Podcast
Questions and Answers
Why are executives of publicly traded corporations under pressure to sustain growth in earnings?
Why are executives of publicly traded corporations under pressure to sustain growth in earnings?
- To improve corporate culture.
- Because corporate valuations are typically based on earnings. (correct)
- To increase the number of employees.
- To reduce competition in the market.
The majority of mergers and acquisitions involve high-profile takeovers of publicly traded companies.
The majority of mergers and acquisitions involve high-profile takeovers of publicly traded companies.
False (B)
Name the three main sources from which earnings growth is derived.
Name the three main sources from which earnings growth is derived.
Revenue from existing and newly developed products and services, mergers and acquisitions, and productivity increases and cost reduction initiatives.
As corporations grow and capture a larger market share, executives find themselves increasingly reliant on external options such as _______ to boost revenue growth.
As corporations grow and capture a larger market share, executives find themselves increasingly reliant on external options such as _______ to boost revenue growth.
Match the following activities to the department most likely responsible for it during an acquisition process:
Match the following activities to the department most likely responsible for it during an acquisition process:
What is the primary reason corporations pursue mergers and acquisitions (M&A)?
What is the primary reason corporations pursue mergers and acquisitions (M&A)?
Productivity increases and cost reduction initiatives alone can produce sustainable, year-on-year earnings growth without increasing revenues.
Productivity increases and cost reduction initiatives alone can produce sustainable, year-on-year earnings growth without increasing revenues.
What percentage of announced M&A transactions involve acquisitions of privately owned companies?
What percentage of announced M&A transactions involve acquisitions of privately owned companies?
Small businesses are often viewed as _______ for new ideas that can be incorporated into an acquirer’s portfolio.
Small businesses are often viewed as _______ for new ideas that can be incorporated into an acquirer’s portfolio.
Which department is typically responsible for drafting a briefing document outlining a target company's market attractiveness during an acquisition?
Which department is typically responsible for drafting a briefing document outlining a target company's market attractiveness during an acquisition?
The volume of M&A deals is so low that it does not warrant the dedication of full-time business development professionals.
The volume of M&A deals is so low that it does not warrant the dedication of full-time business development professionals.
List three things that business development, legal, and finance should do three weeks before the data room opens.
List three things that business development, legal, and finance should do three weeks before the data room opens.
Earnings growth is derived from revenue, mergers and __________, and productivity increases and cost reduction initiatives.
Earnings growth is derived from revenue, mergers and __________, and productivity increases and cost reduction initiatives.
According to the content, what is the average transaction value of nonpublic M&A transactions?
According to the content, what is the average transaction value of nonpublic M&A transactions?
Small firms employ about 90% of all private sector employees in the U.S. economy.
Small firms employ about 90% of all private sector employees in the U.S. economy.
Flashcards
Mergers and Acquisitions (M&A)
Mergers and Acquisitions (M&A)
A process where one company buys another to grow faster, increase market share, or gain new technologies.
Offering Memorandum
Offering Memorandum
A document outlining the details of a company up for sale, distributed to potential buyers.
Nondisclosure Agreement (NDA)
Nondisclosure Agreement (NDA)
An agreement ensuring confidentiality of sensitive information shared during a potential acquisition.
Due Diligence
Due Diligence
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Organic Growth
Organic Growth
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External Growth
External Growth
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Acquisition Targets
Acquisition Targets
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Productivity Increases and cost reduction initiatives
Productivity Increases and cost reduction initiatives
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Study Notes
- Mergers and acquisitions (M&A) have become a normal part of corporate operations.
- In the last five years, over 46,000 M&A transactions were announced in the United States.
- Corporations spend time and resources working on hundreds of thousands of potential transactions.
Reasons for Acquisitions
- Corporations compete to provide shareholders with a superior return on investment.
- Executives of publicly traded corporations feel pressure to generate and sustain growth in earnings.
- Earnings growth is derived from three main sources:
- Revenue from existing and newly developed products and services
- Mergers and acquisitions
- Productivity increases and cost reduction initiatives
- Revenue growth dominates the agenda of corporate leaders.
- Internal (organic development) and external (acquisitions and alliances) growth strategies compete for priority and capital allocation.
- Organic growth produces diminishing returns as corporations grow, mature, and capture an ever-larger market share.
- Executives rely on external options such as acquisitions to boost revenue growth.
Characteristics of Acquisitions
- Over 95% of transactions involve acquisitions of privately owned companies.
- The average transaction value is $66 million.
- Many corporations view smaller, more agile businesses as incubators for new ideas.
- Small businesses represent a significant part of the U.S. economy and generate a disproportionate share of its growth.
- Small firms:
- Employ about half of all private sector employees
- Generate about half of the gross domestic product
- Created 60 to 80 percent of the nation’s net new jobs
- The acquisition process has become a routine business activity within many corporations.
- Acquisitions are supported by a staff of full-time business development professionals.
- Acquisitions are subject to formal acquisition policies and procedures.
- The high level of acquisition activity has also required the regular involvement of a broad array of executives and managers from across corporate departments.
- Executives spend time scouting smaller businesses for potential acquisition.
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