Overview
This lecture explains what M&A (mergers and acquisitions) is, its role in investment banking, the main actors involved, and the typical process for M&A advisory.
What is M&A?
- M&A stands for mergers and acquisitions, meaning the purchase or combination of companies.
- An acquisition is when one company buys another (e.g., LVMH acquiring Tiffany & Co.).
- A merger is the combination of two similarly sized companies, but typically there is still a buyer and a target.
Why Do Companies Pursue M&A?
- M&A allows for horizontal growth by acquiring competitors to increase market share and revenue (e.g., Facebook acquiring Instagram).
- M&A enables vertical growth by acquiring suppliers or distributors to control more of the value chain (e.g., Disney acquiring 21st Century Fox and TV channels).
- Acquisitions can rapidly boost competitiveness and market presence.
Actors in M&A Transactions
- Corporations pursue M&A for strategic growth.
- Investment funds (institutional investors) acquire companies mainly for financial return, planning to resell them for profit.
- Investment banks act as advisors, not buyers or sellers, and may also provide financing.
The Role of Investment Banks in M&A
- Investment banks advise companies on buying (buyside) or selling (sellside) businesses.
- Banks act as intermediaries, managing the process and providing expertise for a fee (called "fees").
- Their responsibilities include commercial, strategic, financial, and some legal aspects of the transaction.
Steps in an M&A Advisory Process
- Banks manage the overall project, coordinating timing and organizing other advisors (legal, technical, commercial).
- Banks identify and contact potential buyers or investors using their market knowledge and networks.
- The preparation phase includes creating detailed documents and a financial model to present the company's strategy and projections.
- Banks handle communication, organize introductory calls, and manage information flow (including NDAs) with multiple investors.
- Banks regularly update clients and help analyze, negotiate, and finalize offers through to the transaction’s closing.
Key Terms & Definitions
- M&A (Mergers and Acquisitions) — Corporate strategy involving the combination or purchase of companies.
- Acquisition — One company buys another to expand or integrate operations.
- Merger — Combining two similarly sized companies, usually with no clear dominance.
- Investment Fund — Institutional investor aiming for financial return through company acquisitions.
- Investment Bank — Financial institution advising clients on corporate transactions.
- Buyside — Advisory role for the purchaser in an M&A deal.
- Sellside — Advisory role for the seller in an M&A deal.
- Financial Model — A projection of a company’s future performance and strategy.
- NDA (Non-Disclosure Agreement) — Legal contract to protect confidential information.
Action Items / Next Steps
- Review examples of recent M&A deals in your sector of interest.
- Familiarize yourself with financial modeling basics for M&A scenarios.
- Prepare any questions for further clarification about M&A processes.