Corporate Mergers and Acquisitions

Corporate Mergers and Acquisitions present challenges that will either bring out the best, or accentuate the worst of any corporate culture or business model.  Meticulous planning and execution is the only method to achieve exceptional, or at the very least, acceptable results.

What are your goals and expectations leading up to and concluding in Corporate Mergers and Acquisitions? For additional assistance please contact a specialist through Capital Investment Advisor.

Of the numerous motivating factors within the mindset of the target corporation, a responsible Board of Directors, CEO, or other authorized representatives would first and foremost consider the suitability with the acquiring entity (the buyer).

There are essentially two primary classifications of buyers.  Each form of buyer also has their own unique motivations, and consequently may offer very different prices for the exact same company.

Corporate Mergers and Acquisitions Buyer Classifications:

• Strategic Buyer:  Strategic Buyers are not totally dependent on borrowed cash. The Strategic Buyer typically has accumulated an adequate cash war chest, and requires appropriate companies to invest in.  This classification of buyer will incorporate into the offering price the potential long-term synergies of combining the new acquisition into its present operations, therefore tending to only purchase entities that will compliment its business model and corporate culture.  Strategic Buyers will retain ownership within the newly acquired firm for a much longer time frame, although historically, they are far more inclined to replace current key officers and top level management shortly after acquiring the new firm.

• Financial Buyer:  The Financial Buyer typically is a group, sometimes structured in the form of a leveraged buyout (LBO).  A Financial Buyer will almost certainly finance the acquisition through borrowing against the assets and future cash flows of the acquired company, thereby minimizing equity provisions.  Operating cash flows must be rapidly elevated to pay down the debt service.  Upon substantially reducing debt, Financial Buyers may seek to structure an “Initial Public Offering” (IPO) or sell the company to another buyer---typically a Strategic Buyer, for a handsome profit.  Financial Buyers heavily rely on existing management and do not seek any type of synergies.  This classification of buyer will invest in a multitude of industries simultaneously, once again without the need for synergies within any of the companies.  Financial Buyers prefer to keep all investments completely independent of one another, so that each can be operated and disposed of without affecting the others.

Being prepared for the un-expected is the best course of action.  It is imperative that you fully understand the motivations of those which you negotiate with.  Compromise can and will become an ally if properly deployed.

What are your goals and expectations leading up to and concluding in Corporate Mergers and Acquisitions? For additional assistance please contact a specialist through Capital Investment Advisor.

Article written by Robert Pino staff writer for Orion Foundry (US), Inc.