An Introduction to Corporate Finance: Transactions and Techniques, Second Edition

Chapter 6

MERGERS AND ACQUISITIONS

One of the main roles of the corporate financier is to initiate, execute and complete corporate acquisitions. Corporate financiers act as advisors to the most senior management and the Boards of Directors in major Mergers and Acquisitions (M A) transactions. Despite the increase in the number of transactions in the past two decades, mergers are still not an everyday occurrence at most companies. Thus, corporate management requires the assistance and knowledge of professionals who have advised on many deals in the past.

 

The terms ‘merger’, ‘acquisition’ and ‘takeover’ tend to be used interchangeably, although there are specific definitions for accounting purposes.

 

Mergers affect all industries and all countries. Many deals involved bidders from one country acquiring a target in another (e.g., Pernod Ricard’s (FR) $17.8 billion acquisition of Allied Domecq (UK) or Suez (FR) paying $13.9 billion for Belgium’s Electrabel). Other deals are notable for their sheer size (e.g., the Time Warner-AOL stock swap valued at more than $200 billion at the time it was announced in 2000).

 

Figure 6.1 illustrates that, even in a ‘slow’ year, more than $1.3 trillion in deals are completed.

RATIONALE FOR M&A

Management give a number of reasons for entering into an M&A. One of the main reasons is to enable the company to grow more quickly than it could through ...