Analyze one completed M&A transaction from recent times There are two main requirements (1) an analysis of the strategic and economic rationale behind the merger, and (2) an analysis of abnormal returns, premium paid and the structure/means of payment. Since you are analyzing a completed merger, you may have some comments on how the post-merger company has done so far.
Please write a one-page Executive Summary. The paper should be about 15 pages long (with additional explanations, references and supporting data in appendix) and should address the following items:
1. Brief history of the companies. Company strengths and weaknesses. Description of products, market shares, distribution channels, technology etc. Discussion of synergy. [History of the company can be brief, but strengths and weaknesses should be described in as much detail as possible.]
2. Industry Analysis; brief discussion of changes in the industry around the time of the merger. Role of M&A in corporate strategy. [Similar to what Clinton Haskell and William Karnes had done for Beatrice. See also the multiple acquisitions that GE and IBM carry out each year. GE also has a merger-integration team.]
3. Recent history leading to the merger. [You should have a Table showing the important event dates and a brief description of these events
Standard ratio analysis should be used to supplement the discussion of strength and weakness. [See the use of ROE and P/E ratio in George Baker's analysis of Beatrice.]
The following ratios are most often used by practitioners:
(a) Growth Rates: PEG Ratio and 10 year or 5 year compound growth rates (CAGR) in Sales and EPS of the two companies prior to the merger.
(b) Liquidity Ratios
(c) Leverage Ratios:
(i) Book Value of Total Debt/Book Value of Equity
(ii) Book Value of Long-term Debt/Book Equity
(iii) Book Value of Total Debt/Market Value of Equity
(iv) Interest and other fixed charge Coverage Ratio
(d) Operating Characteristics:
(i) Total Asset Turnover
(ii) Average Collection Period
(iii) Gross Profit Margin
(iv) ROE and ROA
(e) Investment Characteristics:
(i) Capital Expenditure as a percentage of Total Asset
(ii) R&D as a percentage of Total Assets
Most of these ratios are available from Bloomberg, Standard and Poor's Industry Survey, or similar sources. You may also access WRDS for relevant information.
4. Description of the deal, analysis of abnormal returns & premium
(a) Describe the transaction structure, mode of payment, and financing.
(b) Give your comment/assessment of the structure and discuss why this structure was adopted and whether you would recommend a different structure. For example, if it was a stock transaction with a fixed exchange ratio, then explain why no collars or options were used.
(c) Discuss valuation: DCF, Comparables, 52-week High, Sum of Parts, etc.
(d) Show announcement period abnormal returns, price run-up and total premium.