Podcast
Questions and Answers
What is the primary distinction between an acquisition and a merger?
What is the primary distinction between an acquisition and a merger?
Which of the following is NOT a type of merger as defined by the French law?
Which of the following is NOT a type of merger as defined by the French law?
What historical event marked the first international mergers and acquisitions?
What historical event marked the first international mergers and acquisitions?
Which country has both 'merger' and 'amalgamation' defined under its Company Act?
Which country has both 'merger' and 'amalgamation' defined under its Company Act?
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Which EU directive relates to the harmonization of M&A regulations among member states?
Which EU directive relates to the harmonization of M&A regulations among member states?
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What is the minimum capital required to form a European Company (SE)?
What is the minimum capital required to form a European Company (SE)?
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In what situation is a merger available for the formation of a European Company?
In what situation is a merger available for the formation of a European Company?
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What happens to a European Company if it transfers its registered office to another Member State?
What happens to a European Company if it transfers its registered office to another Member State?
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Which regulation addresses the control of concentrations between undertakings in the EU?
Which regulation addresses the control of concentrations between undertakings in the EU?
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What defines a business combination under International Financial Reporting Standard 3?
What defines a business combination under International Financial Reporting Standard 3?
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What is the primary purpose of a business as defined within mergers and acquisitions?
What is the primary purpose of a business as defined within mergers and acquisitions?
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Which type of merger involves companies at the same stage of production, usually competitors?
Which type of merger involves companies at the same stage of production, usually competitors?
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What is a common misconception about mergers and acquisitions?
What is a common misconception about mergers and acquisitions?
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What percentage of reported mergers and acquisitions are horizontal in nature according to data from the U.S. and Europe?
What percentage of reported mergers and acquisitions are horizontal in nature according to data from the U.S. and Europe?
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In vertical mergers, what type of integration is involved with control over subsidiaries supplying inputs used in production?
In vertical mergers, what type of integration is involved with control over subsidiaries supplying inputs used in production?
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Study Notes
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.
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Description
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.
