Mergers & Acquisitions
There are few decisions for the role of CEO or CFO that are of greater importance than that of Mergers & Acquisitions, especially if done on the large scale.
Mergers require not only a good analytical assessment, calculation of cash needed, synergies and strategy. To carry out a successful merger, one has to often go much deeper than a simple analysis of equity, and quickly done pasted list of synergies.
Perhaps this is the reason why at least academic world shows that most mergers bring losses to the buyer, and that identifies synergies are usually not obtained. The consulting and banking community clearly would not agree with these findings.
M&A: Traditional Approach
There are three elements to traditional M&A work:
1. Look at the target, its comparables, comparable transactions and calculate potential value.
2. Subsequently look at the synergies, calculate them (ideally be optimistic), and calculate what sort of premium can someone pay for the company.
3. Collect fees, ideally also by cross-selling with other parts of the financial organization (debt, hedging, at the peak even M&A contingent hedging transactions! were developed)
M&A: Vision Finance Approach
1. Yes we continue to look at all of the above (except that we charge fixed fees and not success fees, enabling us act in a perfectly objective manner)
2. We apply calculation of debt, where we will advise the buyers to look not only at the value of the business, but also at the possibility of using existing debt, renegotiating existing debt, and see how debt structure impacts the overall value of the merger
- we discovered for instance that just by extending the maturities of the existing loans, it is sometimes worth to pay the premium of 20% for the company
- sometimes debt value might even be significantly reduced, in line with the market pricing for debt assuming the probability of default and recovery ratio (at Vision Finance we treat debt as "senior equity")
3. Where possible, we estimate the synergies, using our unique quantitative risk modeling, so especially if the merger is that of vertical nature, we can calculate the net impact of the merger to the overall risk and cost matrix of the business.
4. Conducting the detailed valuation of the balance sheet, including investments and subsidiaries. We have discovered in way too many firms today, the presence of skeletons in the closet, which using the friendly "held to maturity" or "purchase price accounting" number of assets are valued totally out of reality. While this applies mainly to the Commercial Banks, its analysis can be just as useful for the corporate clients, especially when it comes to valuation of outstanding debt.
5. We cooperate with external parties, on fixed fees, on conducting dedicated to:
- analysis of workforce
- product analysis