Dilutive Acquisition

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Factors to look before suitableAcquisition

Strategic FitOne of the key concepts associated with

mergers and acquisitions is strategic t

Companies operating in the same sectormust have some degree of alignment interms of competitive situation, strategy,organiational culture and leadership style



!arket Share and "randingFierce protectiveness over market share

e#ists between competitors operatingwithin the same sector$

%hen the opportunity to combineoperations presents itself, however,company leaders see a probable growth in

market share on the horion



Check your own liquidity andnancial health

"efore you enter any transaction, says"urmeister, determine if you have thenancial wherewithal by performing athorough nancial health check$

&Since the recession, most organiationshave shifted their focus away from prot

and loss statements and towards liquidity,'he says



!ake sure your people can see clearly

"efore closing a deal, "urmeister says,you(ll also want to ensure you have a teamin place with the e#perience to assess atransaction, complete an investment,forecast its performance and toleratesensitivities around the results$



)ene your goals and successfactors

*n putting together your !+A strategy, you shouldanalye both your competitive position as well asyour future obectives$

&-hat means understanding what you(re doingwith your business, where you want to go andwhat you value most,' says "urmeister

*s your goal to increase market share.

)o you want to enter markets contiguous to theones you already play in.

)o you want to acquire new products, processesand intellectual capital.



Consider !+A candidates/ow that you know what you want out of a

merger or acquisition, it(s time to begin thesearch for the right t$ "ut what factorsshould come into your screening process. &

One is integration feasibility, meaning0%hat are the organiational andoperational challenges of integratingthem.' says "urmeister$



1lan and e#ecute duediligence%hen it comes time to evaluate a potential

deal, you(ll need to do more than ust somesimple math or even an &audit lite$'

&%hen done properly, due diligence shouldtest the strategic t of the acquisition,'says "urmeister$



Create a transition team

!aor transitions require strong leadership2it sets the tone for savings ande3ciencies,' says "urmeister$

&-hat(s why it is critical to create atransition steering committee and a

functional team



Carefully plan and performthe integration

%hen it(s nally time to merge theoperations, processes and cultures of thetwo companies, you should, &focus onrevalidating all of the plans you havedeveloped since the deal was rstconsidered,' says "urmeister



Four C(s

Compensate0 *f you want e#isting managementto stay, make their targets achievable andcompensate appropriately$

Communicate0 1eople on both sides of thetransaction should be completely aware of what(sgoing on to help quell rumors and paranoia$

Care0 4ow you react to challenges can make allof the di5erence

Cull0 *f you must say goodbye to any members ofmanagement, make your decisions quickly, butcarefully$



)ilutive acquisition 6FA4A)7

A takeover transaction that will decrease theacquirer9s :1S if additional shares are issuedto pay for the acquisition

)ilutive acquisition decrease shareholdersvalue and should thus be avoided

An acquisition is accretive when the combined6pro forma7 :1S is greater than the acquirer(sstandalone :1S



-ypes

An acquisition is accretive when thecombined 6pro forma7 :1S is greater than

the acquirer(s standalone :1S

Accretion0 %hen pro forma :1S ; Acquirer(s:1S

)ilution0 %hen pro forma :1S < Acquirer(s :1S"reakeven0 /o impact on Acquirer(s :1S



Factors can lead to the dilution of:1S in an acquisition6 Aaqib7

4igher :1S will always translate intohigher price, making accretive deals goodfor acquiring company stockholders

*ncrease in :1S, the stock price of thecombined company will also fall

-he target(s 1rice=:arnings ratio is greaterthan the acquirer(s



>ow 1=: acquires a company with ahigh 1=:

*f you are funding a deal with cash, thedeal will almost always be accretive

because the income you are generatingfrom cash

-he deal will be accretive if the equity

earnings that you generate from theacquired company e#ceed the intereste#pense



A5ect On !arket 1rice

:1S will often in?uence the market priceof its stock, the relationship is rarely

inverse$

-he company9s :1S is determined bydividing the earnings by the number of

outstanding shares



-akeovers 6Akhtar Ali7*n business, a takeover is the purchase of

one company 6the target7 by another 6theacquirer, or bidder7$

&Friendly takeover2

An acquisition which is approved by themanagement

"efore a bidder makes an o5er for anothercompany, it usually rst informs thecompany9s board of directors



4ostile takeover

Allows a bidder to take over a targetcompany whose management is unwillingto agree to a merger or takeover

A takeover is considered @hostile@ if thetarget company9s board reects the o5er,

and if the bidder continues to pursue it orthe bidder makes the o5er



everse takeoverA type of takeover where a private

company acquires a public company

-his is usually done at the instigation of thelarger, private company, the purpose beingfor the private company



"ack?ip takeover

*s any sort of takeover in which theacquiring company turns itself into asubsidiary of the purchased company



-akeover )efenses1oison 1ill )efense

-his defense is controversial, and many countrieshave limited its application

Bolden 1arachute

-he Bolden 1arachute is a provision in a C:O9scontract$ *t states that he will get a large bonus incash or stock if the company is acquired

Shareholders ights 1lan

-he most common form of takeover defense is theshareholders9 rights plans, which activates at themoment a potential acquirer announces itsintentions



-akeover1oison pill%hile the poison pill defense may help wardo5 unwanted suitors, it also makes it moredi3cult for shareholders to prot from the

announcement of a takeoveroting ights 1lans

-argeted companies may also implement a

votingDrights plan, which separates certainshareholders from their full voting powers ata predetermined point



Staggered "oard of )irectorsClauses involving shareholders are not theonly escape routes available to targetedcompanies$ A staggered board of directors 6"

of )7, in which groups of directorsBreenmail

A company may also pursue the greenmail

option by buying back its recently acquiredstock from the putative raider at a higherprice in order to avoid a takeover



-akeover%hite Enight *f a determined hostile bidder thwarts alldefenses, a possible solution is a whiteknight, a strategic partner that merges with

the target company

Acquiring the Acquirer

*ronically, a takeover defense that has beensuccessful in the past, albeit rarely, is to turnthe tables on the acquirer and mount a bid totake over the raider



-akeover -riggered Option estingA triggered stock option vesting strategy forlarge stakeholders in a company can be usedas a defense, but it rarely benets anyone

involved



%hy management want toresist.Boodwill, often paid in e#cess for the

acquisition

educed competition and choice forconsumers in oligopoly markets 6"ad for

consumers, although this is good for thecompanies involved in the takeover7

>ikelihood of ob cuts

Cultural integration=con?ict with newmanagement

4idden liabilities of target entity

-he monetary cost to the company



eferences

https0==en$wikipedia$org=wiki=Conglomerate merger

http0==legaldictionary$net=conglomerateDmerger=

http0==smallbusiness$chron$com=horiontalDmergerDverticalDmergerDGHIJK$html

https0==www$americane#press$com=us=smallDbusiness=openforum=articles=LDstepsDtoDaDsuccessfulDmaDaDsmallDbusinessDguide=

Dilutive Acquisition

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