Day 77 in MIT Sloan Fellows Class 2023, Financial Management 3, M&A
Three things to consider
When the company proceed M&A, what we should consider initially?
- Strategic benefits(Why?)
- Valuation(How much?)
- Execution(How?)
Strategic benefits
Why should we sell or buy a company?
This is the most important question when you consider M&A.
Some of the benefits are clear, but others are kind of imaginary.
Clear benefits would be
- Monopoly power
- Economy of scale
- Better management
And anyway contribute to either revenue growth or cost reduction.
Unclear benefits are normally called "synergy".
- Knowledge share
- Joint R&D
For example, Family Dollar and Dollar Tree acquisition, the following points are rationales for M&A.
- Creates a leading discount retailer
- Complementary business model across fixed- and multi-price point
- Targets broader range of customers and geographies
- Leverages complementary merchandise expertise
- Generates significant synergy opportunities
- Enhanced financial performance and improved growth prospects
Valuation
Then, we should move to pricing. How much to pay or receive and how you prepare cash for acquisition.
You will collect cash by equity or debt?
Execution
This would be the most ignored but the most important part.
- Legal problem
- Regulators' approval/opposition
- Negotiation for both investors
- Relationship with proxy advisors
