Mergers and acquisitions

Mergers and acquisitions

1. 1. Acquirer values target standalone at $1B and projects $200M of synergies. What is the maximum the acquirer should pay (max offer) without destroying acquirer-shareholder value? Answer in $B.

   $B

2. 2. Stock deals (vs cash deals) are MORE common when:

   The acquirer believes its stock is undervaluedThe acquirer believes its stock is overvalued ("paying with expensive paper")Interest rates are very highTax rates are low

3. 3. Common sources of post-merger value destruction include:

   Overpaying due to winner's curse in competitive biddingIntegration failures (cultures, systems, talent loss)Synergy overestimation (especially revenue synergies)Acquirer's stock price always falls regardless of the deal

4. 4. Empirically, what fraction of acquisitions destroy value for the ACQUIRER (per 3-5 year post-merger studies)?

   Roughly 10%Roughly 25%Roughly 40-60%Roughly 90%