Investment Banking, 3rd Edition

CHAPTER 7Buy-Side M&A

Mergers and acquisitions (M&A) is a catch-all phrase for the purchase, sale, spin-off, and combination of companies, their subsidiaries and assets. M&A facilitates a company’s ability to continuously grow, evolve, and re-focus in accordance with ever-changing market conditions, industry trends, and shareholder demands. In strong economic times, M&A activity tends to increase as company management confidence is high and financing is readily available. Buyers seek to allocate excess cash, outmaneuver competitors, and take advantage of favorable capital markets conditions, while sellers look to opportunistically monetize their holdings or exit non-strategic businesses. In more difficult times, M&A activity typically slows down as financing becomes more expensive and buyers focus on their core business and fortifying their balance sheet. At the same time, sellers are hesitant to “cash out” when facing potentially lower valuations and the fear of “selling at the bottom.”

M&A transactions, including LBOs, tend to be the highest profile part of investment banking activity, with larger, “big-name” deals receiving a great deal of media attention. For the companies and key executives involved, the decision to buy, sell, or combine with another company is usually a transformational event. On both sides of the transaction, the buyer and seller seek an optimal result in terms of value, deal terms, structure, timing, certainty, and other key considerations for shareholders ...