing and closing) and after the closing (such as covenants regarding future income tax filings and tax liability or post-closing restrictions agreed to by the buyer and seller parties). Termination rights, which may be triggered by a breach of contract, a failure to satisfy certain conditions or the passage of a certain period of time without consummating the transaction, and fees and damages payable in case of a termination for certain events (also known as breakup fees). Provisions relating to obtaining required shareholder approvals under state law and related SEC filings required under federal law, if applicable, and terms related to the mechanics of the legal transactions to be consummated at closing (such as the determination and allocation of the purchase price and post-closing adjustments (such as adjustments after the final determination of working capital at closing or earnout payments payable to the sellers), repayment of outstanding debt, and the treatment of outstanding shares, options and other equity interests). An indemnification provision, which provides that an indemnitor will indemnify, defend, and hold harmless the indemnitee(s) for losses incurred by the indemnitees as a result of the indemnitors breach of its contractual obligations in the purchase agreement HYPERLINK https// l cite_note-16 16 Post-closing, adjustments may still occur to certain provisions of the purchase agreement, including the purchase price. These adjustments are subject to enforceability issues in certain situations. HYPERLINK https// l cite_note-17 17Alternatively, certain transactions use the locked box approach where the purchase price is fixed at signing and based on sellers equity value at a pre-signing date and an interest charge. HYPERLINK https// l cite_note-18 18 Business valuation HYPERLINK https// o Edit section Business valuation edit The five most common ways to value a business are HYPERLINK https// o Asset valuation asset valuation, historical earnings valuation, future maintainable earnings valuation, HYPERLINK https// o Relative valuation relative valuation(comparable company and HYPERLINK https// o Comparable transactions comparable transactions), HYPERLINK https// o Discounted cash flow discounted cash flow(DCF) valuation Professionals who value businesses generally do not use just one of these methods but acombinationof some of them, as well as possibly others that are not mentioned above, in order to obtain a more accurate value. The information in the balance sheet or income statement is obtained by one of three HYPERLINK https// o Accounting accountingmeasures a Notice to Reader, a Review Engagement or an HYPERLINK https// o Audit Audit. Accurate business valuation is one of the most important aspects of MA as valuations like these will have a major effect on the price that a business will be sold for. Most often this information is expressed in a Letter of Opinion of Value (LOV) when the business is being valuated for interests sake. There are other, more detailed ways of expressing the value of a business. While these reports generally get more detailed and expensive as the size of a company increases, this is not always the case as there are many complicated industries which require more attention to detail, regardless of size. Objectively evaluating the historical and prospective performance of a business is a challenge faced by many. Generally, parties rely on independent third parties to conduct due diligence studies or business assessments. To yield the most value from a business assessment, objectives should be clearly defined and the right resources should be chosen to conduct the assessment in the available timeframe. HYPERLINK https// l cite_note-19 19 As synergy plays a large role in the valuation of acquisitions, it is paramount to get the value of synergies right. Synergies are different from the sales price valuation of the firm, as they will accrue to the buyer. Hence, the analysis should be done from the acquiring firms point of view. Synergy-creating investments are started by the choice of the acquirer, and therefore they are not obligatory, making them essentially real options. To include this real options aspect into analysis of acquisition targets is one interesting issue that has been studied lately. HYPERLINK https// l cite_note-20 20 Financing HYPERLINK https// o Edit section Financing edit HYPERLINK https// o Accounting Accounting HYPERLINK https// o Early 19th-century German ledger INCLUDEPICTURE https// MERGEFORMATINET HYPERLINK https// o Historical cost Historical cost HYPERLINK https// o Constant purchasing power accounting Constant purchasing power HYPERLINK https// o Management accounting Management HYPERLINK https// o Tax accounting in the United States TaxMajor types HYPERLINK https// showKey concepts HYPERLINK https// showSelected accounts HYPERLINK https// show HYPERLINK https// o Accounting standards Accounting standards HYPERLINK https// show HYPERLINK https// o Financial statement Financial statements HYPERLINK https// show HYPERLINK https// o Bookkeeping Bookkeeping HYPERLINK https// showAuditing HYPERLINK https// showPeople and organizations HYPERLINK https// showDevelopment HYPERLINK https// show INCLUDEPICTURE https// MERGEFORMATINET HYPERLINK https// o PortalBusiness and economics Business portal HYPERLINK https// o TemplateAccounting v HYPERLINK https// o Template talkAccounting t HYPERLINK https// eMergers are generally differentiated from acquisitions partly by the way in which they are financed and partly by the relative size of the companies. Various methods of financing an MA deal exist Cash HYPERLINK https// o Edit section Cash edit Payment by cash. Such transactions are usually termed acquisitions rather than mergers because the shareholders of the target company are removed from the picture and the target comes under the (indirect) control of the bidders shareholders. Stock HYPERLINK https// o Edit section Stock edit Payment in the form of the acquiring companys stock, issued to the shareholders of the acquired company at a given ratio proportional to the valuation of the latter. They receive stock in the company that is purchasing the smaller subsidiary. Financing options HYPERLINK https// o Edit section Financing options edit There are some elements to think about when choosing the form of payment. When submitting an offer, the acquiring firm should consider other potential bidders and think strategically. The form of payment might be decisive for the seller. With pure cash deals, there is no doubt on the real value of the bid (without considering an eventual earnout). The contingency of the share payment is indeed removed. Thus, a cash offer preempts competitors better than securities. Taxes are a second element to consider and should be evaluated with the counsel of competent tax and accounting advisers. Third, with a share deal the buyers capital structure might be affected and the control of the buyer modified. If the issuance of shares is necessary, shareholders of the acquiring company might prevent such capital increase at the general meeting of shareholders. The risk is removed with a cash transaction. Then, the balance sheet of the buyer will be modified and the decision maker should take into account the effects on the reported financial results. For example, in a pure cash deal (financed from the companys current account), liquidity ratios might decrease. On the other hand, in a pure stock for stock transaction (financed from the issuance of new shares), the company might show lower profitability ratios (e.g. ROA). However, economic dilution must prevail towards accounting dilution when making the choice. The form of payment and financing options are tightly linked. If the buyer pays cash, there are three main financing options Cash on hand it consumes financial slack (excess cash or unused debt capacity) and may decrease debt rating. There are no major transaction costs. Issue of debt It consumes financial slack, may decrease debt rating and increase cost of debt. Transaction costs include underwriting or closing costs of 1 to 3 of the face value. Issue of stock it increases financial slack, may improve debt rating and reduce cost of debt. Transaction costs include fees for preparation of a proxy statement, an extraordinary shareholder meeting and registration. If the buyer pays with stock, the financing possibilities are Issue of stock (same effects and transaction costs as described above). Shares in treasury it increases financial slack (if they dont have to be repurchased on the market), may improve debt rating and reduce cost of debt. Transaction costs include brokerage fees if shares are repurchased in the market otherwise there are no major costs. In general, stock will create financial flexibility. Transaction costs must also be considered but tend to affect the payment decision more for larger transactions. Finally, paying cash or with shares is a way to signal value to the other party, e.g. buyers tend to offer stock when they believe their shares are overvalued and cash when undervalued. Parties should also consider their accounting treatment of MA transaction costs and ensure they comply with Department of Treasury regulations, including the applicability of the end of the day and next day rules. HYPERLINK https// l cite_note-21 21 Specialist advisory firms HYPERLINK https// o Edit section Specialist advisory firms edit MA advice is provided by full-service investment banks- who often advise and handle the biggest deals in the world (called HYPERLINK https// o Bulge bracket bulge bracket) – and specialist MA firms, who provide MA only advisory, generally to mid-market, select industries and SBEs. Highly focused and specialized MA advice investment banks are called HYPERLINK https// o Boutique investment bank boutique investment banks. Motivation HYPERLINK https// o Edit section Motivation edit Improving financial performance or reducing risk HYPERLINK https// o Edit section Improving financial performance or reducing risk edit The dominant rationale used to explain MA activity is that acquiring firms seek improved financial performance or reduce risk. The following motives are considered to improve financial performance or reduce risk HYPERLINK https// o Economy of scale Economy of scale This refers to the fact that the combined company can often reduce its fixed costs by removing duplicate departments or operations, lowering the costs of the company relative to the same revenue stream, thus increasing profit margins. HYPERLINK https// o Economy of scope Economy of scope This refers to the efficiencies primarily associated with demand-side changes, such as increasing or decreasing the scope of marketing and distribution, of different types of products. Increased HYPERLINK https// o Revenue revenueor HYPERLINK https// o Market share market share This assumes that the buyer will be absorbing a major competitor and thus increase its market power (by capturing increased market share) to set prices. HYPERLINK https// o Cross-selling Cross-selling For example, a HYPERLINK https// o Bank bankbuying a HYPERLINK https// o Brokerage firm stock brokercould then sell its banking products to the stock brokers customers, while the broker can sign up the banks customers for brokerage accounts. Or, a manufacturer can acquire and sell complementary products. HYPERLINK https// o Synergy Synergy For example, managerial economies such as the increased opportunity of managerial specialization. Another example is purchasing economies due to increased order size and associated bulk-buying discounts. HYPERLINK https// o Tax Taxation A profitable company can buy a loss maker to use the targets loss as their advantage by reducing their tax liability. In the United States and many other countries, rules are in place to limit the ability of profitable companies to shop for loss making companies, limiting the tax motive of an acquiring company. Geographical or other diversification This is designed to smooth the earnings results of a company, which over the long term smoothens the stock price of a company, giving conservative investors more confidence in investing in the company. However, this does not always deliver value to shareholders (see below). Resource transfer resources are unevenly distributed across firms (Barney, 1991) and the interaction of target and acquiring firm resources can create value through either overcoming HYPERLINK https// o Information asymmetry information asymmetryor by combining scarce resources. HYPERLINK https// l cite_note-22 22 HYPERLINK https// o Vertical integration Vertical integration Vertical integration occurs when an upstream and downstream firm merge (or one acquires the other). There are several reasons for this to occur. One reason is to internalise an HYPERLINK https// o Externality externalityproblem. A common example of such an externality is double marginalization. Double marginalization occurs when both the upstream and downstream firms have monopoly power and each firm reduces output from the competitive level to the monopoly level, creating two deadweight losses. After a merger, the vertically integrated firm can collect one deadweight loss by setting the downstream firms output to the competitive level. This increases profits and consumer surplus. A merger that creates a vertically integrated firm can be profitable. HYPERLINK https// l cite_note-23 23 Hiring some companies use acquisitions as an alternative to the normal hiring process. This is especially common when the target is a small private company or is in the startup phase. In this case, the acquiring company simply hires (acquhires) the staff of the target private company, thereby acquiring its talent (if that is its main asset and appeal). The target private company simply dissolves and few legal issues are involved. HYPERLINK https// o WikipediaCitation needed citation needed Absorption of similar businesses under single management similar portfolio invested by two different mutual funds namely united HYPERLINK https// o Money market fund money market fundand united growth and income fund, caused the management to absorb united money market fund into united growth and income fund. Access to hidden or nonperforming assets (land, real estate). Acquire innovative intellectual property. HYPERLINK https// l cite_note-24 24 Megadealsdeals of at least one 1 billion in sizetend to fall into four discrete categories consolidation, capabilities extension, technology-driven market transformation, and going private. HYPERLINK https// l cite_note-25 25 Other types HYPERLINK https// o Edit section Other types edit However, on average and across the most commonly studied variables, acquiring firms financial performance does not positively change as a function of their acquisition activity. HYPERLINK https// l cite_note-26 26Therefore, additional motives for merger and acquisition that may not add shareholder value include Diversification While this may hedge a company against a downturn in an individual industry it fails to deliver value, since it is possible for individual shareholders to achieve the same hedge by diversifying their portfolios at a much lower cost than those associated with a merger. (In his bookOne Up on Wall Street, Peter Lynch termed this diworseification.) HYPERLINK https// o Managerial hubris Managers hubris managers overconfidence about expected synergies from MA which results in overpayment for the target company. HYPERLINK https// o Empire-building Empire-building Managers have larger companies to manage and hence more power. Managers compensation In the past, certain executive management teams had their payout based on the total amount of profit of the company, instead of the profit per share, which would give the team a HYPERLINK https// o Perverse incentive perverse incentiveto buy companies to increase the total profit while decreasing the profit per share (which hurts the owners of the company, the shareholders). Different types HYPERLINK https// o Edit section Different types edit By functional roles in market HYPERLINK https// o Edit section By functional roles in market edit The MA process itself is a multifaceted which depends upon the type of merging companies. A horizontal merger is usually between two companies in the same business sector. An example of horizontal merger would be if a video game publisher purchases another video game publisher, for instance, HYPERLINK https// o Square Enix Square Enixacquiring HYPERLINK https// o Eidos Interactive Eidos Interactive. HYPERLINK https// l cite_note-27 27This means that synergy can be obtained through many forms such as increased market share, cost savings and exploring new market opportunities. A vertical merger represents the buying of supplier of a business. In a similar example, if a video game publisher purchases a video game development company in order to retain the development studios intellectual properties, for instance, HYPERLINK https// o Kadokawa Corporation Kadokawa Corporationacquiring HYPERLINK https// o FromSoftware FromSoftware. HYPERLINK https// l cite_note-28 28The vertical buying is aimed at reducing overhead cost of operations and economy of scale. Conglomerate MA is the third form of MA process which deals the merger between two irrelevant companies. The relevant example of conglomerate MA would be if a video game publisher purchases an animation studio, for instance, when HYPERLINK https// o Sega Sammy Holdings Sega Sammy Holdingssubsidized HYPERLINK https// o TMS Entertainment TMS Entertainment. HYPERLINK https// l cite_note-29 29The objective is often diversification of goods and services and capital investment. By business outcome HYPERLINK https// o Edit section By business outcome edit The MA process results in the restructing of a business purpose, corporate governance and brand identity. A statutory merger is a merger in which the acquiring company survives and the target company dissolves. The purpose of this merger is to transfer the assets and capital of the target company into the acquiring company without having to maintain the target company as a subsidiary. HYPERLINK https// l cite_note-0-30 30 A consolidated merger is a merger in which an entirely new legal company is formed through combining the acquiring and target company. The purpose of this merger is to create a new legal entity with the capital and assets of the merged acquirer and target company. Both the acquiring and target company are dissolved in the process. HYPERLINK https// l cite_note-0-30 30 Arms length mergers HYPERLINK https// o Edit section Arms length mergers edit An arms length merger is a merger approved by disinterested directors and A Strategic merger usually refers to long term strategic holding of target (Acquired) firm. This type of MA process aims at creating synergies in the long run by increased market share, broad customer base, and corporate strength of business. A strategic acquirer may also be willing to pay a premium offer to target firm in the outlook of the synergy value created after MA process. Acqui-hire HYPERLINK https// o Edit section Acqui-hire edit The term acqui-hire is used to refer to acquisitions where the acquiring company seeks to obtain the target companys talent, rather than their products (which are often discontinued as part of the acquisition so the team can focus on projects for their new employer). In recent years, these types of acquisitions have become common in the technology industry, where major web companies such as HYPERLINK https// o Facebook Facebook, HYPERLINK https// o Twitter Twitter, and HYPERLINK https// o Yahoo Yahoohave frequently used HYPERLINK https// o Recruitment talent acquisitionsto add expertise in particular areas to their workforces. HYPERLINK https// l cite_note-forbes-attentionstartups-32 32 HYPERLINK https// l cite_note-wsj-acquihire-33 33 Merger of equals HYPERLINK https// o Edit section Merger of equals edit Merger of equals is often a combination of companies of a similar size. Since 1990, there have been more than 625 MA transactions announced as mergers of equals with a total value of USD 2,164.4 bil. HYPERLINK https// l cite_note-34 34Some of the largest mergers of equals took place during the bubble of the late 1990s and in the year 2000 HYPERLINK https// o AOL AOLand TimeWarner (USD 164 bil.), SmithKline Beecham and Glaxo Wellcome (USD 75 bil.), Citicorp and Travelers Group (USD 72 bil.). More recent examples this type of combinations are DuPont and Dow Chemical (USD 62 bil.) and Praxair and Linde (USD 35 bil.). Research and statistics for acquired organizations HYPERLINK https// o Edit section Research and statistics for acquired organizations edit An analysis of 1,600 companies across industries revealed the rewards for MA activity were greater for consumer products companies than the average company. For the period 2000-2010, consumer products companies turned in an average annual TSR of 7.4, while the average for all companies was 4.8. HYPERLINK https// l cite_note-35 35 Given that the cost of replacing an executive can run over 100 of his or her annual salary, any investment of time and energy in re-recruitment will likely pay for itself many times over if it helps a business retain just a handful of key players that would have otherwise left. Organizations should move rapidly to re-recruit key managers. Its much easier to succeed with a team of quality players that one selects deliberately rather than try to win a game with those who randomly show up to play. Brand considerations HYPERLINK https// o Edit section Brand considerations edit Mergers and acquisitions often create brand problems, beginning with what to call the company after the transaction and going down into detail about what to do about overlapping and competing product brands. Decisions about what brand equity to write off are not inconsequential. And, given the ability for the right brand choices to drive preference and earn a price premium, the future success of a merger or acquisition depends on making wise brand choices. Brand decision-makers essentially can choose from four different approaches to dealing with naming issues, each with specific pros and cons HYPERLINK https// l cite_note-36 36 Keep one name and discontinue the other. The strongest legacy brand with the best prospects for the future lives on. In the merger of HYPERLINK https// o United Airlines United Airlinesand HYPERLINK https// o Continental Airlines Continental Airlines, the United brand will continue forward, while Continental is retired. Keep one name and demote the other. The strongest name becomes the company name and the weaker one is demoted to a divisional brand or product brand. An example is HYPERLINK https// o Caterpillar Inc. Caterpillar Inc.keeping the HYPERLINK https// o Bucyrus International Bucyrus Internationalname. HYPERLINK https// l cite_note-Httpmerriamassociatescomcaterpillarnewlegsacquiringthebucyrusinternationalbrand-37 37 Keep both names and use them together. Some companies try to please everyone and keep the value of both brands by using them together. This can create an unwieldy name, as in the case of HYPERLINK https// o PwC PricewaterhouseCoopers, which has since changed its brand name to PwC. Discard both legacy names and adopt a totally new one. The classic example is the merger of Bell Atlantic with HYPERLINK https// o GTE GTE, which became HYPERLINK https// o Verizon Communications Verizon Communications. Not every merger with a new name is successful. By consolidating into HYPERLINK https// o YRC Worldwide YRC Worldwide, the company lost the considerable value of both HYPERLINK https// o Yellow Freight Yellow Freightand Roadway Corp. The factors influencing brand decisions in a merger or acquisition transaction can range from political to tactical. Ego can drive choice just as well as rational factors such as brand value and costs involved with changing brands. HYPERLINK https// l cite_note-Httpmerriamassociatescomcaterpillarnewlegsacquiringthebucyrusinternationalbrand-37 37 Beyond the bigger issue of what to call the company after the transaction comes the ongoing detailed choices about what divisional, product and service brands to keep. The detailed decisions about the brand portfolio are covered under the topic HYPERLINK https// o Brand architecture brand architecture. History HYPERLINK https// o Edit section History edit Most histories of MA begin in the late 19th century United States. However, mergers coincide historically with the existence of companies. In 1708, for example, the HYPERLINK https// o East India Company East India Companymerged with an erstwhile competitor to restore its monopoly over the Indian trade. In 1784, the Italian HYPERLINK https// o Monte dei Paschi di Siena Monte dei Paschiand Monte Pio banks were united as the Monti Reuniti. HYPERLINK https// l cite_note-38 38In 1821, the HYPERLINK https// o Hudsons Bay Company Hudsons Bay Companymerged with the rival HYPERLINK https// o North West Company North West Company. The Great Merger Movement 18951905 HYPERLINK https// o Edit section The Great Merger Movement 18951905 edit The Great Merger Movement was a predominantly U.S. business phenomenon that happened from 1895 to 1905. During this time, small firms with little market share consolidated with similar firms to form large, powerful institutions that dominated their markets. It is estimated that more than 1,800 of these firms disappeared into consolidations, many of which acquired substantial shares of the markets in which they operated. The vehicle used were so-called HYPERLINK https// o Trust (19th century) trusts. In 1900 the value of firms acquired in mergers was 20 of HYPERLINK https// o GDP GDP. In 1990 the value was only 3 and from 1998 to 2000 it was around 1011 of GDP. Companies such as HYPERLINK https// o DuPont DuPont, HYPERLINK https// o US Steel US Steel, and HYPERLINK https// o General Electric General Electricthat merged during the Great Merger Movement were able to keep their dominance in their respective sectors through 1929, and in some cases today, due to growing technological advances of their products, HYPERLINK https// o Patents patents, and HYPERLINK https// o Brand recognition brand recognitionby their customers. There were also other companies that held the greatest market share in 1905 but at the same time did not have the competitive advantages of the companies like HYPERLINK https// o DuPont DuPontand HYPERLINK https// o General Electric General Electric. These companies such as HYPERLINK https// o International Paper International Paperand HYPERLINK https// o American Chicle American Chiclesaw their market share decrease significantly by 1929 as smaller competitors joined forces with each other and provided much more competition. The companies that merged were mass producers of homogeneous goods that could exploit the efficiencies of large volume production. In addition, many of these mergers were capital-intensive. Due to high fixed costs, when demand fell, these newly merged companies had an incentive to maintain output and reduce prices. However more often than not mergers were quick mergers. These quick mergers involved mergers of companies with unrelated technology and different management. As a result, the efficiency gains associated with mergers were not present. The new and bigger company would actually face higher costs than competitors because of these technological and managerial differences. Thus, the mergers were not done to see large efficiency gains, they were in fact done because that was the trend at the time. Companies which had specific fine products, like fine writing paper, earned their profits on high margin rather than volume and took no part in the Great Merger Movement. HYPERLINK https// o WikipediaCitation needed citation needed Short-run factors HYPERLINK https// o Edit section Short-run factors edit One of the major short run factors that sparked the Great Merger Movement was the desire to keep prices high. However, high prices attracted the entry of new firms into the industry. A major catalyst behind the Great Merger Movement was the HYPERLINK https// o Panic of 1893 Panic of 1893, which led to a major decline in demand for many homogeneous goods. For producers of homogeneous goods, when demand falls, these producers have more of an incentive to maintain output and cut prices, in order to spread out the high fixed costs these producers faced (i.e. lowering cost per unit) and the desire to exploit efficiencies of maximum volume production. However, during the Panic of 1893, the fall in demand led to a steep fall in prices. Another economic model proposed by Naomi R. Lamoreaux for explaining the steep price falls is to view the involved firms acting as HYPERLINK https// o Monopolies monopoliesin their respective markets. As quasi-monopolists, firms set quantity where marginal cost equals marginal revenue and price where this quantity intersects demand. When the HYPERLINK https// o Panic of 1893 Panic of 1893hit, demand fell and along with demand, the firms marginal revenue fell as well. Given high fixed costs, the new price was below average total cost, resulting in a loss. However, also being in a high fixed costs industry, these costs can be spread out through greater production (i.e. Higher quantity produced). To return to the quasi-monopoly model, in order for a firm to earn profit, firms would steal part of another firms market share by dropping their price slightly and producing to the point where higher quantity and lower price exceeded their average total cost. As other firms joined this practice, prices began falling everywhere and a price war ensued. HYPERLINK https// l cite_note-39 39 One strategy to keep prices high and to maintain profitability was for producers of the same good to collude with each other and form associations, also known as HYPERLINK https// o Cartel cartels. These cartels were thus able to raise prices right away, sometimes more than doubling prices. However, these prices set by cartels provided only a short-term solution because cartel members would cheat on each other by setting a lower price than the price set by the cartel. Also, the high price set by the cartel would encourage new firms to enter the industry and offer competitive pricing, causing prices to fall once again. As a result, these cartels did not succeed in maintaining high prices for a period of more than a few years. The most viable solution to this problem was for firms to merge, through HYPERLINK https// o Horizontal integration horizontal integration, with other top firms in the market in order to control a large market share and thus successfully set a higher price. HYPERLINK https// o WikipediaCitation needed citation needed Long-run factors HYPERLINK https// o Edit section Long-run factors edit In the long run, due to desire to keep costs low, it was advantageous for firms to merge and reduce their transportation costs thus producing and transporting from one location rather than various sites of different companies as in the past. Low transport costs, coupled with economies of scale also increased firm size by two- to fourfold during the second half of the nineteenth century. In addition, technological changes prior to the merger movement within companies increased the efficient size of plants with capital intensive assembly lines allowing for economies of scale. Thus improved technology and transportation were forerunners to the Great Merger Movement. In part due to competitors as mentioned above, and in part due to the government, however, many of these initially successful mergers were eventually dismantled. The U.S. government passed the HYPERLINK https// o Sherman Act Sherman Actin 1890, setting rules against HYPERLINK https// o Price fixing price fixingand monopolies. Starting in the 1890s with such cases as HYPERLINK https// o Addyston Pipe and Steel Company v. United States Addyston Pipe and Steel Company v. United States, the courts attacked large companies for strategizing with others or within their own companies to maximize profits. Price fixing with competitors created a greater incentive for companies to unite and merge under one name so that they were not competitors anymore and technically not price fixing. The economic history has been divided intoMerger Wavesbased on the merger activities in the business world as PeriodNameFacet HYPERLINK https// l cite_note-40 4018931904First WaveHorizontal mergers19191929Second WaveVertical mergers19551970Third WaveDiversified conglomerate mergers19741989Fourth WaveCo-generic mergers Hostile takeovers Corporate Raiding19932000Fifth WaveCross-border mergers, mega-mergers20032008Sixth WaveGlobalisation, Shareholder Activism, Private Equity, LBO2014-Seventh WaveGeneric/balanced, horizontal mergers of Western companies acquiring emerging market resource producersObjectives in more recent merger waves HYPERLINK https// o Edit section Objectives in more recent merger waves edit During the third merger wave (19651989), corporate marriages involved more diverse companies. Acquirers more frequently bought into different industries. Sometimes this was done to smooth out cyclical bumps, to diversify, the hope being that it would hedge an investment portfolio. Starting in the fifth merger wave (19921998) and continuing today, companies are more likely to acquire in the same business, or close to it, firms that complement and strengthen an acquirers capacity to serve customers. Buyers arent necessarily hungry for the target companies hard assets. Some are more interested in acquiring thoughts, methodologies, people and relationships. HYPERLINK https// o Paul Graham (computer programmer) Paul Grahamrecognized this in his 2005 essay Hiring is Obsolete, in which he theorizes that the free market is better at identifying talent, and that traditional hiring practices do not follow the principles of free market because they depend a lot upon credentials and university degrees. Graham was probably the first to identify the trend in which large companies such as HYPERLINK https// o Google Google, HYPERLINK https// o Yahoo Yahooor HYPERLINK https// o Microsoft Microsoftwere choosing to acquire startups instead of hiring new recruits, HYPERLINK https// l cite_note-41 41a process known as HYPERLINK https// o Acqui-hiring acqui-hiring. Many companies are being bought for their patents, licenses, market share, name brand, research staff, methods, customer base, or culture. Soft capital, like this, is very perishable, fragile, and fluid. Integrating it usually takes more finesse and expertise than integrating machinery, real estate, inventory and other tangibles. Largest Deals in history HYPERLINK https// o Edit section Largest Deals in history edit The top ten largest deals in MA history cumulate to a total value of 1,118,963 mil. USD. (1,118 tril. USD). HYPERLINK https// l cite_note-42 42 Date AnnouncedAcquiror NameAcquiror Mid IndustryAcquiror NationTarget NameTarget Mid IndustryTarget NationValue of Transaction (mil)11/14/1999Vodafone AirTouch PLCWirelessUnited KingdomMannesmann AGWirelessGermany202,785.1301/10/2000America Online IncInternet Software ServicesUnited StatesTime WarnerMotion Pictures / Audio VisualUnited States164,746.8606/26/2015Altice SaCableLuxembourgAltice SaCableLuxembourg145,709.2509/02/2013Verizon Communications IncTelecommunications ServicesUnited StatesVerizon Wireless IncWirelessUnited States130,298.3208/29/2007ShareholdersOther FinancialsSwitzerlandPhilip Morris Intl IncTobaccoSwitzerland107,649.9509/16/2015Anheuser-Busch Inbev SA/NVFood and BeverageBelgiumSABMiller PLCFood and BeverageUnited Kingdom101,475.7904/25/2007RFS Holdings BVOther FinancialsNetherlandsABN-AMRO Holding NVBanksNetherlands98,189.1911/04/1999Pfizer IncPharmaceuticalsUnited StatesWarner-Lambert CoPharmaceuticalsUnited States89,167.7212/01/1998Exxon CorpOil GasUnited StatesMobil CorpOil GasUnited States78,945.7901/17/2000Glaxo Wellcome PLCPharmaceuticalsUnited KingdomSmithKline Beecham PLCPharmaceuticalsUnited Kingdom75,960.85Cross-border HYPERLINK https// o Edit section Cross-border edit Introduction HYPERLINK https// o Edit section Introduction edit In a study conducted in 2000 by HYPERLINK https// o Lehman Brothers Lehman Brothers, it was found that, on average, large MA deals cause the domestic HYPERLINK https// o Exchange rate currencyof the target corporation to appreciate by 1 relative to the acquirers local currency. Until 2018, around 280.472 cross-border deals have been conducted, which cumulates to a total value of almost 24,069 bil. USD. HYPERLINK https// l cite_note-43 43 The rise of HYPERLINK https// o Globalization globalizationhas exponentially increased the necessity for agencies such as the Mergers and Acquisitions International Clearing (MAIC), trust accounts and securities clearing services for Like-Kind Exchanges for cross-border MA. HYPERLINK https// o WikipediaCitation needed citation neededOn a global basis, the value of cross-border mergers and acquisitions rose seven-fold during the 1990s. HYPERLINK https// l cite_note-44 44In 1997 alone, there were over 2,333 cross-border transactions, worth a total of approximately 298 billion. The vast literature on empirical studies over value creation in cross-border MA is not conclusive, but points to higher returns in cross-border MAs compared to domestic ones when the acquirer firm has the capability to exploit resources and knowledge of the targets firm and of handling challenges. In China, for example, securing regulatory approval can be complex due to an extensive group of various stakeholders at each level of government. HYPERLINK https// l cite_note-45 45In the United Kingdom, acquirers may face pension regulators with significant powers, HYPERLINK https// l cite_note-46 46in addition to an overall MA environment that is generally more seller-friendly than the U.S. HYPERLINK https// l cite_note-47 47Nonetheless, the current surge in global cross-border MA has been called the New Era of Global Economic Discovery. HYPERLINK https// l cite_note-48 48 In little more than a decade, MA deals in China increased by a factor of 20, from 69 in 2000 to more than 1,300 in 2013. HYPERLINK https// l cite_note-49 49 In 2014, Europe registered its highest levels of MA deal activity since the financial crisis. Driven by U.S. and Asian acquirers, inbound MA, at 320.6 billion, reached record highs by both deal value and deal count since 2001. HYPERLINK https// l cite_note-50 50Approximately 23 percent of the 416 MA deals announced in the U.S. MA market in 2014 involved non-U.S. acquirers. HYPERLINK https// l cite_note-51 51 For 2016, market uncertainties, including Brexit and the potential reform from a U.S. Presidential election, contributed to cross-border MA activity lagging roughly 20 behind 2015 activity. HYPERLINK https// l cite_note-52 52 In 2017, the controverse trend which started in 2015, decreasing total value but rising total number of cross border deals, kept going. Compared on a year on year basis (2016-2017), the total number of cross border deals decreased by -4.2, while cumulated value increased by 0.6. HYPERLINK https// l cite_note-53 53 Even mergers of companies with headquarters in the same country can often be considered international in scale and require MAIC custodial services. For example, when Boeing acquired McDonnell Douglas, the two American companies had to integrate operations in dozens of countries around the world (1997). This is just as true for other apparently single-country mergers, such as the 29 billion-dollar merger of Swiss drug makers Sandoz and Ciba-Geigy (now Novartis). In emerging countries HYPERLINK https// o Edit section In emerging countries edit MA practice in emerging countries differs from more mature economies, although transaction management and valuation tools (e.g. DCF, comparables) share a common basic methodology. In China, India or Brazil for example, differences affect the formation of asset price and on the structuring of deals. Profitability expectations (e.g. shorter time horizon, no terminal value due to low visibility) and risk represented by a discount rate must both be properly adjusted. HYPERLINK https// l cite_note-54 54In a MA perspective, differences between emerging and more mature economies include i) a less developed system of property rights, ii) less reliable financial information, iii) cultural differences in negotiations, and iv) a higher degree of competition for the best targets. Property rights HYPERLINK https// l cite_note-55 55the capacity to transfer property rights and legally enforce the protection of such rights after payment may be questionable. Property transfer through the Stock Purchase Agreement can be imperfect (e.g. no real warranties) and even reversible (e.g. one of the multiple administrative authorizations needed not granted after closing) leading to situations where costly remedial actions may be necessary. When the rule of law is not established, corruption can be a rampant problem. Information HYPERLINK https// l cite_note-56 56documentation delivered to a buyer may be scarce with a limited level of reliability. As an example, double sets of accounting are common practice and blur the capacity to form a correct judgment. Running valuation on such basis bears the risk to lead to erroneous conclusions. Therefore, building a reliable knowledge base on observable facts and on the result of focused due diligences, such as recurring profitability measured by EBITDA, is a good starting point. Negotiation HYPERLINK https// l cite_note-57 57Yes may not be synonym that the parties have reached an agreement. Getting immediately to the point may not be considered appropriate in some cultures and even considered rude. The negotiations may continue to the last minute, sometimes even after the deal has been officially closed, if the seller keeps some leverage, like a minority stake, in the divested entity. Therefore, establishing a strong local business network before starting acquisitions is usually a prerequisite to get to know trustable parties to deal with and have allies. Competition the race to acquire the best companies in an emerging economy can generate a high degree of competition and inflate transaction prices, as a consequence of limited available targets. This may push for poor management decisions before investment, time is always needed to build a reliable set of information on the competitive landscape. If not properly dealt with, these factors will likely have adverse consequences on return-on-investment (ROI) and create difficulties in day-to-day business operations. It is advisable that MA tools designed for mature economies are not directly used in emerging markets without some adjustment. MA teams need time to adapt and understand the key operating differences between their home environment and their new market. Failure HYPERLINK https// o Edit section Failure edit Despite the goal of performance improvement, results from mergers and acquisitions (MA) are often disappointing compared with results predicted or expected. Numerous empirical studies show high failure rates of MA deals. Studies are mostly focused on individual determinants. A book by Thomas Straub (2007) Reasons for frequent failure in Mergers and Acquisitions HYPERLINK https// l cite_note-58 58develops a comprehensive research framework that bridges different perspectives and promotes an understanding of factors underlying MA performance in business research and scholarship. The study should help managers in the decision making process. The first important step towards this objective is the development of a common frame of reference that spans conflicting theoretical assumptions from different perspectives. On this basis, a comprehensive framework is proposed with which to understand the origins of MA performance better and address the problem of fragmentation by integrating the most important competing perspectives in respect of studies on MA. Furthermore, according to the existing literature, relevant determinants of firm performance are derived from each dimension of the model. For the dimension strategic management, the six strategic variables market similarity, market complementarities, production operation similarity, production operation complementarities, market power, and purchasing power were identified as having an important effect on MA performance. For the dimension organizational behavior, the variables acquisition experience, relative size, and cultural differences were found to be important. Finally, relevant determinants of MA performance from the financial field were acquisition premium, bidding process, and due diligence. Three different ways in order to best measure post MA performance are recognized synergy realization, absolute performance, and finally relative performance. Employee turnover contributes to MA failures. The turnover in target companies is double the turnover experienced in non-merged firms for the ten years after the merger. HYPERLINK https// o WikipediaCitation needed citation needed Major HYPERLINK https// o Edit section Major edit Main article HYPERLINK https// o List of largest mergers and acquisitions List of largest mergers and acquisitions See also HYPERLINK https// o Edit section See also edit HYPERLINK https// o Competition regulator Competition regulator HYPERLINK https// o Consolidation (business) Consolidation (business) HYPERLINK https// o Control premium Control premium HYPERLINK https// o Corporate advisory Corporate advisory HYPERLINK https// o Divestiture Divestiture HYPERLINK https// o Factoring (finance) Factoring (finance) HYPERLINK https// o Fairness opinion Fairness opinion HYPERLINK https// o Initial public offering Initial public offering HYPERLINK https// o List of bank mergers in United States List of bank mergers in United States HYPERLINK https// o Management control Management control HYPERLINK https// o Management due diligence Management due diligence HYPERLINK https// o Mergers and acquisitions in United Kingdom law Mergers and acquisitions in United Kingdom law HYPERLINK https// o Merger control Merger control HYPERLINK https// o Merger integration Merger integration HYPERLINK https// o Merger simulation Merger simulation HYPERLINK https// o Second request (law) Second request (law) HYPERLINK https// o Shakeout Shakeout HYPERLINK https// o Swap ratio Swap ratio HYPERLINK https// o Transformational Acquisition Transformational Acquisition HYPERLINK https// o Venture capital Venture capital References HYPERLINK https// o Edit section References edit HYPERLINK https// l cite_ref-1 Jump upDamodaran, Aswath. HYPERLINK https// Acquisitions and Takeovers. Transaction Advisors. HYPERLINK https// o International Standard Serial Number ISSN HYPERLINK https// 2329-9134. HYPERLINK https// l cite_ref-2 Jump upStemler, Gregory Welch, Shea Johnson, Jeff Mims, John Davison, Brian. HYPERLINK https// Methods for Developing a Rigorous Pre-Deal MA Strategy. Transaction Advisors. HYPERLINK https// o International Standard Serial Number ISSN HYPERLINK https// 2329-9134. HYPERLINK https// l cite_ref-3 Jump upDerek van der Plaat (9 September 2013). HYPERLINK http// Four Companies That Know How to Acquire.Private Company Mergers and Acquisitions. Retrieved18 February2015. HYPERLINK https// l Self-published_sources o WikipediaVerifiability self-published source HYPERLINK https// l cite_ref-4 Jump upInvestment banking explained pp. 223-224 HYPERLINK https// l cite_ref-5 Jump upHansell, Gerry Kengelbach, Jens Walker, Decker. HYPERLINK https// Lessons from Successful Serial Acquirers. Transaction Advisors. HYPERLINK https// o International Standard Serial Number ISSN HYPERLINK https// 2329-9134. HYPERLINK https// l cite_ref-6 Jump upHarwood, 2005 HYPERLINK https// l cite_ref-7 Jump upThe Economist, The new rules of attraction, 15 Nov 2014 HYPERLINK https// l cite_ref-8 Jump upRumyantseva, Maria, Grzegorz Gurgul, and Ellen Enkel. Knowledge Integration after Mergers Acquisitions. University of Mississippi Business Department. University of Mississippi, July 2002. HYPERLINK https// l cite_ref-9 Jump upRanft, Annette L., and Michael D. Lord. Acquiring new technologies and capabilities A grounded model of acquisition implementation. Organization science 13.4 (2002) 420-441. HYPERLINK https// l cite_ref-10 Jump upMoore, Jim. HYPERLINK https// Get acquired An idiots guide to technology MA. Retrieved19 August2013. HYPERLINK https// l cite_ref-mckenna_11-0 Jump up toa HYPERLINK https// l cite_ref-mckenna_11-1 b HYPERLINK http// Mergers Acquisitions Quick Reference Guide(PDF). McKenna Long Aldridge LLP. Retrieved19 August2013. HYPERLINK https// l cite_ref-12 Jump upGilbert, Katherine. HYPERLINK https// Transaction Structure Issues Regarding the Purchase/Sale of a Financially Distressed Company. HYPERLINK https// o International Standard Serial Number ISSN HYPERLINK https// 2329-9134. HYPERLINK https// l cite_ref-13 Jump upGriffin, William F. HYPERLINK https// Tax Aspects of Corporate Mergers and Acquisitions(PDF). Davis Malm DAgostine, P.C. Archived from HYPERLINK http// the original(PDF)on 11 May 2013. Retrieved19 August2013. HYPERLINK https// l cite_ref-14 Jump upBarusch, Ronald. HYPERLINK https// WSJ MA 101 A Guide to Merger Agreements. WSJ Deal Journal. Retrieved19 August2013. HYPERLINK https// l cite_ref-15 Jump upAvery, Daniel Crossley, Kyle. HYPERLINK https// Use of Knowledge Qualifiers for Representations and Warranties. Transaction Advisors. HYPERLINK https// o International Standard Serial Number ISSN HYPERLINK https// 2329-9134. 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HYPERLINK https// l cite_ref-20 Jump upCollan, Mikael Kinnunen Jani (2011). HYPERLINK http// A Procedure for the Rapid Pre-acquisition Screening of Target Companies Using the Pay-off Method for Real Option Valuation.Journal of Real Options and Strategy.4(1) 117141. HYPERLINK https// o Digital object identifier doi HYPERLINK https// 10.12949/realopn.4.117. HYPERLINK https// l cite_ref-21 Jump upFernhoff, Michael Kim, Anne Campbell, Alexander. HYPERLINK https// Proposed Treasury Regulations Aim to Curb Elective Treatment of MA Transaction Costs. Transaction Advisors. HYPERLINK https// o International Standard Serial Number ISSN HYPERLINK https// 2329-9134. HYPERLINK https// l cite_ref-22 Jump upKing, D. R. Slotegraaf, R. Kesner, I. (2008). Performance implications of firm resource interactions in the acquisition of RD-intensive firms.Organization Science.19(2) 327340. HYPERLINK https// o Digital object identifier doi HYPERLINK https// 10.1287/orsc.1070.0313. 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Meta-analyses of Post-acquisition Performance Indications of Unidentified Moderators.Strategic Management Journal.25(2) 187200. HYPERLINK https// o Digital object identifier doi HYPERLINK https// 10.1002/smj.371. HYPERLINK https// l cite_ref-27 Jump up HYPERLINK http// RECOMMENDED CASH OFFER FOR EIDOS PLC BY SQEX LTD. TO BE EFFECTED BY MEANS OF A SCHEME OF ARRANGEMENT UNDER THE UK COMPANIES ACT 2006(PDF). Square Enix. 12 February 2009. Retrieved16 February2018. HYPERLINK https// l cite_ref-28 Jump up HYPERLINK https// From Software acquired by Japanese publisher Kadokawa Corporation.Engadget. Retrieved2017-12-10. HYPERLINK https// l cite_ref-29 Jump up HYPERLINK http// Notice Concerning Exchange of Shares to Convert Sammy NetWorks Co., Ltd., SEGA TOYS CO., LTD. and TMS ENTERTAINMENT, LTD. into Wholly Owned Subsidiaries of SEGA SAMMY HOLDINGS INC(PDF). Sega Sammy Holdings Inc. 27 August 2010. Retrieved9 January2017. HYPERLINK https// l cite_ref-0_30-0 Jump up toa HYPERLINK https// l cite_ref-0_30-1 b HYPERLINK http// MERGER CONSOLIDATION Retrieved2017-12-10. HYPERLINK https// l cite_ref-31 Jump upIn re Cox Communications, Inc. Shareholders Litig., 879 A.2d 604, 606 (Del. Ch. 2005). HYPERLINK https// l cite_ref-forbes-attentionstartups_32-0 Jump upHof, Robert. HYPERLINK https// Attention Startups Heres How To Get Acqui-Hired By Google, Yahoo Or Twitter.Forbes. Retrieved9 January2014. HYPERLINK https// l cite_ref-wsj-acquihire_33-0 Jump up HYPERLINK https// Start-Ups Get Snapped Up for Their Talent.Wall Street Journal. Retrieved9 January2014. HYPERLINK https// l cite_ref-34 Jump up HYPERLINK https// MA by Transaction Type – IMAA-Institute.IMAA-Institute. Retrieved2016-12-22. HYPERLINK https// l cite_ref-35 Jump upMeacham, Matthew Van Den Branden, Jean-Charles Poppe, Henrik Harding, David. HYPERLINK https// Repeatable MA in Consumer Goods. Transaction Advisors. HYPERLINK https// o International Standard Serial Number ISSN HYPERLINK https// 2329-9134. HYPERLINK https// l cite_ref-36 Jump up HYPERLINK https// NewsBeast And Other Merger Name Options Merriam Associates, Inc. Brand Strategies. Archived from HYPERLINK http// the originalon 2012-11-06. Retrieved2012-12-18. HYPERLINK https// l cite_ref-Httpmerriamassociatescomcaterpillarnewlegsacquiringthebucyrusinternationalbrand_37-0 Jump up toa HYPERLINK https// l cite_ref-Httpmerriamassociatescomcaterpillarnewlegsacquiringthebucyrusinternationalbrand_37-1 b HYPERLINK https// Caterpillars New LegsAcquiring the Bucyrus International Brand Merriam Associates, Inc. Brand Strategies. Archived from HYPERLINK http// the originalon 2012-10-30. Retrieved2012-12-18. HYPERLINK https// l cite_ref-38 Jump up HYPERLINK http// Monte dei Paschi di Siena Bank About us History The Lorraine reform. 2009-03-17. Retrieved2012-12-18. HYPERLINK https// l cite_ref-39 Jump upLamoreaux, Naomi R. The great merger movement in American business, 1895-1904. Cambridge University Press, 1985. HYPERLINK https// l cite_ref-40 Jump up HYPERLINK https// Insights KPMG ZA.KPMG. 2016-11-15. Retrieved2017-12-11. HYPERLINK https// l cite_ref-41 Jump up HYPERLINK http// Hiring is Obsolete. Retrieved18 February2015. HYPERLINK https// l cite_ref-42 Jump up HYPERLINK https// MA Statistics – Worldwide, Regions, Industries Countries.Institute for Mergers, Acquisitions and Alliances (IMAA). Retrieved2018-02-28. HYPERLINK https// l cite_ref-43 Jump up HYPERLINK https// MA by Transaction Type – Institute for Mergers, Acquisitions and Alliances (IMAA).Institute for Mergers, Acquisitions and Alliances (IMAA). Retrieved2018-02-27. HYPERLINK https// l cite_ref-44 Jump upUnited Nations Conference on Trade and Development, 2000, World Investment Report 2000 Cross-border Mergers and Acquisitions and Development (Overview), New York and Geneva, p. 10. HYPERLINK https// l cite_ref-45 Jump upYang, Veronique Liang, Rick Walters, Jeff Hsu, Hubert Kengelbach, Jens Hammoud, Tawfik. HYPERLINK https// MA In China Getting Deals Done, Making Them Work. Transaction Advisors. HYPERLINK https// o International Standard Serial Number ISSN HYPERLINK https// 2329-9134. HYPERLINK https// l cite_ref-46 Jump upPostill, Stephen. HYPERLINK https// MA Navigating the Pensions Issue. Transaction Advisors. HYPERLINK https// o International Standard Serial Number ISSN HYPERLINK https// 2329-9134. HYPERLINK https// l cite_ref-47 Jump upPlant, Nicholas Gajer, Paul A. Rist, Steven L. Johnson, Andrea C. HYPERLINK https// Private Equity Transactions in the UK. HYPERLINK https// o International Standard Serial Number ISSN HYPERLINK https// 2329-9134. HYPERLINK https// l cite_ref-48 Jump upAyisi-Cromwell, M. The New Era of Global Economic Discovery Opportunities and Challenges. Thomson Reuters Emerging Markets Investment Forum. New York, NY. 19 Sep. 2012. Chairmans Opening Remarks. HYPERLINK https// l cite_ref-49 Jump upLuedi, Thomas Sun, Jian He, Sherri L. Leung, Frankie Rothenbecher, Jrgen Graef, Andreas Sauerberg, Bastian McCool, Michael. HYPERLINK https// Creating More Value for Chinas MA. Transaction Advisors. HYPERLINK https// o International Standard Serial Number ISSN HYPERLINK https// 2329-9134. HYPERLINK https// l cite_ref-50 Jump upCorte, Lorenzo Grumberg, Armand Horbach, Matthias Attar-Rezvani, Arash. HYPERLINK https// The Newfound Attractiveness of European MA. Transaction Advisors. HYPERLINK https// o International Standard Serial Number ISSN HYPERLINK https// 2329-9134. HYPERLINK https// l cite_ref-51 Jump upGerstein, Mark Allinson, David Faris, Bradley. HYPERLINK https// Acquiring a U.S. Public Company An Overview for the Non-U.S. Acquirer. Transaction Advisors. HYPERLINK https// o International Standard Serial Number ISSN HYPERLINK https// 2329-9134. HYPERLINK https// l cite_ref-52 Jump upCasey, George El Guindy, Arslan Kochman, Cary Jaehnert, Frank Bialek, Jerry. HYPERLINK https// Current Issues Associated with the Planning, Negotiation and Execution of Cross-border Transactions. Transaction Advisors. HYPERLINK https// o International Standard Serial Number ISSN HYPERLINK https// 2329-9134. HYPERLINK https// l cite_ref-53 Jump up HYPERLINK https// MA by Transaction Type – IMAA-Institute.IMAA-Institute. Retrieved2018-02-22. HYPERLINK https// l cite_ref-54 Jump upDonald R. Lessart. Incorporting Country risk in the valuation of offshore projects, MIT, Journal of Applied Corporate Finance, volume 9, number 3, 1996 HYPERLINK https// l cite_ref-55 Jump upAlchian, Armen, and Harold Demsetz. The Property Rights Paradigm. Journal of Economic History 33, no. 1 (1973) 1627 HYPERLINK https// l cite_ref-56 Jump upFeng Chen, Ole-Kristian Hope, Qingyuan Li, Xin Wang. The Property Rights Paradigm.Financial Reporting Quality and Investment Efficiency of Private Firms in Emerging Markets, working paper, University of Toronto, Wuhan University Chinese University of Hong Kong, July 6, 2010 HYPERLINK https// l cite_ref-57 Jump upas an illustration, Laurence J. Brahm. The art of the deal in China. Tuttle Publishing, April 2007, 160 pages, HYPERLINK https// o International Standard Book Number ISBN HYPERLINK https// o SpecialBookSources/0804839026 0804839026 HYPERLINK https// l cite_ref-58 Jump upStraub, Thomas (2007).Reasons for frequent failure in Mergers and Acquisitions A comprehensive analysis. Wiesbaden Deutscher Universitts-Verlag (DUV), Gabler Edition Wissenschaft. HYPERLINK https// o International Standard Book Number ISBN HYPERLINK https// o SpecialBookSources/978-3-8350-0844-1 978-3-8350-0844-1. Further reading HYPERLINK https// o Edit section Further reading edit Denison, Daniel, Hooijberg, Robert, Lane, Nancy, Lief, Colleen, (2012). Leading Culture Change in Global Organizations. Creating One Culture Out of Many, chapter 4. San Francisco Jossey-Bass. HYPERLINK https// o International Standard Book Number ISBN HYPERLINK https// o SpecialBookSources/9780470908846 9780470908846 Aharon, D.Y. Gavious, I. Yosef, R. (2010). HYPERLINK http// Stock market bubble effects on mergers and acquisitions(PDF).The Quarterly Review of Economics and Finance.50(4) 456470. HYPERLINK https// o Digital object identifier doi HYPERLINK https// 10.1016/j.qref.2010.05.002. Cartwright, Susan Schoenberg, Richard (2006). Thirty Years of Mergers and Acquisitions Research Recent Advances and Future Opportunities. HYPERLINK https// o British Journal of Management British Journal of Management.17(S1) S1S5. HYPERLINK https// o Digital object identifier doi HYPERLINK https// 10.1111/j.1467-8551.2006.00475.x. Coispeau, Olivier Luo, Stephane (2015). HYPERLINK https// Mergers Acquisitions and Partnerships in China. Singapore World Scientific. p.311. HYPERLINK https// o International Standard Book Number ISBN HYPERLINK https// o SpecialBookSources/9789814641029 9789814641029. HYPERLINK https// o OCLC OCLC HYPERLINK https// 898052215. DePamphilis, Donald (2008).Mergers, Acquisitions, and Other Restructuring Activities. New York Elsevier, Academic Press. p.740. HYPERLINK https// o International Standard Book Number ISBN HYPERLINK https// o SpecialBookSources/978-0-12-374012-0 978-0-12-374012-0. HYPERLINK https//,_Sytse o Douma, Sytse Douma, Sytse HYPERLINK https// o Hein Schreuder Hein Schreuder(2013). Economic Approaches to Organizations, chapter 13. 5th edition. London Pearson. HYPERLINK https// o International Standard Book Number ISBN HYPERLINK https// o SpecialBookSources/0273735292 0273735292 HYPERLINK https// o International Standard Book Number ISBN HYPERLINK https// o SpecialBookSources/9780273735298 9780273735298 Fleuriet, Michel (2008).Investment Banking explained An insiders guide to the industry. New York, NY HYPERLINK https// o McGraw Hill McGraw Hill. HYPERLINK https// o International Standard Book Number ISBN HYPERLINK https// o SpecialBookSources/978-0-07-149733-6 978-0-07-149733-6. Harwood, I. A. (2006). Confidentiality constraints within mergers and acquisitions gaining insights through a bubble metaphor. HYPERLINK https// o British Journal of Management British Journal of Management.17(4) 347359. HYPERLINK https// o Digital object identifier doi HYPERLINK https// 10.1111/j.1467-8551.2005.00440.x. Locke, Bryan Singh, Harsh Chung, Joanna Ferguson, John J. HYPERLINK https// Selling Acquisitions to Institutional Investors, Proxy Handlers, Regulators, and the Financial Media. Transaction Advisors. HYPERLINK https// o International Standard Serial Number ISSN HYPERLINK https// 2329-9134. Locke, Firmex Inc, Divestopedia Inc. HYPERLINK https// The 2017 MA Fee Guide. Firmex Divestopedia. Popp, Karl Michael (2013). HYPERLINK http// Mergers and Acquisitions in the Software Industry – foundations of due diligence. Norderstedt Books on demand. HYPERLINK https// o International Standard Book Number ISBN HYPERLINK https// o SpecialBookSources/978-3-7322-4381-5 978-3-7322-4381-5. Reddy, K.S., Nangia, V.K., Agrawal, R. (2014). The 2007-2008 global financial crisis, and cross-border mergers and acquisitions A 26-nation exploratory study.Global Journal of Emerging Market Economies,6(3), 257-281. HYPERLINK http// http// Reddy, K.S. Nangia, V.K. Agrawal, R. (2013). Indian economic-policy reforms, bank mergers, and lawful proposals The ex-ante and ex-post lookup.Journal of Policy Modeling.35(4) 601622. HYPERLINK https// o Digital object identifier doi HYPERLINK https// 10.1016/j.jpolmod.2012.12.001. Reddy, K.S. Agrawal, R. Nangia, V.K. (2013). Reengineering, crafting and comparing business valuation models-the advisory exemplar.International Journal of Commerce and Management.23(3) 216241. HYPERLINK https// o Digital object identifier doi HYPERLINK https// 10.1108/IJCoMA-07-2011-0018. Reifenberger, Sabine (28 December 2012). HYPERLINK https// MA Market The New Normal. CFO Insight Rosenbaum, Joshua Joshua Pearl (2009).Investment Banking Valuation, Leveraged Buyouts, and Mergers Acquisitions. Hoboken, NJ HYPERLINK https// o John Wiley Sons John Wiley Sons. HYPERLINK https// o International Standard Book Number ISBN HYPERLINK https// o SpecialBookSources/0-470-44220-4 0-470-44220-4. Scott, Andy (2008).China Briefing Mergers and Acquisitions in China(2nd ed.). Straub, Thomas (2007).Reasons for frequent failure in Mergers and Acquisitions A comprehensive analysis. Wiesbaden Deutscher Universitts-Verlag (DUV), Gabler Edition Wissenschaft. HYPERLINK https// o International Standard Book Number ISBN HYPERLINK https// o SpecialBookSources/978-3-8350-0844-1 978-3-8350-0844-1. 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MERGEFORMATINET Transactions(terms/conditions) HYPERLINK https// o Stock Equity offerings HYPERLINK https// o At-the-market offering At-the-market offering HYPERLINK https// o Book building Book building HYPERLINK https// o Bookrunner Bookrunner HYPERLINK https// o Corporate spin-off Corporate spin-off HYPERLINK https// o Equity carve-out Equity carve-out HYPERLINK https// o Follow-on offering Follow-on offering HYPERLINK https// o Greenshoe Greenshoe HYPERLINK https// o Reverse greenshoe Reverse HYPERLINK https// o Initial public offering Initial public offering HYPERLINK https// o Private placement Private placement HYPERLINK https// o Public offering Public offering HYPERLINK https// o Rights issue Rights issue HYPERLINK https// o Seasoned equity offering Seasoned equity offering HYPERLINK https// o Secondary market offering Secondary market offering HYPERLINK https// o Underwriting Underwriting Mergers andacquisitions HYPERLINK https// o Buy side Buy side HYPERLINK https// o 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