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References
1.
2.
http://www.seclaw.com/docs/pplace.htm
3.
4.
5.
External links
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Convertible debt
Exchangeable debt
Mezzanine debt
Pari passu
Preferred equity
Senior debt
Shareholder loan
Stock
Subordinated debt
Warrant
Transactions
(terms / conditions)
At-the-market offering
Book building
Bookrunner
Corporate spin-off
Equity carve-out
Follow-on offering
Greenshoe
o Reverse
Equity offerings
Mergers and
acquisitions
Private placement
Public offering
Rights issue
Underwriting
Buy side
Control premium
Demerger
Divestment
Drag-along right
Pitch book
Pre-emption right
Proxy fight
Sell side
Special situation
Squeeze out
Super-majority amendment
Tag-along right
Takeover
o Reverse
Tender offer
Debt restructuring
Debtor-in-possession financing
Leverage
Financial sponsor
Leveraged buyout
Leveraged recapitalization
High-yield debt
Private equity
Project finance
Valuation
Accretion/dilution analysis
Associate company
Business valuation
Cost of capital
o Weighted average
Enterprise value
Fairness opinion
Financial modeling
Minority interest
ModiglianiMiller theorem
Pure play
Real options
Residual income
Stock valuation
Tax shield
Terminal value
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Private placement
From Wikipedia, the free encyclopedia
This article needs additional citations for verification. Please help improve this article
by adding citations to reliable sources. Unsourced material may be challenged and
removed. (December 2007)
Private placement (or non-public offering) is a funding round of securities which are sold not
through a public offering, but rather through a private offering, mostly to a small number of
chosen investors.[1]
PIPE (private investment in public equity) deals are one type of private placement. SEDA
(standby equity distribution agreement) is also a form of private placement. They are often a
cheaper source of capital than a public offering.
References
1.
2.
http://www.seclaw.com/docs/pplace.htm
3.
4.
5.
Morgan, Thomas; Lewis and Roca LLP (March 6, 2013). "Raising Capital - What
You Dont Know Could Hurt You". The National Law Review. Retrieved March 17,
2013.
External links
[hide]
Convertible debt
Exchangeable debt
Mezzanine debt
Pari passu
Preferred equity
Senior debt
Shareholder loan
Stock
Subordinated debt
Warrant
Transactions
Equity offerings
(terms / conditions)
At-the-market offering
Book building
Bookrunner
Corporate spin-off
Equity carve-out
Follow-on offering
Greenshoe
o Reverse
Private placement
Public offering
Rights issue
Mergers and
acquisitions
Underwriting
Buy side
Control premium
Demerger
Divestment
Drag-along right
Pitch book
Pre-emption right
Proxy fight
Sell side
Special situation
Squeeze out
Super-majority amendment
Tag-along right
Takeover
o Reverse
Tender offer
Debt restructuring
Debtor-in-possession financing
Financial sponsor
Leveraged buyout
Leveraged recapitalization
High-yield debt
Private equity
Project finance
Leverage
Valuation
Accretion/dilution analysis
Associate company
Business valuation
Cost of capital
o Weighted average
Enterprise value
Fairness opinion
Financial modeling
Minority interest
ModiglianiMiller theorem
Pure play
Real options
Residual income
Stock valuation
Tax shield
Terminal value
Outline of finance
Categories:
Securities (finance)
Financial services
Investment
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Create account
Log in
Article
Talk
Read
Edit
View history
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Contents
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Clawback
Mergers and acquisitions (abbreviated M&A) are both aspects of strategic management,
corporate finance and management dealing with the buying, selling, dividing and combining of
different companies and similar entities that can help an enterprise grow rapidly in its sector or
location of origin, or a new field or new location, without creating a subsidiary, other child entity
or using a joint venture. Mergers and acquisitions activity can be defined as a type of
restructuring in that they result in some entity reorganization with the aim to provide growth or
positive value. Consolidation of an industry or sector occurs when widespread M&A activity
concentrates the resources of many small companies into a few larger ones, such as occurred
with the automotive industry between 1910 and 1940.
The distinction between a "merger" and an "acquisition" has become increasingly blurred in
various respects (particularly in terms of the ultimate economic outcome), although it has not
completely disappeared in all situations. From a legal point of view, a merger is a legal
consolidation of two companies into one entity, whereas an acquisition occurs when one
company takes over another and completely establishes itself as the new owner (in which case
the target company still exists as an independent legal entity controlled by the acquirer). Either
structure can result in the economic and financial consolidation of the two entities. In practice, a
deal that is an acquisition for legal purposes may be euphemistically called a "merger of equals"
if both CEOs agree that joining together is in the best interest of both of their companies, while
when the deal is unfriendly (that is, when the target company does not want to be purchased) it is
almost always regarded as an "acquisition".
Contents
1 Acquisition
2 Legal structures
3 Documentation
4 Business valuation
5 Financing
o 5.1 Cash
o 5.2 Stock
o 5.3 Financing options
7 Motivation
o 7.1 Improving financial performance
o 7.2 Other types
8 Different types
o 8.1 By functional roles in market
o 8.2 Arm's length mergers
o 8.3 Strategic mergers
o 8.4 Acqui-hire
10 Brand considerations
11 History
o 11.1 The Great Merger Movement: 18951905
12 Cross-border
13 Failure
14 Major
o 14.1 1990s
o 14.2 2000s
o 14.3 20102014
15 See also
16 References
17 Further reading
Acquisition
Main article: Takeover
An acquisition or takeover is the purchase of one business or company by another company or
other business entity. Such purchase may be of 100%, or nearly 100%, of the assets or ownership
equity of the acquired entity. Consolidation occurs when two companies combine together to
form a new enterprise altogether, and neither of the previous companies remains independently.
Acquisitions are divided into "private" and "public" acquisitions, depending on whether the
acquiree or merging company (also termed a target) is or is not listed on a public stock market.
An additional dimension or categorization consists of whether an acquisition is friendly or
hostile.
Achieving acquisition success has proven to be very difficult, while various studies have shown
that 50% of acquisitions were unsuccessful.[1] The acquisition process is very complex, with
many dimensions influencing its outcome.[2] "Serial acquirers" appear to be more successful with
M&A than companies who only make an acquisition occasionally (see Douma & Schreuder,
2013, chapter 13). The new forms of buy out created since the crisis are based on serial type
acquisitions known as an ECO Buyout which is a co-community ownership buy out and the new
generation buy outs of the MIBO (Management Involved or Management & Institution Buy Out)
and MEIBO (Management & Employee Involved Buy Out).
Look up merger in Wiktionary, the free dictionary.
Whether a purchase is perceived as being a "friendly" one or a "hostile" depends significantly on
how the proposed acquisition is communicated to and perceived by the target company's board of
directors, employees and shareholders. It is normal for M&A deal communications to take place
in a so-called "confidentiality bubble" wherein the flow of information is restricted pursuant to
confidentiality agreements.[3] In the case of a friendly transaction, the companies cooperate in
negotiations; in the case of a hostile deal, the board and/or management of the target is unwilling
to be bought or the target's board has no prior knowledge of the offer. Hostile acquisitions can,
and often do, ultimately become "friendly", as the acquiror secures endorsement of the
transaction from the board of the acquiree company. This usually requires an improvement in the
terms of the offer and/or through negotiation.
"Acquisition" usually refers to a purchase of a smaller firm by a larger one. Sometimes, however,
a smaller firm will acquire management control of a larger and/or longer-established company
and retain the name of the latter for the post-acquisition combined entity. This is known as a
reverse takeover. Another type of acquisition is the reverse merger, a form of transaction that
enables a private company to be publicly listed in a relatively short time frame. A reverse merger
occurs when a privately held company (often one that has strong prospects and is eager to raise
financing) buys a publicly listed shell company, usually one with no business and limited assets.
[4]
The combined evidence suggests that the shareholders of acquired firms realize significant
positive "abnormal returns" while shareholders of the acquiring company are most likely to
experience a negative wealth effect. The overall net effect of M&A transactions appears to be
positive: almost all studies report positive returns for the investors in the combined buyer and
target firms. This implies that M&A creates economic value, presumably by transferring assets to
management teams that operate them more efficiently (see Douma & Schreuder, 2013, chapter
13).
There are also a variety of structures used in securing control over the assets of a company,
which have different tax and regulatory implications:
This section does not cite any references or sources. Please help improve this section
by adding citations to reliable sources. Unsourced material may be challenged and
removed. (June 2008)
The buyer buys the shares, and therefore control, of the target company being purchased.
Ownership control of the company in turn conveys effective control over the assets of the
company, but since the company is acquired intact as a going concern, this form of
transaction carries with it all of the liabilities accrued by that business over its past and all
of the risks that company faces in its commercial environment.
The buyer buys the assets of the target company. The cash the target receives from the
sell-off is paid back to its shareholders by dividend or through liquidation. This type of
transaction leaves the target company as an empty shell, if the buyer buys out the entire
assets. A buyer often structures the transaction as an asset purchase to "cherry-pick" the
assets that it wants and leave out the assets and liabilities that it does not. This can be
particularly important where foreseeable liabilities may include future, unquantified
damage awards such as those that could arise from litigation over defective products,
employee benefits or terminations, or environmental damage. A disadvantage of this
structure is the tax that many jurisdictions, particularly outside the United States, impose
on transfers of the individual assets, whereas stock transactions can frequently be
structured as like-kind exchanges or other arrangements that are tax-free or tax-neutral,
both to the buyer and to the seller's shareholders.
The terms "demerger", "spin-off" and "spin-out" are sometimes used to indicate a situation where
one company splits into two, generating a second company which may or may not become
separately listed on a stock exchange.
As per knowledge-based views, firms can generate greater values through the retention of
knowledge-based resources which they generate and integrate.[5] Extracting technological
benefits during and after acquisition is ever challenging issue because of organizational
differences. Based on the content analysis of seven interviews authors concluded five following
components for their grounded model of acquisition:
This section does not cite any references or sources. Please help improve this section
by adding citations to reliable sources. Unsourced material may be challenged and
removed. (July 2012)
1. Improper documentation and changing implicit knowledge makes it difficult to share
information during acquisition.
2. For acquired firm symbolic and cultural independence which is the base of technology
and capabilities are more important than administrative independence.
3. Detailed knowledge exchange and integrations are difficult when the acquired firm is
large and high performing.
4. Management of executives from acquired firm is critical in terms of promotions and pay
incentives to utilize their talent and value their expertise.
5. Transfer of technologies and capabilities are most difficult task to manage because of
complications of acquisition implementation. The risk of losing implicit knowledge is
always associated with the fast pace acquisition.
Preservation of tacit knowledge, employees and documentation are often difficult to achieve
during and after acquisition. Strategic management of all these resources is a very important
factor for a successful acquisition.
An increase in acquisitions in the global business environment requires enterprises to evaluate
the key stake holders of acquisition very carefully before implementation.[citation needed] It is
imperative for the acquirer to understand this relationship and apply it to its advantage.
Retention[clarification needed] is only possible when resources are exchanged and managed without
affecting their independence.[6]
Legal structures
Corporate acquisitions can be characterized for legal purposes as either "asset purchases" in
which the seller sells business assets to the buyer, or "equity purchases" in which the buyer
purchases equity interests in a target company from one or more selling shareholders. Asset
purchases are common in technology transactions where the buyer is most interested in particular
intellectual property rights but does not want to acquire liabilities or other contractual
relationships.[7] An asset purchase structure may also be used when the buyer wishes to buy a
particular division or unit of a company which is not a separate legal entity. There are numerous
challenges particular to this type of transaction, including isolating the specific assets and
liabilities that pertain to the unit, determining whether the unit utilizes services from other units
of the selling company, transferring employees, transferring permits and licenses, and ensuring
that the seller does not compete with the buyer in the same business area in the future.[8]
Mergers, asset purchases and equity purchases are each taxed differently, and the most beneficial
structure for tax purposes is highly situation-dependent. One hybrid form often employed for tax
purposes is a triangular merger, where the target company merges with a shell company wholly
owned by the buyer, thus becoming a subsidiary of the buyer. In a "forward triangular merger",
the buyer causes the target company to merge into the subsidiary; a "reverse triangular merger" is
similar except that the subsidiary merges into the target company. Under the U.S. Internal
Revenue Code, a forward triangular merger is taxed as if the target company sold its assets to the
shell company and then liquidated, whereas a reverse triangular merger is taxed as if the target
company's shareholders sold their stock in the target company to the buyer.[9]
Documentation
The documentation of an M&A transaction often begins with a letter of intent. The letter of
intent generally does not bind the parties to commit to a transaction, but may bind the parties to
confidentiality and exclusivity obligations so that the transaction can be considered through a
due diligence process involving lawyers, accountants, tax advisors, and other professionals, as
well as businesspeople from both sides.[8]
After due diligence is completed, the parties may proceed to draw up a definitive agreement,
known as a "merger agreement", "share purchase agreement" or "asset purchase agreement"
depending on the structure of the transaction. Such contracts are typically 80 to 100 pages long
and focus on five key types of terms:[10]
Representations and warranties by the seller with regard to the company, which are
claimed to be true at both the time of signing and the time of closing. Some agreements
provide that if the representations and warranties by the seller prove to be false, the buyer
may claim a refund of part of the purchase price, as is common in transactions involving
privately held companies (although in most acquisition agreements involving public
company targets, the representations and warranties of the seller do not survive the
closing).
Covenants, which govern the conduct of the parties, both before the closing (such as
covenants that restrict the operations of the business between signing and closing) and
after the closing (such as covenants regarding future income tax filings and tax liability or
post-closing restrictions agreed to by the buyer and seller parties).
Provisions relating to obtaining required shareholder approvals under state law and
related SEC filings required under federal law, if applicable, and terms related to the
mechanics of the legal transactions to be consummated at closing (such as the
determination and allocation of the purchase price and post-closing adjustments (such as
adjustments after the final determination of working capital at closing or earnout
payments payable to the sellers), repayment of outstanding debt, and the treatment of
outstanding shares, options and other equity interests).
Business valuation
The five most common ways to value a business are
asset valuation,
Professionals who value businesses generally do not use just one of these methods but a
combination of some of them, as well as possibly others that are not mentioned above, in order to
obtain a more accurate value. The information in the balance sheet or income statement is
obtained by one of three accounting measures: a Notice to Reader, a Review Engagement or an
Audit.
Accurate business valuation is one of the most important aspects of M&A as valuations like
these will have a major impact on the price that a business will be sold for. Most often this
information is expressed in a Letter of Opinion of Value (LOV) when the business is being
valuated for interest's sake. There are other, more detailed ways of expressing the value of a
business. While these reports generally get more detailed and expensive as the size of a company
increases, this is not always the case as there are many complicated industries which require
more attention to detail, regardless of size.
As synergy plays a large role in the valuation of acquisitions, it is paramount to get the value of
synergies right. Synergies are different from the "sales price" valuation of the firm, as they will
accrue to the buyer. Hence, the analysis should be done from the acquiring firm's point of view.
Synergy-creating investments are started by the choice of the acquirer, and therefore they are not
obligatory, making them essentially real options. To include this real options aspect into analysis
of acquisition targets is one interesting issue that has been studied lately.[11]
Financing
Accounting
Management accounting
Tax accounting
Mergers are generally differentiated from acquisitions partly by the way in which they are
financed and partly by the relative size of the companies. Various methods of financing an M&A
deal exist:
Cash
Payment by cash. Such transactions are usually termed acquisitions rather than mergers because
the shareholders of the target company are removed from the picture and the target comes under
the (indirect) control of the bidder's shareholders.
Stock
Payment in the form of the acquiring company's stock, issued to the shareholders of the acquired
company at a given ratio proportional to the valuation of the latter.
Financing options
There are some elements to think about when choosing the form of payment. When submitting
an offer, the acquiring firm should consider other potential bidders and think strategically. The
form of payment might be decisive for the seller. With pure cash deals, there is no doubt on the
real value of the bid (without considering an eventual earnout). The contingency of the share
payment is indeed removed. Thus, a cash offer preempts competitors better than securities. Taxes
are a second element to consider and should be evaluated with the counsel of competent tax and
accounting advisers. Third, with a share deal the buyers capital structure might be affected and
the control of the buyer modified. If the issuance of shares is necessary, shareholders of the
acquiring company might prevent such capital increase at the general meeting of shareholders.
The risk is removed with a cash transaction. Then, the balance sheet of the buyer will be
modified and the decision maker should take into account the effects on the reported financial
results. For example, in a pure cash deal (financed from the companys current account),
liquidity ratios might decrease. On the other hand, in a pure stock for stock transaction (financed
from the issuance of new shares), the company might show lower profitability ratios (e.g. ROA).
However, economic dilution must prevail towards accounting dilution when making the choice.
The form of payment and financing options are tightly linked. If the buyer pays cash, there are
three main financing options:
Cash on hand: it consumes financial slack (excess cash or unused debt capacity) and may
decrease debt rating. There are no major transaction costs.
Issue of debt: It consumes financial slack, may decrease debt rating and increase cost of
debt. Transaction costs include underwriting or closing costs of 1% to 3% of the face
value.
Issue of stock: it increases financial slack, may improve debt rating and reduce cost of
debt. Transaction costs include fees for preparation of a proxy statement, an extraordinary
shareholder meeting and registration.
Shares in treasury: it increases financial slack (if they dont have to be repurchased on the
market), may improve debt rating and reduce cost of debt. Transaction costs include
brokerage fees if shares are repurchased in the market otherwise there are no major costs.
In general, stock will create financial flexibility. Transaction costs must also be considered but
tend to have a greater impact on the payment decision for larger transactions. Finally, paying
cash or with shares is a way to signal value to the other party, e.g.: buyers tend to offer stock
when they believe their shares are overvalued and cash when undervalued.[12]
Motivation
Improving financial performance
The dominant rationale used to explain M&A activity is that acquiring firms seek improved
financial performance. The following motives are considered to improve financial performance:
Economy of scale: This refers to the fact that the combined company can often reduce its
fixed costs by removing duplicate departments or operations, lowering the costs of the
company relative to the same revenue stream, thus increasing profit margins.
Economy of scope: This refers to the efficiencies primarily associated with demand-side
changes, such as increasing or decreasing the scope of marketing and distribution, of
different types of products.
Increased revenue or market share: This assumes that the buyer will be absorbing a major
competitor and thus increase its market power (by capturing increased market share) to
set prices.
Cross-selling: For example, a bank buying a stock broker could then sell its banking
products to the stock broker's customers, while the broker can sign up the bank's
customers for brokerage accounts. Or, a manufacturer can acquire and sell
complementary products.
Taxation: A profitable company can buy a loss maker to use the target's loss as their
advantage by reducing their tax liability. In the United States and many other countries,
rules are in place to limit the ability of profitable companies to "shop" for loss making
companies, limiting the tax motive of an acquiring company.
Resource transfer: resources are unevenly distributed across firms (Barney, 1991) and the
interaction of target and acquiring firm resources can create value through either
overcoming information asymmetry or by combining scarce resources.[13]
Vertical integration: Vertical integration occurs when an upstream and downstream firm
merge (or one acquires the other). There are several reasons for this to occur. One reason
is to internalise an externality problem. A common example of such an externality is
double marginalization. Double marginalization occurs when both the upstream and
downstream firms have monopoly power and each firm reduces output from the
competitive level to the monopoly level, creating two deadweight losses. Following a
merger, the vertically integrated firm can collect one deadweight loss by setting the
downstream firm's output to the competitive level. This increases profits and consumer
surplus. A merger that creates a vertically integrated firm can be profitable.[14]
Hiring: some companies use acquisitions as an alternative to the normal hiring process.
This is especially common when the target is a small private company or is in the startup
phase. In this case, the acquiring company simply hires ("acquhires") the staff of the
target private company, thereby acquiring its talent (if that is its main asset and appeal).
The target private company simply dissolves and little legal issues are involved.[citation needed]
Other types
However, on average and across the most commonly studied variables, acquiring firms' financial
performance does not positively change as a function of their acquisition activity.[15] Therefore,
additional motives for merger and acquisition that may not add shareholder value include:
Manager's hubris: manager's overconfidence about expected synergies from M&A which
results in overpayment for the target company.
Empire-building: Managers have larger companies to manage and hence more power.
Manager's compensation: In the past, certain executive management teams had their
payout based on the total amount of profit of the company, instead of the profit per share,
which would give the team a perverse incentive to buy companies to increase the total
profit while decreasing the profit per share (which hurts the owners of the company, the
shareholders).
Different types
By functional roles in market
The M&A process itself is a multifaceted which depends upon the type of merging companies.
A horizontal merger is usually between two companies in the same business sector. The
example of horizontal merger would be if a health care system buys another health care
system. This means that synergy can obtained through many forms including such as;
increased market share, cost savings and exploring new market opportunities.
A vertical merger represents the buying of supplier of a business. In the same example as
above if a health care system buys the ambulance services from their service suppliers is
an example of vertical buying. The vertical buying is aimed at reducing overhead cost of
operations and economy of scale.
Conglomerate M&A is the third form of M&A process which deals the merger between
two irrelevant companies. The example of conglomerate M&A with relevance to above
scenario would be if health care system buys a restaurant chain. The objective may be
diversification of capital investment.[16]
Strategic mergers
A Strategic merger usually refers to long term strategic holding of target (Acquired) firm. This
type of M&A process aims at creating synergies in the long run by increased market share, broad
customer base, and corporate strength of business. A strategic acquirer may also be willing to pay
a premium offer to target firm in the outlook of the synergy value created after M&A process.
Acqui-hire
The term "acqui-hire" is used to refer to acquisitions where the acquiring company seeks to
obtain the target company's talent, rather than their products (which are often discontinued as
part of the acquisition so the team can focus on projects for their new employer). In recent years,
these types of acquisitions have become common in the technology industry, where major web
companies such as Facebook, Twitter, and Yahoo! have frequently used talent acquisitions to add
expertise in particular areas to their workforces.[18][19]
Given that the cost of replacing an executive can run over 100% of his or her annual salary, any
investment of time and energy in re-recruitment will likely pay for itself many times over if it
helps a business retain just a handful of key players that would have otherwise left.[20]
Organizations should move rapidly to re-recruit key managers. Its much easier to succeed with a
team of quality players that one selects deliberately rather than try to win a game with those who
randomly show up to play.[21]
Brand considerations
Mergers and acquisitions often create brand problems, beginning with what to call the company
after the transaction and going down into detail about what to do about overlapping and
competing product brands. Decisions about what brand equity to write off are not
inconsequential. And, given the ability for the right brand choices to drive preference and earn a
price premium, the future success of a merger or acquisition depends on making wise brand
choices. Brand decision-makers essentially can choose from four different approaches to dealing
with naming issues, each with specific pros and cons:[22]
1. Keep one name and discontinue the other. The strongest legacy brand with the best
prospects for the future lives on. In the merger of United Airlines and Continental
Airlines, the United brand will continue forward, while Continental is retired.
2. Keep one name and demote the other. The strongest name becomes the company name
and the weaker one is demoted to a divisional brand or product brand. An example is
Caterpillar Inc. keeping the Bucyrus International name.[23]
3. Keep both names and use them together. Some companies try to please everyone and
keep the value of both brands by using them together. This can create an unwieldy name,
as in the case of PricewaterhouseCoopers, which has since changed its brand name to
"PwC".
4. Discard both legacy names and adopt a totally new one. The classic example is the
merger of Bell Atlantic with GTE, which became Verizon Communications. Not every
merger with a new name is successful. By consolidating into YRC Worldwide, the
company lost the considerable value of both Yellow Freight and Roadway Corp.
The factors influencing brand decisions in a merger or acquisition transaction can range from
political to tactical. Ego can drive choice just as well as rational factors such as brand value and
costs involved with changing brands.[23]
Beyond the bigger issue of what to call the company after the transaction comes the ongoing
detailed choices about what divisional, product and service brands to keep. The detailed
decisions about the brand portfolio are covered under the topic brand architecture.
History
Most histories of M&A begin in the late 19th century U.S. However, mergers coincide
historically with the existence of companies. In 1708, for example, the East India Company
merged with an erstwhile competitor to restore its monopoly over Indian trade. In 1784, the
Italian Monte dei Paschi and Monte Pio banks were united as the Monti Reuniti.[24] In 1821, the
Hudson's Bay Company merged with the rival North West Company.
Another economic model proposed by Naomi R. Lamoreaux for explaining the steep price falls
is to view the involved firms acting as monopolies in their respective markets. As quasimonopolists, firms set quantity where marginal cost equals marginal revenue and price where
this quantity intersects demand. When the Panic of 1893 hit, demand fell and along with demand,
the firms marginal revenue fell as well. Given high fixed costs, the new price was below average
total cost, resulting in a loss. However, also being in a high fixed costs industry, these costs can
be spread out through greater production (i.e. Higher quantity produced). To return to the quasimonopoly model, in order for a firm to earn profit, firms would steal part of another firms
market share by dropping their price slightly and producing to the point where higher quantity
and lower price exceeded their average total cost. As other firms joined this practice, prices
began falling everywhere and a price war ensued.[25]
One strategy to keep prices high and to maintain profitability was for producers of the same good
to collude with each other and form associations, also known as cartels. These cartels were thus
able to raise prices right away, sometimes more than doubling prices. However, these prices set
by cartels only provided a short-term solution because cartel members would cheat on each other
by setting a lower price than the price set by the cartel. Also, the high price set by the cartel
would encourage new firms to enter the industry and offer competitive pricing, causing prices to
fall once again. As a result, these cartels did not succeed in maintaining high prices for a period
of more than a few years. The most viable solution to this problem was for firms to merge,
through horizontal integration, with other top firms in the market in order to control a large
market share and thus successfully set a higher price.[citation needed]
Long-run factors
In the long run, due to desire to keep costs low, it was advantageous for firms to merge and
reduce their transportation costs thus producing and transporting from one location rather than
various sites of different companies as in the past. Low transport costs, coupled with economies
of scale also increased firm size by two- to fourfold during the second half of the nineteenth
century. In addition, technological changes prior to the merger movement within companies
increased the efficient size of plants with capital intensive assembly lines allowing for economies
of scale. Thus improved technology and transportation were forerunners to the Great Merger
Movement. In part due to competitors as mentioned above, and in part due to the government,
however, many of these initially successful mergers were eventually dismantled. The U.S.
government passed the Sherman Act in 1890, setting rules against price fixing and monopolies.
Starting in the 1890s with such cases as Addyston Pipe and Steel Company v. United States, the
courts attacked large companies for strategizing with others or within their own companies to
maximize profits. Price fixing with competitors created a greater incentive for companies to unite
and merge under one name so that they were not competitors anymore and technically not price
fixing.
The economic history has been divided into Merger Waves based on the merger activities in the
business world as:[26]
Period
Name
18971904 First Wave
Facet
Horizontal mergers
19161929
19651969
19811989
19922000
20032008
Second Wave
Third Wave
Fourth Wave
Fifth Wave
Sixth Wave
Vertical mergers
Diversified conglomerate mergers
Congeneric mergers; Hostile takeovers; Corporate Raiding
Cross-border mergers
Shareholder Activism, Private Equity, LBO
Cross-border
In a study conducted in 2000 by Lehman Brothers, it was found that, on average, large M&A
deals cause the domestic currency of the target corporation to appreciate by 1% relative to the
acquirer's local currency.
The rise of globalization has exponentially increased the necessity for agencies such as the
Mergers and Acquisitions International Clearing (MAIC), trust accounts and securities clearing
services for Like-Kind Exchanges for cross-border M&A.[citation needed] In 1997 alone, there were
over 2,333 cross-border transactions, worth a total of approximately $298 billion. Due to the
complicated nature of cross-border M&A, the vast majority of cross-border actions are
unsuccessful as companies seek to expand their global footprint and become more agile at
creating high-performing businesses and cultures across national boundaries.[29][citation needed]
Nonetheless, the current surge in global cross-border M&A has been called the New Era of
Global Economic Discovery.[30]
Even mergers of companies with headquarters in the same country can often be considered
international in scale and require MAIC custodial services. For example, when Boeing acquired
McDonnell Douglas, the two American companies had to integrate operations in dozens of
countries around the world (1997). This is just as true for other apparently "single-country"
mergers, such as the 29 billion-dollar merger of Swiss drug makers Sandoz and Ciba-Geigy (now
Novartis).
Failure
Despite the goal of performance improvement, results from mergers and acquisitions (M&A) are
often disappointing compared with results predicted or expected. Numerous empirical studies
show high failure rates of M&A deals. Studies are mostly focused on individual determinants. A
book by Thomas Straub (2007) "Reasons for frequent failure in Mergers and Acquisitions"[31]
develops a comprehensive research framework that bridges different perspectives and promotes
an understanding of factors underlying M&A performance in business research and scholarship.
The study should help managers in the decision making process. The first important step towards
this objective is the development of a common frame of reference that spans conflicting
theoretical assumptions from different perspectives. On this basis, a comprehensive framework is
proposed with which to understand the origins of M&A performance better and address the
problem of fragmentation by integrating the most important competing perspectives in respect of
studies on M&A. Furthermore, according to the existing literature, relevant determinants of firm
performance are derived from each dimension of the model. For the dimension strategic
management, the six strategic variables: market similarity, market complementarities, production
operation similarity, production operation complementarities, market power, and purchasing
power were identified as having an important impact on M&A performance. For the dimension
organizational behavior, the variables acquisition experience, relative size, and cultural
differences were found to be important. Finally, relevant determinants of M&A performance
from the financial field were acquisition premium, bidding process, and due diligence. Three
different ways in order to best measure post M&A performance are recognized: synergy
realization, absolute performance, and finally relative performance.
Employee turnover contributes to M&A failures. The turnover in target companies is double the
turnover experienced in non-merged firms for the ten years following the merger.[32]
Major
1990s
Top 10 M&A deals worldwide by value from 1990 to 1999:[33]
Rank Year
Purchaser
1 1999 Vodafone Airtouch PLC[34]
2 1999 Pfizer[35]
3 1998 Exxon[36][37]
4 1998 Citicorp
Purchased
Mannesmann
Warner-Lambert
Mobil
Travelers Group
5
6
7
8
9
10
1999
1999
1998
1998
1999
1997
SBC Communications
Vodafone Group
Bell Atlantic[38]
BP[39]
Qwest Communications
Worldcom
Ameritech Corporation
AirTouch Communications
GTE
Amoco
US WEST
MCI Communications
63,000,000,000
60,000,000,000
53,360,000,000
53,000,000,000
48,000,000,000
42,000,000,000
2000s
Top 10 M&A deals worldwide by value from 2000 to 2010:[33]
Rank Year
1
2000
2000
2004
4
5
6
2006
2001
2009
2000
8
9
2002
2004
Purchaser
Fusion: AOL Inc. (America
Online)[40][41]
Glaxo Wellcome Plc.
Royal Dutch Petroleum
Company
AT&T Inc.[42][43]
Comcast Corporation
Pfizer Inc.
Spin-off: Nortel Networks
Corporation
Pfizer Inc.
JPMorgan Chase & Co.[44]
Purchased
Time Warner
164,747,000,000
75,961,000,000
74,559,000,000
72,671,000,000
72,041,000,000
68,000,000,000
59,974,000,000
Pharmacia Corporation
Bank One Corporation
Anheuser-Busch
Companies, Inc.
59,515,000,000
58,761,000,000
52,000,000,000
20102014
Other notable M&A deals from 2010 to 2014 include:[45]
Year
Purchaser
2011 Google
2011 Microsoft Corporation
2011 Berkshire Hathaway
2012 Deutsche Telekom
2013 Softbank
2013 Berkshire Hathaway
2013 Microsoft Corporation
2014 Facebook
2014 Comcast
2014 AT&T
Purchased
Motorola Mobility
Skype
Lubrizol
MetroPCS
Sprint Corporation
H. J. Heinz Company
Nokia Handset & Services Business
WhatsApp
Time Warner Cable
DirecTV
See also
Competition regulator
Control premium
Corporate advisory
Merger control
Divestiture
Merger integration
Factoring (finance)
Merger simulation
Fairness opinion
Second request
Shakeout
Venture capital
Management control
Swap ratio
References
1.
2.
3.
Harwood, 2005
4.
5.
6.
[Ranft, Annette L., and Michael D. Lord. "Acquiring new technologies and
capabilities: A grounded model of acquisition implementation." Organization science
13.4 (2002): 420-441.
7.
8.
"Mergers & Acquisitions Quick Reference Guide". McKenna Long & Aldridge
LLP. Retrieved 19 August 2013.
9.
10.
Barusch, Ronald. "WSJ M&A 101: A Guide to Merger Agreements". WSJ Deal
Journal. Retrieved 19 August 2013.
11.
Collan, Mikael; Kinnunen Jani (2011). "A Procedure for the Rapid Pre-acquisition
Screening of Target Companies Using the Pay-off Method for Real Option Valuation".
Journal of Real Options and Strategy 4 (1): 117141.
12.
mergers.acquisitions.ch
13.
14.
15.
16.
17.
In re Cox Communications, Inc. Shareholders Litig., 879 A.2d 604, 606 (Del. Ch.
2005).
18.
19.
"Start-Ups Get Snapped Up for Their Talent". Wall Street Journal. Retrieved 9
January 2014.
20.
21.
22.
"NewsBeast And Other Merger Name Options Merriam Associates, Inc. Brand
Strategies". Merriamassociates.com. Retrieved 2012-12-18.
23.
24.
"Monte dei Paschi di Siena Bank | About us | History | The Lorraine reform".
2009-03-17. Retrieved 2012-12-18.
25.
Lamoreaux, Naomi R. The great merger movement in American business, 18951904. Cambridge University Press, 1985.
26.
[1][dead link]
27.
paulgraham.com
28.
29.
30.
31.
32.
33.
34.
35.
36.
"Exxon, Mobil mate for $80B - December 1, 1998". CNN. December 1, 1998.
37.
38.
Fool.com: Bell Atlantic and GTE Agree to Merge (Feature) July 28, 1998
39.
http://www.eia.doe.gov/emeu/finance/fdi/ad2000.html
40.
41.
"AOL and Time Warner to merge - January 10, 2000". CNN. January 10, 2000.
42.
"AT&T To Buy BellSouth For $67 Billion". CBS News. March 5, 2006.
43.
44.
"J. P. Morgan to buy Bank One for $58 billion". CNNMoney.com. 2004-01-15.
45.
Further reading
Denison, Daniel, Hooijberg, Robert, Lane, Nancy, Lief, Colleen, (2012). Leading Culture
Change in Global Organizations. "Creating One Culture Out of Many", chapter 4. San
Francisco: Jossey-Bass. ISBN 9780470908846
Aharon, D.Y., I. Gavious and R. Yosef, 2010. Stock market bubble effects on mergers and
acquisitions. The Quarterly Review of Economics and Finance, 50(4): p. 456470.
Bartram, Shnke M.; Burns, Natasha; Helwege, Jean (September 2013). "Foreign
Currency Exposure and Hedging: Evidence from Foreign Acquisitions". Quarterly
Journal of Finance. forthcoming.
Close, John Weir. A Giant Cow-tipping by Savages: The Boom, Bust, and Boom Culture
of M&A. New York: Palgrave Macmilla. ISBN 9780230341814. OCLC 828246072.
"8 Stages for an Optimal Outcome: The Tech M&A Process". Corum Group Ltd.
Fleuriet, Michel (2008). Investment Banking explained: An insider's guide to the industry.
New York, NY: McGraw Hill. ISBN 978-0-07-149733-6.
Popp, Karl Michael (2013). Mergers and Acquisitions in the Software Industry foundations of due diligence. Norderstedt: Books on demand. ISBN 978-3-7322-4381-5.
Reddy, K.S., Nangia, V.K., & Agrawal, R. (2013). Indian economic-policy reforms, bank
mergers, and lawful proposals: The ex-ante and ex-post lookup. Journal of Policy
Modeling, 35(4), 601-622. http://dx.doi.org/10.1016/j.jpolmod.2012.12.001.
Reddy, K.S., Agrawal, R., & Nangia, V.K. (2013). Reengineering, crafting and comparing
business valuation models-the advisory exemplar. International Journal of Commerce
and Management, 23(3), 216-241. http://dx.doi.org/10.1108/IJCoMA-07-2011-0018.
Reddy, K.S., Nangia, V.K., & Agrawal, R. (2013). Corporate mergers and financial
performance: a new assessment of Indian cases. Nankai Business Review International,
4(2), 107-129. http://dx.doi.org/10.1108/20408741311323326.
Reifenberger, Sabine (28 December 2012). M&A Market: The New Normal. CFO Insight
Scott, Andy (2008). China Briefing: Mergers and Acquisitions in China (2nd ed.).
Straub, Thomas (2007). Reasons for frequent failure in Mergers and Acquisitions: A
comprehensive analysis. Wiesbaden: Deutscher Universitts-Verlag (DUV), Gabler
Edition Wissenschaft. ISBN 978-3-8350-0844-1.
[hide]
Convertible debt
Exchangeable debt
Mezzanine debt
Pari passu
Preferred equity
Senior debt
Shareholder loan
Stock
Subordinated debt
Warrant
Capital structure
Transactions
Equity offerings
(terms / conditions)
At-the-market offering
Book building
Bookrunner
Corporate spin-off
Equity carve-out
Follow-on offering
Greenshoe
o Reverse
Mergers and
acquisitions
Private placement
Public offering
Rights issue
Underwriting
Buy side
Control premium
Demerger
Divestment
Drag-along right
Pitch book
Pre-emption right
Proxy fight
Sell side
Special situation
Squeeze out
Super-majority amendment
Tag-along right
Takeover
o Reverse
Tender offer
Debt restructuring
Debtor-in-possession financing
Financial sponsor
Leveraged buyout
Leveraged recapitalization
High-yield debt
Private equity
Project finance
Leverage
Valuation
Accretion/dilution analysis
Associate company
Business valuation
Cost of capital
o Weighted average
Enterprise value
Fairness opinion
Financial modeling
Minority interest
ModiglianiMiller theorem
Pure play
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hedge funds are illiquid as they often require investors keep their money in the fund for at least one
year.
Ads
S&P Capital IQ
Type
Industry
Division
Financial Services
2010
(S&P Capital IQ)
Founded
1999
(Capital IQ)
Headquarters New York City, United States
Area served Worldwide
Quantitative research and financial
Services
analysis solutions
Revenue
Approx. US$1 billion (2011)
Operating
US$56 million (2013)
income
Net income US$288 million (2013)
Employees Approx. 7,000
Parent
McGraw Hill Financial
Website
www.capitaliq.com
S&P Capital IQ is a multinational financial information provider headquartered in New York
City, United States, and a division of McGraw Hill Financial.
S&P Capital IQ was formed in 2010 from offerings previously provided by Capital IQ, elements
of S&P including Global Credit Portal and MarketScope Advisor, enterprise solutions such as
S&P Securities Evaluations and Compustat, research offerings including Leveraged Commentary
& Data, Global Markets Intelligence, and company and fund research.[1]
Contents
1 History
2 Operations
3 See also
4 References
5 External links
History
Capital IQ was founded in 1999 by Neal Goldman, Steve Turner and Randall Winn. They sold
the business to McGraw Hill in 2004 and Randall Winn served as the CEO/Executive Managing
Director of Capital IQ, Inc., operating the business as a relatively standalone subsidiary until
April 1, 2011. At that point, Winn left and the company and its various functions were fully
merged with other parts of S&P to become part of McGraw-Hill Financial.
Capital IQ grew very rapidly to become one of the leading providers of software, data and
analytics to the financial services community. In 2002 Capital IQ announced its 100th customer;
in 2011, CIQ press releases described having more than 4,500 customers and more than 5,000
employees.
Capital IQ grew organically and through acquisition. Reported acquisitions included:
SimplyStocks (an Indian fundamental data provider), Heale Financial (a provider of international
ownership data), ClariFI (a provider of software and services to quantitative portfolio managers)
and TheMarkets.com (a provider of aggregated research solutions). On Feb. 9, 2012, S&P
Capital IQ announced it has acquired R2 Financial Technologies, a leading provider of advanced
risk and scenario-based analytics to traders, portfolio and risk managers for pricing, hedging and
capital management across asset classes. Terms of the deal were not disclosed. On 3 April 2012,
S&P Capital IQ acquired the privately owned QuantHouse to provide McGraw Hill Financial
tools in the realtime space as the group tries to accelerate growth in the financial services
business, which competes with Bloomberg, Thomson Reuters and Factset. Terms of the deal
were not disclosed. QuantHouse will provide end-to-end systematic low-latency market data
solutions and offers real-time monitors, derived data sets and analytics as well as the ability to
package and resell this data as part of a core solution for S&P Capital IQ. On 29 June, 2012, S&P
Capital IQ acquired Credit Market Analysis Limited (CMA) from the CME group. CMA
provides independent data concerning the over-the-counter markets. CMas data and technology
will enhance S&P Capital IQ's capability to provide pricing and related over-the-counter
information.
Operations
S&P Capital IQ provides web-based information services that combine information on
companies worldwide along with a variety of software applications that allow financial
professionals to analyze company fundamentals, build financial models, screen for investment
ideas, and execute other financial research tasks. Capital IQ serves more than 4,200 clients,
including investment banks, investment management firms, private equity firms, universities,
consultants, and corporations.[2] Its competitors include Thomson Reuters, Bloomberg L.P. and
FactSet Research Systems. Components of Capital IQs offering include data on public
companies, private companies, auditable company financials, M&A/financing transactions,
public offerings, corporate executives and board directors, compensation, news, filings,
screening tools, chart builder, Excel Plug-In modeling tool, real-time market data and news,
relationship tree, macroeconomic data, industry analyses and investment research.
See also
Moody's Analytics
References
1.
"B to B Magazine".
2.
"Hoovers".
1. http://www.ft.com/intl/cms/s/1/62362d70-f7ef-11db-baa1000b5df10621.html#axzz2FK0n4ozU
2. http://www.advancedtrading.com/infrastructure/sps-capital-iq-acquires-themarketscomre/227500573
3. https://www.capitaliq.com/home/about-us/press-releases/standard-poor's-acquires-clarifi
%E2%84%A2-portfolio-analytics-added-to-capital-iq.aspx
4. https://www.capitaliq.com/home/about-us/press-releases/capital-iq,-inc-acquiressimplystocks,-inc.aspx
5. https://www.capitaliq.com/home/about-us/press-releases/mcgraw-hill-launches-majornew-brand-splusp-capital-iq-as-master-brand-for-its-financial-desktop-data-feed-andresearch-analytics.aspx
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Home > Resources > WIKI
Types of Swaps
inShare
There are a wide variety of swaps that financial professionals trade in order to hedge against risk.
Listed below are a few most common types of swap instruments traded in the market.
trade receivable or some other type of liability. The buyer of a default swap pays a premium to
the writer or seller in exchange for right to receive a payment should a credit event occur. In
essence, the buyer is purchasing insurance.
Asset Swap
An asset swap is a combination of a defaultable bond with a fixed-for-floating interest rate swap
that swaps the coupon of the bond into the cash flows of LIBOR plus a spread. In the case of a
cross currency asset swap, the principal cash flow may also be swapped. In a typical asset swap,
a dealer buys a bond from a customer at the market price and sells to the customer a floating rate
note at par. The dealer then enters into a fixed-for-floating swap with another counterparty to
offset the floating rate obligation and the bond cash flows. For a premium bond, the dealer pays
the customer the difference of the bond price and its par. For a discount bond, the customer pays
the dealer the difference of the par and the bond price. In the swap with the counterparty, the
dealer pays a fixed bond coupon and receives LIBOR + a spread. The spread can be determined
from the cash that the dealer pays/receives and from the difference of the bond coupon and the
par swap rate. When the bond redemption value is used for exchange of principal at maturity, the
present value of the difference between the bond redemption value and its par value also
contributes to the spread. Learn how to value an asset swap
Trigger Swap
A Trigger Swap is an interest rate swap in which payments are knocked out if the reference rate
is above a given trigger rate. FINCAD provides analytics for two types of trigger swaps: periodic
and permanent. For a periodic trigger swap, the exchange of payments depends on the reference
rate set for that period. If the reference rate for a particular period is greater than the trigger rate,
the fixed and floating payments are knocked out. If the reference rate is below the trigger rate in
a subsequent period, regular fixed and floating payments are made. For a permanent trigger
swap, if the fixed and floating payments are knocked out for a particular period, then all
subsequent payments are knocked out as well.
Commodity Swap
A commodity swap is a swap in which one of the payment streams for a commodity is fixed and
the other is floating. Usually only the payment streams, not the principal, are exchanged,
although physical delivery is becoming increasingly common. Commodity swaps have been in
existence since the mid-1970's and enable producers and consumers to hedge commodity prices.
Usually, the consumer would be a fixed payer to hedge against rising input prices. The producer
in this case pays floating (i.e., receiving fixed for the product) thereby hedging against falls in
the price of the commodity. If the floating-rate price of the commodity is higher than the fixed
price, the difference is paid by the floating payer, and vice versa.
An FX swap is where one leg's cash flows are paid in one currency, while the other leg's cash
flows are paid in another currency. An FX swap can be either fixed for floating, floating for
floating, or fixed for fixed. In order to price an FX swap, first each leg is present valued in its
currency (using the appropriate curve for the currency).
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7 Yes
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yadaram sudha
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hunish singla
in future market.
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Bond vs Debenture
Life is full of surprises, and even more so when it comes to finances. A
person having a good income today may face financial crisis in future. To
avoid these unforeseen financial crises everyone invests in different
instruments that can fetch extra income. There are many options available
in the market that can be classified as risky and non risky. It is very well
understood that risky options yield higher gains but non risky ones can
give very low returns. Debentures and bonds are two such options that can
be taken for good returns on ones investment. Debenture is an instrument
issued by a company that can be convertible or non convertible into
secure.
If there is any bankruptcy, bondholders are paid first and the liability
towards debenture holders is less.
Debenture holders get periodical interest on their money and upon
completion of the term they get their principal amount back.
Bond holders do not receive periodical payments. Rather, they get
principal plus interest accrued upon the completion of the term. They are
much more secure than debentures and are issued mostly by government
firms.
In Brief:
Bonds are more secure than debentures, but the rate of interest is lower
Debentures are unsecured loans but carries a higher rate of interest
In bankruptcy, bondholders are paid first, but liability towards debenture holders is
less
Debenture holders get periodical interest
Bond holders receive accrued payment upon completion of the term
Bonds are more secure as they are mostly issued by government firms
Asked @
Answers
cap-gemini
karnatakabank
reliance
2
5
35
12
8
27
2
16
13
capital-iq
religare
3
8
1