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작성자레몬이 조회 6회 작성일 2021-04-13 16:02:59 댓글 0


Mergers and Acquisitions Explained: A Crash Course on M&A

#mergersandacquisitions #corporatelaw #business

Mergers \u0026 Acquisitions (commonly referred to as M\u0026A) is often considered a fast-paced, exciting niche of corporate law. And, it is. I love the work I do and my role in M\u0026A deals. So, this video addresses a lot of common questions regarding M\u0026A.

We'll take a look at what M\u0026A is, types of deal structures, the key players, the motivations for performing a merger or acquisition, and what deals looks like at different levels of the market.

Here's a quick rundown in case you want to jump ahead:
0:44 - What is M\u0026A generally
01:04 - Asset Sales, Stock Sales and Mergers
04:28 - Why do Sellers Sell a Business?
05:19 - Why do Buyers Buy a Business?
06:40 - Who's Involved in the M\u0026A Process?
06:42 - Investment Brokers and Investment Bankers
09:23 - Corporate Lawyers
10:47 - Business Appraisers, Accountants \u0026 Consultants

So, take a look and let me know what you think!

For a deeper dive into and other legal issues vital to the success of your deals and your business, visit me at:

Just starting up? Check this out for my advice on startup success: http://www.thestartupshepherd.com.

You can also reach me at:



About me:

My 20+ years of experience in business finance, business law and entrepreneurship have led me to believe that numbers and logic are awesome tools, but understanding human nature and emotions is the first step to business success.

The Cenkus Law Firm provides services related to mergers \u0026 acquisitions, general business issues and startups, including founders' agreements and fundraising. I also consult with entrepreneurs and have invested my own capital as an angel investor.

From 2010-2013 I served as Chief Legal Counsel of a publicly-trade international oilfield services company. From 2001 to 2006 me and a partner founded and built Paragon Residential Mortgage. Paragon was sold to Bridge Investments in 2006.

I hold a Juris Doctorate from Harvard Law School and a Bachelor of Arts degree in Economics from Messiah College in Grantham, Pennsylvania.

Now, I live in Austin, TX with my wife and two kids. I enjoy reading, running, classic movies, great food and wine and some great American football.

Mergers & Acquisitions (M&A) Model

The purpose of this model is to value a target business and determine how much to pay for an acquisition. The model also compares cash vs. share consideration, evaluates synergies and takeover premiums while assessing the net impact of the acquisition.

Purchase Price in M&A Deals: Equity Value or Enterprise Value?

In this tutorial, you’ll learn why the real price paid by a buyer to acquire a seller in an M\u0026A deal is neither the Purchase Equity Value nor the Purchase Enterprise Value… exactly.


"Financial Modeling Training And Career Resources For Aspiring Investment Bankers"

Table of Contents:

4:29: Problem #1: The Treatment of Debt

8:03: Problem #2: The Treatment of Cash

11:45: Recap and Summary

Common questions:

“In an M\u0026A deal, does the buyer pay the Equity Value or the Enterprise Value to acquire the seller?”

“What does it mean in press releases when they say the purchase consideration ‘includes the assumption of debt’? Does that mean the price is the Enterprise Value?”

The Basic Definitions

Equity Value: Value of ALL the company’s assets, but only to common equity investors (shareholders).

Enterprise Value: Value of ONLY the core business operations, but to ALL investors (equity, debt, etc.).

So when you calculate Enterprise Value, starting with Equity Value…

Add Items When: They represent other investors (Debt investors, Preferred Stock investors, etc.) or long-term funding sources (Capital Leases, Unfunded Pensions)

Subtract Items When: They are not related to the company’s core business operations (side activities, cash or excess cash, investments, real estate, etc.)

The Confusion

The problem is that many sources say Enterprise Value is what it “really costs to acquire a company.”

But that’s not exactly true – yes, sometimes Enterprise Value is closer, but it depends on the deal terms and the items in Enterprise Value.

We know, WITH CERTAINTY, that if you acquire 100% of a company, you must pay for 100% of its common shares.

So the Purchase Equity Value is sort of a “floor” for the purchase price in an M\u0026A deal.

But should you really add the seller’s Debt, Preferred Stock, and other funding sources, and subtract 100% of the seller’s cash balance to determine the “real price”?

There are many problems with that approach, but we’ll look at two of them here:

PROBLEM #1: Does Debt really increase the purchase price?

It depends, because debt can be either “assumed” (kept) or “refinanced” (replaced with new debt or paid off).

Debt is Assumed: Does not increase the amount the buyer “really pays” for the seller.

Debt is Repaid with the Buyer’s Cash: Does increase the amount the buyer “really pays”.

Existing Debt is Replaced with New Debt: Increases the amount the buyer “really pays,” but the buyer still isn’t paying more cash.
PROBLEM #2: Does Cash really reduce the purchase price?

A buyer can’t just “take” a seller’s entire cash balance following a deal – all companies need a certain “minimum cash balance” to keep operating, paying the bills, etc. That portion of cash is actually a core business operating asset.

Enterprise Value: As a simplification, we ignore the minimum cash and subtract all cash instead.

So if a company operating by itself always needs some minimum amount of cash, it certainly still needs a minimum amount of cash in an M\u0026A deal.

Other Complications

Transaction Fees: These always exist, and will always increase the price the buyer pays (lawyers, accountants, bankers, etc.).

Unfunded Pensions, Capital Leases, etc.: These don’t necessarily have to be “paid” or “repaid” upon change of control… so they may not even affect the price, even though they factor into Enterprise Value.

Extra Cash: What if the buyer’s cash + seller’s cash are used to fund the deal? Then the real price paid may not even be comparable to the seller’s Equity Value or Enterprise Value.

The Bottom Line

You have to distinguish between the *valuation* of a company or deal and the *actual price paid*.

Equity Value and Enterprise Value are useful for valuation, but less useful for determining the real price paid.

The real price paid may be between Equity Value and Enterprise Value, above them, or even below them, depending on the terms of the deal – due to the treatment of debt and cash, fees, and liabilities that don’t affect the cash cost of doing the deal.

When you see language like “Including assumption of net debt,” that means the approximate Purchase Enterprise Value for the deal, because they are calculating it as Purchase Equity Value + Debt – Cash.

But it’s still not what the buyer actually pays – it’s just a way to value the deal and get multiples like EV / EBITDA.






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