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1、Implementation: Search Through Closing -Phases 3-10,A man that is very good at making excuses is probably good at nothing else. Ben Franklin,Current Learning Objectives,To Provide Students with an understanding of how to conduct an acquisition search, to screen potential candidates, and to make init
2、ial contact with potential targets the four concurrent activities within the negotiation phase and how they interact to determine purchase price, and the importance of pre-closing planning and post-closing execution,The Acquisition Process,Phase 1: Business Plan Phase 2: Acquisition Plan Phase 3: Se
3、arch Phase 4: Screen Phase 5: First Contact Phase 6: Negotiation Phase 7: Integration Plan Phase 8: Closing Phase 9: Integration Phase 10: Evaluation,Phase 3: Initiating the Search,Two step procedure: Establish primary selection criteria (e.g., industry and maximum size of transaction) Develop searc
4、h strategy to identify potential targets using computerized databases; directory services; legal, banking, and accounting firms; and the Internet. Brokers and finders: A broker has a fiduciary responsibility to either the seller or buyer. A finder introduces both parties without representing either
5、party. Fee structures are normally negotiated and may include a basic fee, a closing fee, and an “extraordinary” fee (i.e., fees paid if closing delayed due to obtaining antitrust approval, a hostile takeover, etc.) Put everything in writing,Phase 4: The Screening Process,As a refinement of the sear
6、ch process, screening involves increasing the number of selection criteria to reduce the list of potential candidates. In addition to the industry and maximum size of transaction used in the search process, additional criteria could include: Market segment Product line Profitability Degree of levera
7、ge Market share Cultural compatibility (e.g., AOL/Time Warner),Phase 5: First Contact,The appropriate approach strategy depends on Size of target Whether target is publicly or privately held Acquirers timeframe for completing transaction Trust and relationship building when time is not critical Disc
8、ussing value Preliminary legal documents: Confidentiality agreements Term sheets (price range/formula, form of acquisition, extent of due diligence, no-shop provision) Letter of intent (price range/formula, form of acquisition, form of payment, non-competes, employee contracts, no-shop provision),Ph
9、ase 6: Viewing Negotiation as a Process,Profiling Target Market & Firm,First Contact,If No, Walk Away1,If Yes, Initiate Negotiations,Refine Initial Valuation,Structuring the Deal Form of Acquisition Form of Payment Tax Considerations Accounting Considerations Acquisition Vehicle Post-Closing Organiz
10、ation Legal Form of Selling Entity,Develop Financing Plan/ Structure,Decision: Proceed to Closing or Walk Away,Negotiation Process,Perform Due Diligence,1Alternatively, the potential buyer could adopt a more hostile approach such as initiating a tender offer to achieve a majority stake in the target
11、 firm.,Phase 6: Negotiation,Negotiating strategy Initially determine areas of agreement and disagreement Solve the easiest areas of disagreement first Establish and maintain trust throughout the process Concurrent activities: Refining valuation Deal structuring Conducting due diligence (buyer, selle
12、r, and lender) Developing the financing plan,Key Deal Structuring Considerations,Form of Acquisition Form of Payment Tax Considerations Accounting Considerations Acquisition Vehicle Post-Closing Organization Legal Form of Selling Entity,Phase 6: Buyer Due Diligence During Negotiation,Objectives: Val
13、idate preliminary valuation assumptions (e.g., growth, cost, productivity, etc.) Identify additional sources/destroyers of value (i.e., those providing upside potential & “fatal flaws”) Activities: Detailed legal (e.g., contracts) and financial record reviews Management interviews (consistency in qu
14、estions asked) Site visits (e.g., inspect equipment, inventory, etc.) Customer and supplier interviews,Determining the Purchase Price,Total consideration (TC): PVTC = C+ PVS+ PVND Where C, PVS and PVND represent Cash, PV of acquirer stock, and PV of acquirer debt issued to seller, respectively. Comp
15、osition of offer price Total purchase price (TPP) or enterprise value (EV): PVTPP = PVTC+ PVAD Where PVTPP, PVTC, and PVAD = PV of total purchase price, PV of total consideration, and PV of assumed debt, respectively. Offer price plus long-term assumed liabilities Net purchase price (NPP): PVNPP = P
16、VTPP+ PVOAL- PVDA = (C+ PVS+ PVND+ PVAD) + PVOAL- PVDA Where PVOAL and PVDA represent PV of oethr assumed liabilities and PV of discretionary assets, respectively. Actual cash cost of acquisition,Due Diligence and Negotiation,Reliable Appliances, a leading manufacturer of washing machines and dryers, acquired the stock of competitor, Quality-Built, which had been losing money during the last several years for $100 million in cash. Reliable also assumed $20 million (presen
