Table of Contents

Chapter 1 - Acquisition Strategy. 1

The Sales Growth Strategy. 1

The Geographic Growth Strategy. 1

The Product Supplementation Strategy. 2

The Full Service Strategy. 3

The Vertical Integration Strategy. 3

The Adjacent Industry Strategy. 4

The Diversification Strategy. 4

The Market Window Strategy. 5

The Asset Stripping Strategy. 5

The Blocking Strategy. 6

The Bolt-on Strategy. 6

The Skills Transfer Strategy. 7

The Expertise Strategy. 7

The Low-Cost Strategy. 8

The Industry Roll-up Strategy. 8

The Size Consideration. 9

The Competitor Consideration. 9

The Weak Link Consideration. 10

The Ego Consideration. 10

The Failings of Acquisition Strategy. 11

Chapter 2 - The Acquisition Process. 13

The Acquirer’s Acquisition Process. 13

Researching Target Companies. 13

The Initial Contact 14

The Non-Disclosure Agreement 15

The Letter of Intent 15

Due Diligence. 16

Final Negotiations. 16

Post-Acquisition Review.. 17

Summary. 17

The Seller’s Acquisition Process. 17

Hiring an Investment Banker 17

Identifying Buyers. 19

Approaching Buyers. 20

The Teaser Letter 21

The Offering Memorandum... 22

Presentations. 24

The Auction Process. 25

Summary. 27

The Bankrupt Seller Acquisition Process. 27

Reconciling the Acquisition Processes. 28

Chapter 3 - Regulatory Approval 31

Antitrust Laws. 31

Hart-Scott-Rodino Act 31

Filing Fees and Penalties. 32

Filing Form... 32

Filing Date. 32

Waiting Period. 33

HSR Exemptions. 33

Industry Concentration Concerns. 33

The Failing Company Doctrine. 36

The European Union Merger Regulation. 36

Chapter 4 - Exit Planning. 39

Reasons for Selling. 39

Alternatives to Selling. 41

Clean Up the Business. 42

Environmental Liabilities. 42

Legal Issues. 43

Takeover Defenses. 43

Competitive Niche Issues. 44

Financial Statements. 44

Asset Issues. 44

Liability Issues. 45

Equity Issues. 47

Revenue Issues. 47

Marketing Issues. 47

Expense Issues. 48

Profitability Issues. 48

Business Complexity Issues. 49

Employee Issues. 49

Management Issues. 49

Intellectual Property Issues. 50

Summary. 50

Timing of the Sale. 50

Information Sharing. 51

Risks of a Failed Exit 52

Chapter 5 - The Data Room... 55

The Physical Data Room.. 55

The Electronic Data Room.. 55

Chapter 6 - Valuation of the Target 59

Board of Directors Liability. 59

Timing of the Deal 59

Liquidation Value. 60

Real Estate Value. 61

Relief-from-Royalty Method. 61

Book Value. 62

Enterprise Value. 63

Multiples Analysis. 64

Discounted Cash Flows. 67

Post Five-Year Cash Flows. 67

Negotiation of DCF Contents. 68

The Discount Rate. 68

Replication Value. 73

Comparison Analysis. 74

The Comparison of Sales Multiples. 74

The Comparison of Cash Flows. 75

The Comparison of Contract Revenues. 75

52-Week High. 75

Influencer Price Point 76

The Initial Public Offering Valuation. 76

The Strategic Purchase. 76

Extraneous Valuation Factors. 77

The Control Premium.. 77

The Earnout 78

The Valuation Floor and Ceiling. 79

The Fairness Opinion. 80

Chapter 7 – Synergy Analysis. 83

The Need for Synergies. 83

Synergy Analysis for Expenses. 83

Synergy Analysis for Revenue. 86

Synergy Analysis for Capital Expenditures. 89

The Synergies Table. 90

Synergy Analysis for Risk Reduction. 91

Synergy Secrecy. 92

The Cost of Synergies. 93

Chapter 8 - Hostile Takeover Tactics. 95

The Williams Act 95

Schedule TO.. 96

Initial Share Acquisition. 96

Initial Communications. 97

The Bear Hug. 98

The Tender Offer. 98

The Partial Tender Offer. 100

The Two-Tiered Tender Offer. 101

The Creeping Tender Offer. 102

The Mini-Tender Offer. 102

The Proxy Fight 102

Hostile Takeover Defenses. 104

Preparatory Defenses - Acquisitions. 104

Preparatory Defenses – Legal 104

Preparatory Defenses – Financial 106

Preparatory Defenses – Operational 106

Reactive Defenses – Legal 106

Reactive Defenses – Monetary. 107

Reactive Defenses – Sale to Alternate Party. 107

Reactive Defenses – Structural 108

Chapter 9 - Due Diligence. 111

Due Diligence Preparation. 111

Due Diligence Expectations. 112

Due Diligence Cost 113

Target Company Overview.. 113

Corporate Culture. 115

Target Company Management 116

Employees. 117

Employee Benefits. 120

Financial Results. 120

Internal Reports. 122

Revenue. 123

Cost Structure. 124

Intellectual Property. 125

Fixed Assets and Facilities. 126

Liabilities. 127

Equity. 128

Taxes. 129

Accounting Policies. 131

Product Development 132

Product Development 132

Selling Activities. 133

Marketing Activities. 134

Production Operations. 134

Materials Management 136

Information Technology. 137

Treasury and Risk Management 139

Legal Issues. 140

Regulatory Compliance. 141

Service Companies. 142

International Issues. 143

Due Diligence Results. 144

Indicators of a Strong Acquisition Candidate. 146

Factors that Terminate a Deal 147

Chapter 10 - Payment Structure of the Acquisition. 150

The Stock-for-Stock Exchange. 150

The Exchange Ratio. 151

The Impact of Options, Warrants, and Convertible Securities. 152

Issues Impacting the Stock Payment Decision. 153

Stock Payment Based on Fixed Share Count or Fixed Price. 154

The Debt Payment 155

The Cash Payment 156

The Consulting Contract 157

Impact on Earnings per Share. 157

The Earnout Payment 158

Practical Considerations. 159

Chapter 11 - Legal Structure of the Acquisition. 162

Tax Issues in an Acquisition. 162

Tax Issues for the Seller 162

Tax Issues for the Acquirer 162

Issues with Stock Purchases. 163

General IRS Requirements to Avoid Gain Recognition. 163

The Type “A” Acquisition. 164

The Type “B” Acquisition. 164

The Type “C” Acquisition. 165

The Type “D” Acquisition. 166

Triangular Mergers. 166

The Triangular Merger 166

The Reverse Triangular Merger 167

The Asset Acquisition. 167

Impact of the Acquiree Organizational Form.. 168

Chapter 12 - Acquisition Documents. 171

The Letter of Intent 171

The Term Sheet 176

The Purchase Agreement 177

Positions of the Parties. 181

The Closing Memorandum.. 182

Chapter 13 - Acquisition Integration. 185

General Integration Topics. 185

Fast Integration. 185

Employee Communications. 186

Team Composition. 186

Integration Planning. 187

Competitor Reactions. 188

Accounting Integration. 188

Corporate Branding. 193

Culture Integration. 193

Customer Service Integration. 194

Divestment Issues. 194

Employee Integration. 195

Human Resources Integration. 196

Information Technology Integration. 199

Legal Integration and Issues. 201

Management Structure Integration. 202

Marketing Integration. 202

Materials Management Integration. 203

Production Integration. 204

Selling Integration. 205

Treasury and Risk Management Integration. 206

Post-Integration Analysis. 207

Integration for the Serial Acquirer. 207

Chapter 14 - Accounting for Acquisitions. 210

Overview of Business Combinations. 210

Identifiable Assets and Liabilities, and Noncontrolling Interests. 212

Goodwill or Gain from Bargain Purchase. 213

Goodwill Calculation. 214

Bargain Purchase. 214

Reverse Acquisitions. 215

Related Issues. 217

Acquisition of Assets. 217

Transactions between Entities under Control of Same Parent 218

Pushdown Accounting. 218

Income Taxes. 218

Goodwill 219

Goodwill Amortization. 223

Variations under IFRS. 223

Chapter 15 - Acquisition Personnel 226

The Acquisitions Attorney. 226

The Investment Banker. 227

The Valuation Specialist 228

Other Consultants. 229

The In-House Acquisitions Department 230

Chapter 16 - Reverse Mergers. 233

The Reverse Merger Concept 233

Advantages and Disadvantages of the Reverse Merger. 234

The Price of a Shell 236

Shell Due Diligence. 236

Trading Volume. 237

Other Reverse Merger Issues. 238

Rule 144. 238

The Reverse-Forward Split 239

Going Private. 239

Answers to Chapter Questions. 242

Glossary. 272

Index. 277

 

Final Examination…………………………………………………………………………………………….283