AFM203 Study Guide - Midterm Guide: Learning Technology Partners, Cash Flow, Financial Analysis
26 Jun 2018
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Acquisitions Notes
1) What are 2 recent acquisitions that have occurred in the last 2-3 years that you find interesting?
Have they been successful? Why or why not? (If it’s very a very recent acquisition do you think
they will be successful? Why or why not?)
a. Microsoft acquired LinkedIn for 26.2 billion, Microsoft’s largest ever acquisition
a.i. The goal of the deal was to accelerate the growth of LinkedIn and Microsoft
Office
a.ii. Long-term strategy, increase use of Microsoft Office for resume and HR
b. Apple acquired Beats for 3 billion in 2014
b.i. Deal gave Apple a hugely popular product with a loyal fan base and lots of
celebrity endorsements
b.ii. Fits Apple’s model of customer loyalty, allowed Apple to stay competitive in
headphone industry
2) What do companies need to consider when they are looking at acquisition targets?
1. Will significant value be created? (reduced costs, improved revenue, access to more
markets, more sales force increasing product share)
2. Will acquisition reduce price competition in industry?
3. Company culture and missions
4. Price of acquisition (Inflated market? Bid up price for target?)
5. Consider both synergies created and potential revenue erosion or increased costs
6. Management
7. Success Story
8. Post-Acquisition Financing
3) What does a corporate development team do in the industry? What do you think are some of the
sub-teams within a corp dev team and what is each team responsible for?
Teams within corp dev:
- M&A
-Valuations
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-Treasury
-Strategy
4) What does a private equity company do?
1. Private equity firms pool funds from investors to acquire stakes in or whole companies
2. Once invested, PE seeks to cut target’s costs and increase revenue to increase value
5) What role does an investment banking team play in the acquisition process?
- Negotiations, Relationships, and Valuation
- Sales and Marketing for raising capital
6) What is a venture capital firm? What do they do?
1. A type of PE firm, invests in startup and emerging companies
7) How do pension investment companies such as CPPIB or OTPP make money?
1. Receive money from pensioners, invest it, generate more return than paid back out to
pensioners
8) What role does a deal advisory team play in the acquisition process?
- Investigates and provides an unbiased stand alone or walk away price
- Due Diligence
- Quality of Earnings Report (like an audit)
9) What is due diligence and why is it important?
1. More than just verifying data, should conduct a fair analysis of the deal’s strategic logic
and acquirer’s ability to realize value from it
2. Acts as a counterweight to the excitement that builds when managers begin to pursue a
target
10) What can companies do to improve their due diligence?
1. Put broader, strategic rationale under microscope, Probe for strengths and weaknesses,
Search for unreliable assumptions and other flaws in logic, be objective and involve
senior managers, Be prepared to walk away from deal
2. Ask four questions:
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Document Summary
Why or why not?: microsoft acquired linkedin for 26. 2 billion, microsoft"s largest ever acquisition a. i. The goal of the deal was to accelerate the growth of linkedin and microsoft. Long-term strategy, increase use of microsoft office for resume and hr: apple acquired beats for 3 billion in 2014 b. i. Deal gave apple a hugely popular product with a loyal fan base and lots of celebrity endorsements b. ii. Fits apple"s model of customer loyalty, allowed apple to stay competitive in headphone industry. What do they do: a type of pe firm, invests in startup and emerging companies. Investigates and provides an unbiased stand alone or walk away price. Must be willing to make investments long term a. ii. Make multiple bets and expect some to fail a. iii. Why is it harder to create value by following these strategies: roll ups. Works when businesses as a group can realize substantial cost saving or achieve higher revenues than individuals businesses.
