International Mergers & Acquisitions Quiz

International Mergers & Acquisitions

• International mergers and acquisitions (M&A) are a significant area of international business.
• M&A differs from joint ventures (JVs) in that it usually involves one company taking control of another, rather than forming a new entity.
• Different types of mergers exist, categorized by differing merger method and purposes.

Overview

• Defining M&A: The process of combining two or more companies into a single entity.
• Distinguishing between M&A and other equity transactions, such as JVs.
• Types of mergers, including horizontal, vertical, and conglomerate mergers.
• Influences of merger practice on theory
• Identifying M&A efficiencies and synergies
• Managing the M&A process efficiently
• The role of international factors in M&A deals.
• Empirical evidence on M&A performance.

Historical Background

• M&A activity in Germany started mid-19th century.
• The first significant wave of mergers and acquisitions in the U.S. happened at the end of the 19th and beginning of the 20th century, accompanied by increased regulation.
• The beginning of international M&A activities coincided with the rise of industrialization and colonialism during the latter half of the 19th century.
• One of the first examples of international M&A is the acquisition of a chemical plant in Albany (U.S.) by Bayer (Germany).

M&A Definitions

• Acquisition: One company takes control of another. All assets and liabilities are transferred to the acquiring company.
• Merger: Two or more companies combining to form a new entity; consolidating assets and liabilities to the new entity
• The provided examples (such as French law) highlight differences in legal approaches to M&A across various countries. Harmonization efforts within the EU are noted
• International M&A deals have unique characteristics and must navigate diverse legal environments.

M&A and Regulation

• Countries, like France, have distinct merger processes with varied types of mergers.
• UK law differentiates mergers from amalgamations
• Italian law provides a typology of fusion processes
• German regulations involve amalgamation and acquisitions
• EU harmonization efforts are present through directives (e.g., Council Directive No 78/855) aiming to regulate concentration controls in line with competitiveness principles
• Regulation of Taxation and Accountancy for M&A activities.

M&A Regulation within the EU

• Harmonization of M&A regulations is crucial in the EU framework, stemming from competitiveness policies and treaties like the Treaty of Paris (1951) and Treaty of Rome (1957).
• Specific regulations, guidelines, and criteria (e.g., Regulation No. 4064/89, 1310/97, 139/2004, and 2157/2001) govern transactions across national borders in the EU.
• EU regulation is based on specific thresholds related to combined turnover, in-country turnover, and overall entity turnover involved.
• Regulation 2157/2001 created the European Company (SE), offering options for forming a single entity from multiple member state companies. Specific regulations on capital, registered offices, and reporting aspects of the SE exist.

Scope and Regulation in IFRS

• International Financial Reporting Standard (IFRS) 3 defines a business combination.
• A business combination involves one entity controlling one or more businesses. This control can be achieved by integrating reporting entities, mergers, or acquisitions.
• A business is viewed as a set of interdependent activities which delivers value to investors or related parties.
• Business combinations can occur through cash, equity, and other non-cash payment methods. There are various ways an acquiring entity can gain control of another business

Merger Practice – Influences on Theory

• Anglo-American models favour market efficiency in merger activities.
• Continental European perspectives emphasize industrial collaborations and national interests in mergers.
• The effects of regulations on different types of ownership structures highlight significant differences in merger behaviour patterns across geographies and the role that regulation plays.
• Actual merger practice often doesn't perfectly match theoretical expectations (e.g., DaimlerChrysler).

Types of Mergers

• Differentiating mergers through categories such as horizontal, vertical, conglomerate categorizations to classify different merger rationale/purpose.
• Mergers can be friendly or hostile, based on the method used to approach shareholders or the target’s management.
• Financing M&A can take several forms, including leveraged buyouts (LBOs), management buyouts (MBOs), and management buy-ins (MBIs).

Defensive Tactics

• The process of merger and acquisitions involve possible defensive tactics used by potential targets to try to prevent hostile takeover bids
• Various defensive mechanisms exist to counter such attempts

Importance of Cross-Border Deals

• MNCs increasingly engage in international transactions and M&A activities, particularly from the 1980s onwards.
• These activities have significantly contributed to the growth of cross-border international trade flows.
• International mergers and acquisitions (IM&As) are a favoured way for multinational companies to expand internationally.
• Post-COVID-19 period has seen fluctuations in cross-border activity.

Measuring Efficiency

• M&A efficiency is assessed by comparing the combined value of the merged entities after the transaction to the individual entities' value prior to the transaction.
• Positive gains imply economic justification for the M&A activity
• Alternative methods exist that use DCF valuation approaches.

Efficiency and Synergies

• Synergies commonly include operational and financial categories.
• Operational synergies include rationalisation, economies of scope and scale, and efficiencies from technological transfer
• Financial synergies are related to access to free cash flows, minimizing taxes, and reducing credit costs.

M&As Efficiency Gains - Conclusions

• Efficiency gains in M&As often fall short of expectations.
• Managerial planning, relatedness of combined entities and effective organizational integration are important factors for successful M&A
• Proper integration and communication processes are essential for success, which is usually lacking

The Process of an M&A Deal

• M&A activities involve a multi-stage process.
• A series of steps that involve activities from strategic evaluations, preliminary evaluations, and culminating to the definitive transaction conclusion.
• These steps include negotiations, due diligence, integration planning, and transaction closing.

Test your knowledge on international mergers and acquisitions (M&A) with this quiz. Explore how M&A differs from joint ventures, the various types of mergers, and the influences on merger practice and theory. Discover the historical background and empirical evidence surrounding M&A performance.