Joseph V. Rizzi
March, 2013
Market Overview
Underlying Focus
Framework
Fin 70410 M&A Spring
2
Market Overview
Underlying Focus
Framework
Fin 70410 M&A Spring
2007
3
Issuer Objectives Driven by the Market
12000
10000
8000
6000
4000
2000
0
U.S.
1960’s and 1970’s
The Age of the Conglomerate
1980’s – The Age of
The Financial Buyer
Early 90’s –
Fixing The
Mistakes
Mid 90’s – Age of
the Strategic
Buyer
2000 – 2003
Correction
Fin 70410 M&A Spring
2007
2004 - ?
4


Catalysts for strategic M&A
◦
Value gaps/low market valuation
◦
Lack of top line growth
◦
Declining cost reduction opportunities
◦
Increasing importance of scale
◦
Capital availability
◦
Strong cash flow/under-leveraged balance sheets
◦
Shareholder value pressure
Future
◦
Cyclical

M&A moves with stock prices/economic cycle
◦
Re-regulation
◦
Mistakes

Financial failures/liquidity crisis
◦
Style

Bigger

Hostile

Faster

Convergence
5
Value Gaps

◦
◦
Expectations
Strategy
Current Market
Value
Potential Value
With Internal Improvements
Internal Improvements
Maximum
Market Value
External Improvements
e.g. M&A
6
Tactical
Strategic
Proactive
• Voting Provisions
• Staggered Board
• Poison Pill
•
•
•
•
•
•
Reactive
• Stock Repurchase
• Block Repurchase
• Voting Provisions
• Poison Pill
• Sale of Block
• White Squire
Preferred
• Divestitures
• Acquisitions
Sale of Block
Joint Venture
Acquisitions
Leveraged Acq. Vehicle
Divestures
Leveraged Disposition
Financial
• Monetize Undervalued
Non-Strategic Assets
• Cost Restructuring
• ESOP
• Spin Off
• LBO
•Recapitalization
• Full or Partial
•
•
•
•
ESOP
LBO
Recap
Sale
7
Institutional Barriers/Protection
◦
◦

Economic Indicators
◦
◦
◦
◦
◦


ROE – Ke < 0
Dividends/FOCF < 50% (Cash is building)
Cash + Marketable Securities/Market Value > 5%
Debt/Cap < 20% (Under leveraged)
Relative lagging stock price performance
Value Gaps
◦
◦

Decline over time
No defense to a fully priced/financed bid
Expectations
Strategic
Map
Responses
◦
◦
Buy (3rd Party or Self)
Stock repurchase
Market Growth

+
Growth
Winners
Neg FCF
+/- FCF
>1
MV/BV
-
Losers
LBO
+/- FCF
Pos FCF
<1
ROE – Ke
Market Position
8
Stupidity
Competitive Necessity
Outlook/Information Adv.
Potential
Premium/
Value Gap
Synergies
Buyer has lower WACC
Under Valuation
Current Price
9
Market Overview
Underlying Focus
Framework
10
Strategic Issues
Valuation
Transaction
Tactics
Financing
Integration
• Do I make the acquisition?
• How much do I pay?
• Does the deal design make sense?
• How do I make the offer?
• How do I pay?
• Implementation of acquisition
11
ck
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id
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ile
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sf
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)
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Pr
ie
nd
iv
at
ly
e
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ar
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et
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ar
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e
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nr
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Be Tar
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Af
av
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at
av
ed
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to
W
av
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M
ix
ed
St
o
AL
Mean abnormal announcement returns
CAR 1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
12