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Lecture notes Mergers & Acquisitions
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Lecture notes of the M&A course at RSM
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M&A SummaryLecture 1
• There are 5 main objectives of the class:
• Valuation in general is not different in M&A setting (not the focus of this course)
• Focus of this course: institutional setting and how they impact decision making
o Deal structure on shareholder, taxation, due diligence (what mergers advisors
do), evaluating deal from shareholder perspective → peripheral items are the
focus
• European commission and federal trade commission decide if two companies should
merger or not → is the deal worth?
• MOTIVES FOR M&A:
• Primary reasons: expand customer base, entry into new business lines or geography,
intellectual property rights, opportunistic reasons (target available), vertically
integration
• Largest driver (2017) → cash reserves
• In general:
,• Rational reasons for M&A:
1. Buying growth: acquire R&D from another firm, whole firm or part of a firm
(common in pharma)
2. Synergy – economies of scale and scope: there is an optimal size for marginal cost
,3. To increase power in one’s product markets (hospitality, airline) → can be a
monopolistic → it is blocked most of the times
4. To increase bargaining power in one’s supply chain → evidence that horizontal
takeovers increase the buyer power if the suppliers are concentrated
a. Larger impact on the supplier’s side → they are squeezed for margin
, 5. Diversification of revenue streams → coinsurance effect (multiple business line) →
reduced deadweight cost → the bad business line will be taken care of in house
without asking outside
a. Diversification may be a good idea → more recent academic papers find
lower cost of capital for diversified companies (lower volatility in cash flows)
b. GE is a bad example → not the average firm
6. Industry shocks and deregulation
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