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Mergers and Acquisitions: Deal to Integration

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Covers What M&A Means, Why Companies Combine, Deal Structures and Terms and more.

Lessons15 lessons
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Final assessmentAfter the last lesson, for your diploma
About

“Mergers and Acquisitions: Deal to Integration” is a 15-lesson course at Conversation level, created with soclever, a personal AI teacher. Each lesson takes a few minutes and ends with a check-in question; finish the curriculum and you can take a certificate test to earn a diploma. Try the first lesson without an account — or make your own course on any topic. Shared by @jjea.

What you'll learn

  1. What M&A Means. M&A stands for mergers and acquisitions, the family of deals in which companies combine, change hands, or split apart.
  2. Why Companies Combine. Companies combine for a handful of common reasons: growth, synergies, entering new markets, and diversification. Each motive carries its own strategic logic and its own risks.
  3. Deal Structures and Terms. A deal structure is the legal form a purchase takes: what the buyer actually acquires and from whom.
  4. Valuing a Target with Multiples. A multiple turns the value of a comparable business into a ratio, such as value relative to earnings or sales.
  5. Discounted Cash Flow Basics. A discounted cash flow (DCF) valuation estimates what a business is worth today by projecting the free cash flow it is expected to produce and discounting that cash back to present value.
  6. Premiums and Synergy Value. A control premium is the amount a buyer pays above a target's current market value to gain control of it.
  7. Stages From Screening to Closing. A deal moves through a typical sequence, from screening possible targets and a first approach to signing and closing.
  8. Due Diligence. Due diligence is the process in which a buyer examines a target's financial, legal, tax, and operational records before committing to a deal.
  9. Letters of Intent and Purchase Agreements. A letter of intent records the main terms two parties have reached in principle before a purchase agreement is written, and the purchase agreement is the detailed contract that carries the deal through closing.
  10. Cash, Stock, and Debt Financing. An acquirer pays for a target in one of three ways: with cash, by issuing shares, or by borrowing.
  11. Accretion and Dilution. A deal can raise or lower the buyer's earnings per share.
  12. Post-Merger Integration Planning. After a deal closes, two companies still have to become one working organization.

Lesson 1: What M&A Means

M&A stands for mergers and acquisitions, the family of deals in which companies combine, change hands, or split apart. Mergers, acquisitions, joint ventures and divestitures differ in their legal form and in who controls the outcome.

Mergers: two companies becoming one. In a merger, two companies agree to combine into a single business. Legally, one company may absorb the other and continue on, or both may be folded into a new entity. Mergers are sometimes described as a combination of equals, and the two boards usually negotiate the terms together. Control is shared in principle: leadership roles and ownership of the combined company are settled by agreement, though in practice one side often ends up with more influence.

Acquisitions: one company taking control of another. In an acquisition, a buyer takes control of a target company, usually by purchasing its shares or its assets. The buyer is clearly the controlling party, and the target either becomes a subsidiary or is absorbed. The legal form differs from a merger because there is a buyer and a seller rather than a pooling of two companies. A deal can be friendly, with the target's board agreeing, or hostile, with the buyer going directly to shareholders. Control of the outcome sits with the acquirer.

Joint ventures and divestitures. A joint venture is an arrangement in which two or more companies create a shared project or a separate business together. Each parent stays independent, and the partners share ownership, costs and decisions according to their agreement. Control is split between the partners rather than passing to one.

A divestiture is the opposite of buying: a company sells or spins off a part of itself, such as a division or business unit. The seller chooses what to let go, often to focus on its core business or raise funds. Control of that unit passes to its new owners: a buyer in a sale, or the parent's own shareholders in a spin-off, where the unit becomes a separate company.

Telling the deal types apart by form and control. Two questions separate the deal types. First, what is the legal form: do two companies combine, does one buy another, do partners create a shared entity, or does a company sell a part of itself? Second, who controls the outcome: both sides together in a merger, the buyer in an acquisition, the partners jointly in a joint venture, and the unit's new owners in a divestiture. Sorting a short deal example means asking these two questions in turn. A company that purchases a rival and keeps running it as its own subsidiary is an acquisition. Two firms that form a new jointly owned company for one project, while each continues on its own, is a joint venture.

Questions this course answers

  • What M&A Means?
  • Why are cost synergies usually easier to predict than revenue synergies, and what happens to the buyer if the synergies it paid for never appear?
  • If a target might face a lawsuit over something it did before the sale, why might the buyer prefer an asset purchase to a stock purchase?
  • Why do transaction multiples usually sit above the trading multiples of comparable public companies?
  • If the discount rate rises from 8% to 12% while everything else stays the same, what happens to a DCF value, and why?
  • If a buyer pays a premium larger than the present value of the synergies it expects, who gains from the deal and who loses?
  • Why is there usually a gap between signing a deal and closing it, and what has to happen in between?
  • If due diligence shows the target's reported profit includes a one-time sale that will not repeat, how should that affect the price, and why?

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