Mergers and Acquisitions Review

These flashcards cover key concepts and terms related to Mergers and Acquisitions, including legal frameworks, strategies, and financial implications.

Mergers & Acquisitions

A phenomenon where the number and value of corporate transactions increase over time.

Acquirer

The buyer of a firm in an acquisition.

Target

The seller of a firm in an acquisition.

Merger Waves

Periods of intense activity in the M&A market, followed by quieter periods.

Conglomerate Wave

The merger wave of the 1960s characterized by the acquisition of unrelated businesses.

Hostile Takeovers

Acquisitions conducted without the consent of the target company's management.

Williams Act (1968)

U.S. legislation that regulates tender offers, aiming to provide more information to target shareholders.

Tender Offer

An offer to purchase some or all of shareholders' shares at a specified price.

Equal Treatment Principle

A requirement under the EU Directive 2004/25 that all shareholders be treated equivalently during a takeover.

Mandatory Bid Rule

A directive requiring acquirers to make offers for all shares when they obtain a certain percentage of ownership.

Squeeze-out Rights

Rights that allow majority shareholders to buy out minority shareholders for fair compensation.

Passivity Rule

A rule under which a company's board must act in the interests of the company as a whole once a takeover bid is made.

Hostile Tender Offer

A bid for shares without prior approval from the target company's board.

Poison Pills

Defensive strategies used by companies to deter hostile takeovers.

Operating Synergies

Benefits gained through merger that improve efficiency, often arising from cost reductions and revenue enhancements.

Leveraged Buyout (LBO)

Acquisition of a company using a significant amount of borrowed money to meet the cost of acquisition.

Tax Savings from Operating Losses

Utilizing losses in one part of a business to offset profits in another for tax benefits.

Diversification

The strategy of entering into different business areas to reduce risk.

Illiquidity Discount

A reduction in the valuation of an asset due to its lack of liquidity.

Greenshoe Option

An option that allows underwriters to sell more shares than originally planned if demand exceeds expectations.

SPAC (Special Purpose Acquisition Company)

A company created to raise capital through an IPO with the intention of acquiring another company.

Initial Public Offering (IPO)

The first sale of stock by a private company to the public.

Price/Earnings Ratio

A valuation ratio calculated by dividing the market price per share by the earnings per share.

Carried Interest

A share of the profits of an investment fund that is paid to the fund managers after a specified return has been paid to investors.

Underpricing

Setting the initial offer price of an IPO lower than the expected market price.

Book Building

A process where underwriters collect demand from investors to set an IPO price.