Mergers & Acquisitions

Mergers or acquisitions within equity markets are a common occurrance. Over the last few years, global M&A activity account for over $3 trillion in value annually, but slightly reduced as interest rates increased and the regulatory environment became stricter.

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Mergers and acquisitions play an important role in the world of finance. An agreement to sell controlling interest in a company can be referred to as an M&A deal.

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An acquisition takes place when an acquirer (firm, company, or individual) offers to purchase majority ownership in an acquiree (the entity targeted for takeover). However, there are multiple types of M&A deals : 

Acquisition :

The purchase of controlling interest or ownership of another company.

Buyout :

A company purchases all shares and assets of another company. Acquiring company survives, acquiree ceases to exist.

Merger / Amalgamation / Consolidation :

Creation of a new entity, derived from combining two or more existing companies. The new entity is formed, and the combined entities cease to exist and are combined into one.

Asset Deal :

The purchase of assets instead of equity.

Leveraged Buyout : 

An acquisition using a large amount of debt financing.

Reverse Merger :

A reverse merger (or reverse takeover) is a transaction in which a private company acquires a publicly traded entity, and begins trading upon business combination. While most reverse mergers over the last few years have been via a SPAC transaction, there are still a considerable amount of traditional reverse mergers that take place in US markets.

Tender Offer :

A tender offer is initiated at times by the acquiring party. This will be a price at which the acquiring party is willing to pay existing shareholders to acquire their stake. This reduces the timeline as less approval is required and can potentially avoid lengthy negotiations with the acquiree.

Dutch Auction :

A tender offer for selling shares, also referred to as a descending price auction. An offering is placed higher than the current market price. Bidders place orders for what they are willing to pay/amount. The price at which the most amount of shares can be sold is chosen as the auction accepted price.

Lifecycle of A Merger

Initially, there are closed door discussions between the acquiree and acquirer. Often there are measures in place to keep this information private, taking the form of confidentiality agreements.

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The acquiring body will conduct a due diligence process in which they receive material information, sometimes not public. A Confidential Information Memorandum (CIM) may be provided during this time.

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Once a decision is made, the acquiree will receive and publicly announce an Indication of Interest, Letter of Intent, or Definitive Merger Agreement.

Indication of Interest : 

A non-binding letter from buyer to seller indicating value and terms they are considering in acquisition

Letter of Intent (LOI) :

Non-binding document, signed by both target and acquirer, that outlines the proposed deal terms.

Definitive Merger Agreement : 

A legally binding contract that provides terms and conditions for the closing of the transaction

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The transaction value and necessary conditions are provided within the merger terms. Shareholders are offered a Term Sheet, or a document that outlines the key terms of the transaction. The 'Deal Structure' or purchase price will be announced as the cash consideration (value of shares as a cash payment basis), and/or share structure (which is the ratio of acquiree shares that acquirer shareholders will receive as part of the deal).

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