Chapter 10

2. What is a merger?

A transaction where two companies legally combine into one.

3. What is an acquisition?

One company purchases another company; the acquired firm may or may not remain separate.

4. What does M&A generally involve?

Buying, selling, or combining companies to create value or strategic advantage.

5. What motivates companies to pursue M&A?

Typical motives include growth, synergies, strategic expansion, market power, and financial benefits (based on general M&A context; inferred only where implied).

6. What is a horizontal merger?

A combination of companies in the same industry and often competitors.

7. What is a vertical merger?

A merger between companies in different stages of the supply chain.

8. What is a conglomerate merger?

any.

A merger between companies in unrelated businesses.

9. What is a strategic acquisition?

An acquisition aimed at strategic advantage, such as entering new markets or gaining capabilities.

10. What is a financial acquisition?

An acquisition primarily for financial return, often performed by private equity firms.

11. What is a stock purchase?

Acquiring a company by purchasing shares of its stock.

12. What is an asset purchase?

Acquiring specific assets/liabilities rather than the entire company

13. Who are buyers in M&A transactions?

• Corporations

• Private equity firms

• Investor groups

14. Who are sellers?

• Current owners

• Corporations divesting a subsidiary

• Private owners/founders

15. Who are advisers in M&A deals?

• Investment bankers

• Legal counsel

• Accounting firms

• Consultants

16. What is an auction process?

A structured process where multiple bidders are invited to compete for the asset.

17. What is a broad auction?

A sale that targets many potential buyers to maximize price.

18. What is a limited auction?

A sale involving a small number of selected buyers.

19. What is a negotiated sale?

A sale process with one buyer, negotiated privately without competition.

20. What is the first phase of an M&A transaction?

Developing the strategy, including objectives and rationale.

21. What happens in the preparation phase?

• Building marketing materials

• Creating financial information

• Preparing management presentations

22. What happens in the marketing phase?

• Contacting potential buyers

• Sharing the teaser and CIM

• Managing Q&A

23. What is the due diligence phase?

Buyers examine:

• Financial performance

• Operations

• Legal issues

• Tax considerations

• Industry & market factors

24. What is a data room?

A secure location—physical or virtual—where sellers share detailed company information for due diligence.

25. What is the bidding phase?

Buyers submit initial bids or indications of interest.

26. What is the final negotiation phase?

Parties negotiate price, structure, terms, and contract details.

27. What is closing?

Execution of legal agreements and transfer of ownership.

28. What is a teaser?

A short, anonymous profile that markets the business to potential buyers.

29. What is a CIM (Confidential Information Memorandum)?

A detailed document describing the company, financials, operations, and growth prospects.

30. What is an NDA?

A Non-Disclosure Agreement protecting confidential information.

31. What is an LOI (Letter of Intent)?

A preliminary agreement outlining proposed terms before final negotiations.

32. What is a purchase agreement?

The final legal contract governing the sale, including representations, warranties, covenants, and closing conditions.

33. What valuation considerations appear in M&A?

• Market conditions

• Buyer competition

• Quality of financial information

• Synergy expectations

34. Why do buyers need valuation analysis?

To assess whether the acquisition creates strategic or financial value.

35. Why do sellers need valuation analysis?

To determine expected price range and evaluate offers.

36. What are synergies in M&A?

Benefits where the combined company is more valuable than the separate entities.

37. What types of synergies may exist?

• Cost synergies

• Revenue synergies

• Financial synergies

38. Why are synergies important?

They justify paying a premium for a target company.

39. What are common forms of payment in M&A?

• Cash

• Stock

• Mixed consideration

40. What are reasons to choose a stock deal?

Stock may:

• Preserve cash

• Share risk

• Offer tax advantages (depending on jurisdiction)

41. What are reasons to choose a cash deal?

Cash provides:

• Certainty of value

• Faster closing

• Simpler accounting

42. What happens during integration?

Aligning:

• Operations

• Systems

• Teams

• Culture
  To achieve deal objectives.

43. Why does integration matter?

Poor integration is a common reason M&A deals fail to create value.

44. What are cultural challenges in integration?

Differences in:

• Values

• Work practices

• Management styles

45. What ongoing activities occur after closing?

• Monitoring synergies

• Post-deal reporting

• Organizational restructuring

46. What are major M&A risks?

• Overestimating synergies

• Paying too high of a premium

• Integration difficulties

• Regulatory challenges

• Loss of key employees

47. Why is due diligence critical?

It identifies risks early and prevents post-closing surprises.