Mergers & Acquisitions (M&A) - The Basics Explained - video Dailymotion

Matt | Personal Finance

In this video, I’ll explain the basics on Mergers & Acquisitions (M&A) covering 3 topics:  ·       What are the types of transactions that fall under M&A (Integrations, Separations & Carve-outs, JVs etc)  ·       What are the typical phases in the lifecycle of a M&A deal  ·       What are the drivers and reasons for doing M&A   This video gives a 101 on M&A and addresses a lot of common questions. I hope you find it helpful!   #M&A #Mergers&Acquisitions #Deals #Transactions #JV #Separations #Carve-outs #Integrations #Buyingbusiness #Acquisitions #Buyingcompanies #Sellingbusiness #Sellingcompanies #Finance #Financeconsulting #Managementconsulting #JointVenture #Investment Banking #Private Equity

Transcript

00:00Hi everyone, I'm Matt. I'm a finance consultant and I've spent over eight years working in

00:07mergers and acquisitions, working at one of the largest accounting firms in London and managing

00:12multi-billion dollar transactions. Unfortunately, not my own money. I now own a finance consulting

00:19business and I also invest in startups and small businesses. In this video, I'll explain the basics

00:25on M&A and cover three topics. Number one, what are the types of transactions that fall under M&A?

00:31Number two, what are the typical phases in a transaction lifecycle? And number three,

00:37what are the key drivers and reasons for doing them? So let's get going and starting with the

00:42types of transactions. And mergers and acquisitions has been used as a bit of a catch-all expression

00:47for a diverse range of transactions. But simply put, an acquisition is buying a business or parts

00:55of a business. So a recent example is Amazon, who acquired the food retailer Whole Foods for

01:01over $13 billion. This would be an example of a trade acquisition where a corporate company

01:07acquires another corporate company. Another example of this is private equity acquiring a corporate

01:14company to add to its portfolio. So an example of this was in 2007 when Hilton, the hotel operator,

01:20was acquired by Blackstone for over $20 billion. That's a lot of money. And acquisitions can be

01:27structured in two ways. So either via an asset purchase, which is where selected assets of the

01:33business transfer over to the acquirer, or through a share purchase, which is where the business and

01:40legal entities transfer over to the acquirer. A merger, on the other hand, is a transaction between

01:45two companies, usually of similar size, in which the shareholders of the two separate companies

01:52jointly own shares in the new company that's formed following the merger. An example of this is the

01:57merger between Kraft and Heinz in 2015. So next up, what are the typical phases in an M&A transaction

02:04lifecycle? And I'm going to talk through the seven main phases. In phase one, it often starts with the

02:10seller assessing their strategic options and defining the transaction perimeter, i.e. what is in scope to

02:16be sold and what is out of scope to remain with the seller. The transaction perimeter can often cover

02:21a variety of things such as employees, legal entities, products and brands, and offices and sites.

02:28Once the transaction perimeter is defined, the next phase is sharing of information with prospective

02:34buyers. And this includes a teaser document, which enables buyers to assess their initial interest

02:40in acquiring the target, i.e. the business that is being sold. And following this, you'll have an

02:46information memorandum, which is a more detailed document providing the essential information on the

02:52company for sale. And this really allows the seller to explain why the business is attractive to acquire.

02:58And it's often referred to as the equity story. The seller's management team will also conduct

03:04presentations to potential buyers covering the key information in the memo. And this information

03:10sharing phase is normally conducted, governed and facilitated by an appointed investment bank.

03:16In the third phase, due diligence, we'll often see buyers appoint advisors to help them do their own

03:24analysis on the information shared by the seller and then determine whether they want to make an

03:28offer for the target business. In the fourth phase, if there are any potential buyers interested in

03:34acquiring the target, they will submit a formal offer and the seller will then consider those offers and

03:40enter into final negotiations with any preferred bidders. The fifth phase is once the seller and buyer

03:46have agreed the price and also the terms of the deal. And they then enter into a purchase agreement,

03:52which commits both parties to the transaction and outlines the time period by which it needs to be completed.

03:58The sixth phase is closing of the transaction. And there's typically a gap of a couple of months

04:05between signing and closing to allow the seller time to prepare the business for sale and also for

04:12the buyer and seller to complete their obligations under the purchase agreement. So it could be, for example,

04:17that they need to ensure the correct employees are transferred to the correct legal entities. At closing,

04:23this is the point when funds will flow from the buyer to the seller and also there's a change of ownership

04:28for the assets and business being transferred over to the buyer. The seventh phase is TSA exit and by that

04:36I mean transitional service agreements. These are typically provided by the seller to the buyer on a

04:41temporary basis and allows time for the buyer to set up capability for the target business. So for example,

04:48if the seller had a group procurement function which was purchasing on behalf of the target

04:52business being sold, this capability would need to be replaced by the new buyer. That time period for

04:59the TSA exit phase can vary greatly and really depends on the amount of capability that needs

05:05to be stood up for the target business in order for it to be able to operate on a standalone basis,

05:11i.e. without the support of the seller group. So the third and final topic is about the key

05:16reasons and drivers for doing M&A and there can be lots of reasons to do an acquisition for a buyer.

05:22It could be to enter into a new market to gain more market share to obtain new customers. It could

05:28be to achieve financial cost and revenue synergies by integrating the existing business with the new

05:34business. It could be to acquire IP expertise or new technology that the existing business doesn't have

05:41or it might be to diversify. They might only have currently a small product and service range.

05:47And for sellers, there can be lots of reasons to do a divestment. It may no longer be core to the

05:53business and future direction of the company and by selling it allows them to focus on their primary

05:58business. Another reason could be to generate cash for investments or acquisitions of their own

06:03or even to pay down or borrow debt. There can also be situations where governments and regulatory

06:09bodies require divestments to happen to avoid monopoly situations and ensure fair trade practice is in

06:16their market. Or it might just be opportunistic. The buyer particularly wants a business, some assets

06:23that a seller owns. So that was a 101 on mergers and acquisitions covering the types of transactions,

06:30the typical life cycle and also the reasons for doing them. I hope it was a helpful video. Feel free to add

06:36any questions in the comments and give it a like and a subscribe and I'll see you on the next video. Take care and bye for now.

Mergers & Acquisitions (M&A) - The Basics Explained

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