Joseph V. Rizzi March, 2013
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Transcript of Joseph V. Rizzi March, 2013
4Fin 70410 M&A Spring 2007
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Issuer Objectives Driven by the Market
1960’s and 1970’sThe Age of the Conglomerate
1980’s – The Age ofThe Financial Buyer
Early 90’s – Fixing The Mistakes
Mid 90’s – Age of the Strategic
Buyer
2000 – 2003 Correction
2004 - ?U.S.
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
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Value Gaps◦ Expectations◦ Strategy
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MaximumMarket Value
Potential ValueWith Internal Improvements
Current MarketValue
Internal Improvements External Improvementse.g. M&A
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Tactical Strategic Financial
Proactive
• Voting Provisions• Staggered Board• Poison Pill
• Sale of Block• Joint Venture• Acquisitions• Leveraged Acq. Vehicle• Divestures• Leveraged Disposition
• Monetize Undervalued Non-Strategic Assets• Cost Restructuring• ESOP• Spin Off• LBO•Recapitalization
• Full or Partial
Reactive
• Stock Repurchase• Block Repurchase• Voting Provisions• Poison Pill• Sale of Block• White Squire Preferred
• Divestitures• Acquisitions
• ESOP• LBO• Recap• Sale
Institutional Barriers/Protection◦ Decline over time◦ No defense to a fully priced/financed bid
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◦ Expectations◦ Strategic
Map
Responses◦ Buy (3rd Party or Self)◦ Stock repurchase
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Growth
Neg FCF
Winners
+/- FCF
Losers
+/- FCF
LBO
Pos FCF
Mar
ket
Gro
wth
ROE – KeMarket Position
+
-
> 1
< 1
MV/BV
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PotentialPremium/Value Gap
Stupidity
Competitive Necessity
Outlook/Information Adv.
Synergies
Buyer has lower WACC
Under Valuation
Current Price
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Strategic Issues• Do I make the acquisition?
Valuation• How much do I pay?
Transaction• Does the deal design make sense?
Tactics• How do I make the offer?
Financing• How do I pay?
Integration • Implementation of acquisition