1. Mergers and acquisitions refer to the buying, selling and combining of different companies. There are two types of transactions - transformative which create new products or resources, and non-transformative which merely exchange existing resources. 2. Companies pursue M&A to adapt to competitive pressures, advancements in technology, and economic conditions. Mergers and acquisitions allow companies to expand their business through increased size. 3. M&A can involve mergers, acquisitions, joint ventures, and other strategic combinations between companies. The degree and nature of integration and control differentiates these transactions.

1. Mergers and Acquisitions
Virgilijus Dadonas

2. Transformative transactions
There are two types of cooperation − transformative and non-transformative transactions. Non-transformative
transaction activities are directed towards a mere exchange of existing resources. Transformative activities create a new
product from several resources by means of the participants' cooperation.
In order to adapt to competitive pressures, advancements in technology, and economic conditions, companies are
often forced to adapt their business by cooperating with another company in order to remain competitive or simply to
grow their business. Mergers and acquisitions (M&A) are expansion transformative transactions on purpose of increase
in size as alternative or complement to organic (“natural”) growth.
Transformative
transactions
Expansion Transactions
• Merger
• Acquisition
• Acquisition-by-hire
• Asset acquisition
• Tender offer
• Joint venture
Contraction Transactions
• Spin-off
• Split-off
• Split-up
• Sell-off (divestiture)
• Equity carve-out
• Asset sale
Ownership Change Transactions
• Minority share sale
• Venture capital
• Initial public offering (IPO)
• Leveraged buyout (LBO)
• Management buyout (MBO)
• Employee stock ownership plan (ESOP)
• Stock repurchase
• Hostile takeover
Change of Corporate Control
(without transaction)
• Board seat amendments
• Executive team changes
• Generational changes
Transformative
transactions

3. M&A lifecycle
Corporate strategy M&A strategy
Targets
screening &
identification
Planning Implementation
Control of
success
Approach
target
Transaction Negotiation
Valuation &
synergies
Due diligence
Post-merger
In-merger
Pre-merger

4. Mergers and Acquisitions
Introduction – M&A landscape

5. Key dimensions of transactions
• Acquisition
• Merger
• Joint Venture
• Alliance / Partnership
• Franchising
• Licensing
Strategic combination
• Hostile takeover
• Friendly takeover
• Leveraged buyout
• Bailout takeover
Approach to target /
relationship
• Consolidation
• Combination
• Transformation
• Preservation
Direction of change
• Horizontal
• Vertical
• Concentric
• Conglomerate / Diversification
Value chain
• Merger of equals
• Acquisition
• Divestiture
• Joint Venture / Alliance
Transaction structure
• Cash only
• Shares or cash and shares
• (Partially) deferred
Type of consideration
• Public (listed) company
• Privately held
• State-owned
Target ownership
• Controlled auction
• Negotiated transactions
Transaction process
• Domestic
• Cross-border
Economic area
Companies can link together in variety of legal combinations. In its broadest sense, M&A refers to a change of
ownership, and refers to the aspect of corporate strategy, corporate finance and management dealing with the buying,
selling and combining of different companies. The various types of transaction can be characterized on several
dimensions:

6. M&A definition
Subject
M&A is an aspect of
corporate strategy, corporate
finance and management
Activity
dealing with the buying,
selling, dividing and
combining of different
companies and similar
entities
Objective
that can help an enterprise
grow rapidly in its sector or
location of origin, or a new
field or new location,
Output
without creating a subsidiary,
other child entity or using a
joint venture.
The ultimate goal of merger is to create value
Value can only be created when the value of Company A + Company B is greater than the value of Company A and
Company B separately.
In the industrial organizations two basic motives stand out behind the M&A deals:
M&A can be seen as one type of strategic combination:
Licensing Franchising
Alliance /
Partnership
Joint Venture Merger Acquisition
LOW control, investment, impact, integration or pain of separation HIGH
Efficiency gains arise because takeovers increase
synergy between companies that increase economies
of scale or scope.
Efficiency motive
M&A might change the market structure and as such
have an impact on company profitability.
Strategic motive

7. Merger or Acquisition
From a legal and economic perspective, M&A represent two distinct types of transactions of companies with different
consequences regarding legal obligations, acquisition procedures, and tax liabilities:
The strongest strategic combination is given when a company acquires another company through a share deal or an
asset deal:
Anyone undertaking a merger or acquisition must be certain whether it is a:
Typical questions before M&A deal:
GROWTH or SHRINK BUILD or BUY KEEP or SELL INTEGRATE or MANAGE SEPARATELY
An expansion in the same or highly overlapping
business, typically designed to achieve cost savings
and will usually generate relatively rapid economic
benefits.
Scale Deal
An expansion into a new market, product or channel,
typically designed to produce additional revenue.
Strategic Deal
when a company purchases shares of stocks in the
targeted company.
Share Deal
when a company purchases the targeted company’s
assets.
Asset Deal
is the combination of two or more companies in
creation of a new entity or formation of a holding
company.
Merger
is the purchase of shares (stocks) or assets on another
company to achieve a managerial influence, not
necessarily by mutual agreement.
Acquisition

8. Mergers
Mergers create a combined company with consolidation and integration occurring of previously separate business
units. Generally, a larger business organization overall is created, that is in primarily the same line of business as the
previously distinct organizations, though there may be a re-orientation of overall business strategy. Market presence or
strength is typically the goal. The overall ownership of records from a corporate perspective evolves to the newly
created larger corporate entity. An immediately pressing issue after a merger will be the cooperative resolution of
previously existing policies, procedures, and practices that will become adopted or combined for the new company.
Mergers are commonly referred to as either merger by absorption or merger by establishment:
is the situation in which one company buys all stocks
of one or more companies (i.e., absorbing) and the
absorbed companies cease to exist; merger by
absorption could be considered as a de facto
acquisition.
Merger by absorption
refers to the case where two or more companies are
merged into a newly created one and the combining
entities in the merger are dissolved; the term
consolidation could be used to imply a merger by
establishment.
Merger by establishment (Amalgamation)
The daughter company mergers
with the parent company.
Up-stream merger
The parent company absorbs the
daughter company.
Down-stream merger
The sister companies merger on
one level.
Side-stream merger
In addition mergers can be divided into three basic variations:
 Reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a
publicly listed shell company, usually one with no business and limited assets. That enables a private company to by-
pass lengthy and complex process to get publicly listed.
 Reverse takeover refers to a transaction when a smaller company acquires management control of a larger or longer
established company and keeps its name for the combined entity.
 Reverse triangular merger is the formation of a new company that occurs when an acquiring company creates a
subsidiary, the subsidiary purchases the target company and the subsidiary is then absorbed by the target company.

9. Acquisitions
Acquisitions occur when one company buys and takes over the operations on another company. Usually a larger
company with greater assets and more facilities buys a smaller company that is less complex, though not always. This
often occurs when a company wants to take advantage of new assets or information that may be of value to current
operations, services, and products. More common for the acquired organization a need to adopt the records,
management policies, procedures, and practices of the new owner. This can be mandated, but a transition period will
occur in which not all new business units will be in compliance with expected operational standards. In some cases, if
government imposed regulatory mandates supersede corporate records retention mandates, the acquired company
may continue its current practices and processes.
Depending on the significance of the share of stocks acquired by the acquiring company, acquisitions are then
classified as:
when a company purchases all or part of the target
company’s assets and the target remains as a legal
entity after the transaction.
Asset acquisition
when a company buys a certain share of stocks in
the target company in order to influence the
management of the target company.
Share acquisition
100% of target’s issued shares
Complete takeover
50-99% of target’s issued shares
Majority takeover
less <50% of target’s issued shares
Minority takeover
In acquisition, the acquiring company may seek to acquire a significant share of stocks or assets of the target company.
Consequently, there are two forms of acquisitions:
Types of acquisitions depending on…:
… whether the acquiree company
is or isn't listed in public markets.
Private or Public
… how it is communicated to and
received by the target company's
board of directors, employees and
shareholders.
Friendly or Hostile
… a company is acquired by its
own management or by a group of
investors.
Management or Leveraged
Buyouts

10. Corporate restructuring
Retreat
In case of corporate distress, there is a need of corporate restructuring as the company needs to improve its efficiency
and profitability. In broad sense, corporate restructuring refers to the changes in ownership, business mix, assets mix
and alliances to enhance the shareholder value.
Divesture (sell-off) is a transaction through which a company sells a portion of its assets, division or subsidiary for
cash or securities to another company (outsider). Normally, sell-offs are done because the subsidiary doesn't fit into
the parent company's core strategy, operates at a loss or requires upkeep capital.
Divesture
Demerger (brake-up) is a type of corporate restructuring policy in which the entity's business operations are
segregated into one or more components. A demerger is often done to help each of the segments operate more
smoothly, as they can focus on a more specific task after demerger.
 Spin-off is a way to offload underperforming or non-core business divisions that can drag down profits. It creates
a new independent business organization to realize the true potential of an outperforming asset, whose
performance is not properly valued by the market.
 Split-off is a transaction in which some, but not all, parent company shareholders receive shares in a subsidiary, in
return for relinquishing their parent company's share.
 Split-up is a transaction in which a company spins off all of its subsidiaries to its shareholders and ceases to exist.
 Carve-out is when a parent company makes a subsidiary public through IPO of shares, amounting to a partial
sell-off, but keeps a controlling stake in this new publicly-listed company.
Demerger
Reverse synergy
This concept is in contrast to the M&A principles of synergy, where a combined unit is worth more than the
individual parts together. According to reverse synergy, the individual parts may be worth more than the
combined unit. This is a common reasoning for divesting the assets. The company may decide that more
value can be unlocked from a division by divesting it off to a third party rather than owning it.

11. Broad concept of M&A
M&A
(broad view)
M&A
(narrow view)
Merger
Absorption
merger
Amalgamation
(equal merger)
Acquisitions
Stock
acquisition
Complete
takeover
Majority
Minority
Capital injection
(asset purchase,
business transfer)
Slump sale
Itemized sale
Asset
cooperation
Minority
cross-ownrship
Founding of
holding companies
Business
cooperation
Franchising
Management
outsourcing
Joint venture
Cooperation
In the broad sense, M&A may imply a
number of different transactions ranging
from the purchase and sales of undertakings,
concentration between undertakings,
alliances, cooperation and joint ventures to
the formation of companies, corporate
succession/ ensuring the independence of
businesses, management buy-out and buy-in,
change of legal form, initial public offerings
and even restructuring.

12. Legal independance in case of M&A
Collaboration
between
business
entities
M&A
at least one company
loses its legal
independance
Acquisition
at least one, but not all
involved companies
Absorption
closely integrated into
acquiring company
Subsidiary company in
Group
remains relatively
independant entity of the
acquiring comnanyMerger
all involved companies
Cooperation
no effect on legal
independance
Organizational
integration of acquired
company
Effects on the legal
independance of the
involved companies
Number of companies
that lose their legal
independance
Types of collaboration between business entities
categorized by effect on legal independence - the
traditional framework how to distinguish between
mergers and acquisitions is the perspective on the
legal independence of the business entities.

13. by growth strategy
Types of M&A
Merger of companies in the
same line of business
(similar or complementary
products/services) when
two competitors in the
market with same products
and distribution lines
combine in order to form a
stronger entity in terms of
market share and
competition.
Benefit: economy of scale.
Horizontal
Merger of companies,
each working at different
stages in the production
of the same good (value
chain); typical
combination with supplier
or distributor in order to
have a cost benefit from
better resources
management.
 Backward merger -
combine with supplier
 Forward merger -
combine with buyer
Benefit: economy of
scope.
Vertical
Merger of companies with
highly similar production
process, technologies or
markets seeking to
expand into other fields of
business activities.
 Related diversification
• Vertical integration -
taking place either
backwards (inputs and
suppliers) or forwards
(outputs and
distributors) along the
companies’ value
chain
• Horizontal integration
- integrates
complementary or
competitive activities
that are related to
organizations’ present
activities
Benefit: synergies.
Concentric
Merger of companies that
operate in different or
unrelated business lines
(no common business ties)
in order to create a diverse
portfolio of products that
balance business risk,
ensure access or utilization
of financial resources.
 Unrelated diversification
- merged companies
concern development
beyond their current
capabilities and value
systems.
Benefit: operating
economies.
Conglomerate

14. by degree of change
Types of M&A
Absorption
 The acquiring company fully absorbs the
target company
 Requires fundamental change in the acquired
company, but little change in the acquiring
entity
• for horizontal and vertical mergers
Transformation (Symbiosis)
 Both companies combine to become a new
business
 Requires more fundamental change for both
companies
• for horizontal and vertical mergers
Preservation (Stand Alone)
 The acquired company is preserved by leaving
it autonomous
 Requires little change by either company
• for heterogeneous mergers
 HOLDING - the acquiring company just keeps
the ownership of the acquired company, but
does not integrate it
Reverse merger
 The acquiring company adopts the ways of the
target company
 Requires a high degree of change in the
acquiring company
Best of Both
• Additive from both sides
• Requires substantial change
in both companies
Acquiring company
Degree of change
Acquiredcompany
Degreeofchange
low high
lowhigh Need for
integration
Need for
autonomy

15. Value creation in M&A
Corporate acquisition strategy, strategic fit, synergy potential and value creation potential are four factors that are
important to value creation in M&A. They can be seen as a link between how corporate acquisition strategy will add
value through a specific acquisition.
Time
Corporate acquisition
strategy
• Acquisition Strategy vs
Corporate Strategy
• Screening criterias
• Screening of market
Strategic fit
• Five forces of buyer and
target company
• Comparison of five
forces
• M&A typology
Synergy potential
• Identification of
synergies
• Estimation of synergies
Value creation potential
• Valuation of target
• Valuation of synergies
 The Corporate acquisition strategy involves acquisitions as a natural extension of the strategic momentum and one
of many strategic options for achieving growth. The purpose is to treat several industries and markets as desirable
directions for growth through acquisitions and eliminate others that are considered not attractive regarding the
company’s own strategy.
 The strategic fit determines how well a specific target will enhance the acquirer’s strategy and provides a
cornerstone for synergy potential. Recommended aspects: market potential, value chain analysis, and core
competences analysis of both companies.
 With identified synergy potential for the target, both from the acquirer’s and the target’s perspective, the strategic
fit is confirmed and estimated at activity level.
 The synergy potential finally affects the valuation of the target company and thus the overall potential for value
creation.

16. Acquisition strategies
Selective:
small number of deals
but may have
significant market cap
acquired
Tactical:
many deals but low % of market
cap acquired
Pragmatic:
many deals and high % of market
cap acquired
Large deals:
transformed company through an individual deal or several
large deals
Organic:
almost no
M&A
Market cap
acquired
High
0 Many
Number of deals per year
25th percentile 
= 1%

25th percentile
= 0.3

40th percentile
= 1

75th percentile
= 3
 Median = 20%
At leat 1 deal
above 30% of
market cap
World’s top 1,000 non-
banking companies,1999-
2010 (n=639 for which data
are available)
McKinsey (2012) has published a study that looks at different M&A strategies that large (non-bank) firms employ to
grow the business. The blow matrix shows how McKinsey thinks about what firms are actually doing. Not all strategies
are created equal, and McKinsey is quick to note that different industry segments have tended to different strategies.
112
66
180 142
139
It is perhaps not a big surprise that the largest companies are the most likely to use acquisitions to grow, as organic
growth in mature markets (which large firms dominate) have difficulty growing at faster than the rate of inflation.
Smaller companies are relatively more likely to focus on organic growth or on selective deal making, where usually few
deals are done, which deals may be transformative. McKinsey has found that companies that employ a programmatic
approach to acquisitions do best. This may be due to the expertise gained in evaluating and integrating such deals, or
it may reflect good discipline in purchasing without overpaying.

17. Warfare M&A strategy
Marketing warfare strategy draws parallels between business and warfare, and then applies the principles of military
strategy to business situations, with competing companies considered as analogous to sides in a military conflict, and
market share considered as analogous to territory in dispute. This view of marketing argues that in mature, low-growth
markets, and when real GDP growth is negative or low, commerce operates as a zero-sum game. One participant's gain
is possible only at another participant's expense. Success depends on battling competitors for market share. When a
company captures market share, it “kills” the competition proportionately.
Based on the Lanchester strategy as a warfare strategy to identify where to invest existing forces best to achieve the
largest territorial gains:
 Sales and marketing strategists have developed tactics to define where they can achieve the largest market share
gains given an existing market position and budget.
 M&A strategists also use this strategy when looking to define those regions and markets where an acquisition will
enable a shift in market share and change the companies’ competitive positioning.
The two kinds of combat strategies that favor the weak or the strong competitors:
 Weak competitor with lower market share strives to segment the market (for example, 4Ps: product, price,
place/distribution, promotion) in order to elevate specific area where its weapons of competition are more effective.
 Strong competitor with larger market share resists segmentation and forces competition on wider market.
The basic foundation of the New Lanchester Strategy is on concentrated force to a single point of an enemy. Once you
have won that battle, you move onto the next small chunk that your concentrated force and resources can overcome.
Attacking a company or the companies that hold a market dominance head-on is suicide, but, if you target a smaller
aspect of that industry leaders’ business and establish a foothold, you have a far greater chance of success.
It is just the old battle strategy of divide and conquer.

18. Lanchester M&A strategy
General PMI Partners offers adopt one of the warfare strategies depending on buyer relative market share and the
resources available to acquire companies:
The larger of two competitors has more resources and thus will typically preserve its resources by just defending its
market share. The smaller competitor can try to identify an acquisition target to close the market share gap and get
into “shooting range” of the larger, resource-rich competitor.
Buying market share
The weaker force should always try to compete on a narrower front, fight local battles, and increase combat
effectiveness. Thus acquisitions in a specific field that close the distance in that specific area.
Well invested resources
The larger of two competitors has fewer resources and less market effectiveness. There is a high likelihood that the
smaller competitor will gain market share organically.
Inappropriate use of resources
The stronger force should be mindful of the weaker competitor’s tactics and where appropriate adopt them to
reduce its advantage and increase resources spent in markets that will stretch the weaker competitor to the
breaking point. They cannot fight multiple battles. Thus look toward acquiring in the markets where you cause the
biggest stress for the weaker competitor. If the stronger competitor can confuse the weaker one on where to spend
its resources, all the better.
Stretching to the breaking-point
If both competitors are of equal strength, for example, within close “shooting range”, look toward opportunities
where you can outnumber your opponent at a critical time by placing your well-positioned choosing. This could be
done effectively through a surprise acquisition.
Surprise acquisition

19. Strategic fit
The right strategic, operational, and financial analysis of the merging companies are important factors to create a
successful merger in terms of strategic logic, competitive positioning and financial performance.
There are two factors - vision and strategy - which relates to the strategic fit of M&A:
 The vision must be clear to large constituent groups and adaptable to many unknown circumstances.
 Strategic considerations needs to be given too two main criteria, the level of business affinity and the business
attractiveness, which includes such factors as market size, growth, profitability etc.
There are certain acquisitions that are failures because they have pushed the acquirer into the wrong strategic direction
and do not match the organizations vision and/or strategy - the problem with these types of acquisitions lies at the
start of the M&A process and is as much a broader failure of strategic management as it is of how the actual M&A was
handled itself.
In order to provide long-term value for an organization, the acquisition has to be in line with the overall business
strategy. In order to succeed at M&A, see it as an integral part of the corporate strategy, not just a way to boost
earnings. M&A should be an ongoing strategic planning process. The emphasis should shift away from financial
performance and place far more emphasis on competitive dynamics and the structural positions of potential targets. An
acquisition will make the best strategic sense when it forms a natural extension of a company’s strategic momentum.
Development
potential –
review options
Prime target
areas –
take it
Not interesting
– don’t waste
time/resources
Possible
add-ons –
evaluate later
High
Low HighBusiness affinity
Business
attractiveness
 How the acquisition will result in added value
to the company?
 How quickly this can be obtained?
 How did synergies stack up against the risks?

20. Strategic fit and diversification objectives
Synergies that are expected from cost savings will come from the integration of systems, thereby, eliminating
duplication of work. In this case integration focuses on the physical integration of manufacturing and distribution
systems, sales force and marketing efforts, information and control systems, R&D, etc.
Strategic fit is about the similarity in operational activities between joining companies, where complementarities of
resources are crucial to success of M&A as well.
Acquisition candidates who offer a good fit with the acquirer’s unique skills and resources are the ones most likely for
value creation potential. In related diversifications the most significant shareholder benefits accrue from when special
skills and industry knowledge of one merger partner can help improve the competitive position of the other.
It is therefore essential to specify specific diversification objectives for the acquiring company in order to be able to
assess the fit between the two companies. The overall distinction in related diversifications is:
 Supplementary - whether to expand existing skills and resources into new product markets, or
 Complementary - whether to add new functional skills and resources but leaving the product market relatively
unchanged.
Finally, a strategic fit process:
i. should start from assessment of the core competencies and activities of the acquiring company;
ii. then, looking at the specific target companies and evaluating them in the same way the acquirer company was
assessed;
iii. and complete with mapping the two companies.
Useful frameworks for strategic fit evaluation: SWOT-analysis (strengths, weaknesses, opportunities, threats), Michael
Porters Five Market Forces approach or GE-McKinsey nine-box (industry attractiveness vs competitive strength) matrix.

21. Synergies
Companies that engage in M&A are typically seeking synergy effects. Synergies arise when the whole is more than the
sum of its individual parts.
Typically, companies aim to achieve economies of scale and economies of scope by effective sharing of various
overlapping and complementary functional resources from efficiently merging two value chains after M&A. Synergies
are either revenue or cost based and can be synchronic (realizable right away) or diachronic (over time).
As synergies can be found and used all over the organizations, they do take many different forms depending on the
type of M&A and the companies’ businesses. Some typical synergies:
 Financial synergies – financial flexibility, lower cost of capital, increased debt capacity, more efficient capital structure,
better cash flow, tax benefits, portfolio and risk economies
 Operational synergies - economies of scale and scope, cost and revenue, purchasing power, procurement and supply
chain, resource/capacity utilization, access to new technologies, technical skills and knowledge, offset seasonal/
cyclical fluctuations
 Market power synergies - market access, cross selling, selling power, bargaining power
 Managerial synergies - managerial efficiency, innovative structures
 Dubious synergies - market reaction to transaction, branding
Finance and development teams responsible for transactions should be able to identify, quantify and model synergies.
A well-defined, disciplined, and transparent approach to synergies increases the probability of achieving them. The
actual synergy realization cannot be achieved until the post-merger phase when the deal is closed.
Negative synergy
Negative synergy creates outcomes where one plus one equals less than two. It results from lost accounts due
to duplication, qualified staff (talents) who leave the organization, increased IT costs, additional regulatory
costs, top management hubris and empire building, managers who lose focus on the ongoing business due to
integration and cost cutting focus with lost revenues as a consequence.

22. Acquisition momentum – weak economy
Revenue growth is and will continue to be a requirement of corporate value. A good CEO must find a way to grow the
business by 10% or more every year. If a weak global economy marginalizes the demand for products and services,
there will be a need to cut operating costs to optimize ROIC. But, what about revenue growth? Given that revenue
growth is a major component of intrinsic value, and that significant organic growth is nearly impossible in the current
economy, isn’t M&A the best option for revenue growth? It may well be the only option.
In this economy, M&A is a company’s best option for growth. However, growth will only bear fruit if acquisitions
maintain or increase ROIC. Capturing a weak competitor to increase market share or buying undervalued assets may be
a good strategic decision, but a CEO must anticipate its crucial impact on intrinsic value. It is no longer an acceptable
practice to qualify a target acquisition by assessing only the current strategic and financial fit. Most often acquisitions
fail to meet expectations due to incomplete knowledge of the entity being acquired and the critical first steps to take
when the deal is inked. Companies blessed with deep pockets and an urge to deploy capital for revenue growth must
perform deeper levels of due diligence and subsequent detailed pre-close planning.
 Strategic Fit: The mission and strategy of the buyer has to match with the internal structures and external
environment of the target organization. It must be the core responsibility of executives to make investment and
resource allocation decisions that upgrade ROIC and revenue growth.
 Financial Fit: The buyer has to validate the accuracy and completeness of information about the target, to prevent
avoidable harm to either party. It has to perform a detailed assessment of assets, liabilities and solvency, regulatory
and licensing, liens and judgments, conflicts of interest and pending litigation. It has also to initiate capital allocation
and decide how best to reinvest cash flows.
Once the target qualifies as both a strategic and financial fit, a buyer must go further and plan meticulously how the
two entities will effectively blend the operations.
 Culture Fit: Differences in culture are often cited as the prime barrier to successful M&A. Due diligence in culture
must be intensive and go far beyond congenial mutual visits or casual discussions over dinner.
 Integration Strategy: Executives need to quit tossing acquisitions to their managers after an acquisition commitment
has been made. A clear integration strategy along with pre-deal training and planning can overcome strategic,
financial and cultural missteps.

23. Financing for M&A activity
M&A market needs financing to fuel activity. Even with sufficient cash reserves on hand, many acquirers seek to tap
external finance sources.
There are numerous funding sources to raise capital for the acquisition of an established company. Each source of
capital has its own unique and frequently modified criteria for financing, hidden fees, commitments, and risks, so it is
necessary for the buyer to spend adequate time to properly research and explore all options to determine which source
is appropriate and available for their specific business opportunity. The best method for an acquirer to use depends on
the buyer and the seller, their respective share situations, asset values, and debt liabilities.
Method
Payment
method Payment term Cost
Management
involvement
Debt Bank loans Amortization Short Low
Monitor as
creditor
Mezzanine
Prefered shares,
Subordinateed
loans
Bullet payment Medium Medium
Monitor as
investor
Equity
Common
shares
No payment
obligations
None High
Exercise rights
as shareholders
• Company cash reserves
• Public markets - debt rising
• Public markets - equity rising
• Sovereign wealth funds
Preferred methods of financing
• Banks - loans
• Banks - bonds
• Strategic co-investor
• Financial co-investor
• Cash
• Stock (shares exchange)
• Debt
• Cash & Debt
Preferred forms of payment
• Cash & Stock
• Stock & Debt
• Cask & Stock & Debt

24. Relationshipsbetween companies
Forms of relationship
between companies
Alternatives to M&A
Coexistance
Competition
Cooperation
Coopetition
 Coexistence is understood as a lack of any mutual influence
between the companies. The aims of the companies
are determined independently from the other company.
 Cooperation takes place when the companies engage in
information, resource or social exchange. In cooperation
relationship both sides mutually interact by means of sharing the
resources and possibilities or use them as leverage for mutual gain.
 Competition is understood as aiming at the same objectives which
results in a clash of interests. Competition is a dynamic situation
which arises when a couple of entities on a given market fight for
insufficient resources and produce/sell similar products/services.
 Coopetition is the cooperation between competing companies in
which cooperation is mixed with competition.
Types of dependant relationships between companies
Strategic Alliance
Merger
fusion
Acquisition
takeover
None of the partners has total
control over the mutual venture.
Companies unite in order to
create a new company, they share
their resources and responsibility,
and aim at reaching common
goals.
Transaction guarantees one of the
entities’ control over another
company.
Non-interferring Mutual Dependant

25. Strategic options
Alternatives to M&A
In order to pool assets, combine resources and exploit synergies, companies can either permanently merge their
operations within a new legal entity through an M&A project or they can choose to collaborate on well-defined and
limited areas of business while retaining their strategic and legal autonomy through forming a cooperation, an alliance,
or a joint venture.
As is...
Organic growth
Cooperation
Voluntarily arrangement in which two or more
entities engage in a mutually beneficial
exchange instead of competing.
Alliance
A multi-functional agreement with mutual two-
way interdependence. The essence of strategic
alliance is that none of the partners has total
control over the common venture.
Joint Venture
An expanded strategic alliance based on risk
sharing, mutual financing and flexible ownership
structured to fit the situation and the
preferences of the complementing partners.
Acquisition
Merger
Internal business
development
External business
development
Increasing:
 Capital commitment
 Complexity
 Risk
 Speed requirement
 Influence/control
 Profit potential
These options provide not only an alternative
to M&A deals but also can be a first step
toward a merger.
• Spread costs and
risks
• Less rigid
arrangement
allows quick
formation and
break up
• Collaboration in
project-specific
manner
Pros
• Decisions must be
made by
consensus among
the partner
companies
• Temporary and
reversible in nature
• Risk of learning
and skills/
technology transfer
Cons

26. International expansion
Cross-border M&A
Rapidly growing economies, innovation, new businesses and new wealth, lower barriers to trade - these all speak to
opportunities for international expansion.
Indicators for right time to go global
 Home market for your product/service
 good, strong: highly likely that there is a similar
desire in most overseas markets
 robust: strong home market growth may mask
the potential of other markets where demand
may be growing even faster
 slow, stagnant: cross-border opportunities may
be more favorable
 Your product/service advantages in other countries
 You already have international customers
 look: concentration, growth, potential and need
for face-to-face interaction
 There is window of opportunity that could close soon
 Competitors are moving into other markets
Deciding whether to set up a legal entity in the host
country, and if so what type of entity to set up, will be
critical to protecting the organization’s bottom line and
its reputation:
 Representative office - minimal presence in the host
country just representing its foreign mother-
company, can contact stakeholders and enter into
contracts on behalf of its foreign parent, but can’t
generate revenue itself.
 Branch office - can buy and sell goods, sign contracts,
build things, render services, but it is just a company’s
office that has been established to service a specific
geographic area.
 Subsidiary - an entirely separate legal entity,
established by a parent company to conduct business
in the host country.
Legal entity in the host country
• Planning - developing a business case for cross-border expansion, incl. systems and processes for international
operations
• Setting up - establishing a legal entity overseas, incl. physical office and bank account
• Staffing - hiring local employees or transferring existing staff-experts
• Integration - new office should be integrated with corporate operations
Playbook to set up cross-border operations

27. Issues for cross-border M&A
Cross-border M&A
Most successful transactions are based on careful advance preparation, well thought-out strategies, and deal structures
that anticipate likely issues and concerns. Many of these issues must be identified early in the process and
appropriately addressed in one fashion or another in order for any overseas transaction to be successful.
Following is a list of important issues that should be considered in advance of the launch of any cross-border M&A. Of
course, each overseas deal is different and implementation of these issues will greatly depend on the facts, dynamics,
scale and geographic scope of the particular situation.
• Political considerations
• Foreign investment review
• International trade
• Law compliance
• Securities and Corporate
• Labour & Employment and Privacy
• Intellectual property (IP) rights
• Data protection regulation
• Tax, regulations and accounting
considerations
• Antitrust and Anti-Competition issues
• Transaction structure
• Due Diligence standards
• Post-closing integration
• Cultural and communication obstacles
Cross-border M&A checklist  Understand that cross-border M&A deals typically come with
obligations in the host country that are costly and time-consuming
and may be unfamiliar to you.
 Understand that any agreements in the host country must comply
with local laws and that they must be written in the local language.
 Determine the optimal legal entity based on the planned activities,
cost to maintain, time it takes to establish and other factors, incl.
establishing a bank account in the target country.
 Understand that your insurance rates, procurement purchasing
power, etc. may differ significantly from that of the seller.
 Draft and sign confidentiality agreements and intellectual property
(IP) agreements. Carefully review all IP agreements, identify who
controls the seller’s IP, and ensure their effective transfer.
 If necessary, apply for immigration clearance for transfer expats.
 Understand that the seller has the statutory responsibility to ensure
the transfer of sensitive data to the potential purchaser is lawfully
managed under all applicable legislation and that you may have to
agree to adhere to all statutory privacy standards applicable to the
seller.

28. Objective, driving forces and motives of M&A
Objective
Only one reasonable and economically acceptable argument stays behind M&A activity, and this is the increase of
shareholders value. Value creation for either company, or at least for the acquiring company, is the underlying objective.
Realization of this objective can be achieved through:
 Establishment of the future opportunities:
• Growth of market share, or access to new distribution channels, markets and products;
• Creation an organization with new capabilities, access to technology or know-how, or access to talent needed
to drive growth;
• Capture operational synergies.
 Solving the past problems:
• Corporate restructuring.
Driving forces
Driving force of M&A activity is combination of changing microeconomic and macroeconomic environment: healthy
corporate balance sheets, high level of free cash, growing share prices, low interest rates, cheap borrowing or
refinancing opportunities, globalization of trade, high growth rate in emerging markets and political security, etc.
Motives
A number of theories explain why M&A occur. There are similarities and differences between the theories, as different
classifications of M&A motives based on different perspectives and criteria, overlapping each other or even belong to
several categories.

29. Merger as rational choice
Theories on M&A motives
Merger benefits bidder’s shareholders Merger benefits managers
Net gains through 3 types of
synergy:
• financial;
• operational;
• managerial.
Efficiency (synergy) theory
No efficiency gain and wealth
transfer from target’s customers;
combined companies:
• cross-subsidize products;
• limit competition in more
than one market;
• deter potential entrants from
the market.
Monopoly (market power) theory
M&A decisions are caused and influenced by processes:
• individuals' limited information processing
capabilities;
• organizational routines;
• political games played between an organization's
sub-units and outsiders.
Process theory
Wealth transfer from target’s
shareholders the ‘rider’ bids for in
forms of greenmail or excessive
compensation after a successful
takeover.
Raider theory
Mergers are planned and executed
by managers who maximize their
own utility instead of their
shareholders' value.
Empire building (managerialism)
theory
Merger as process outcome Merger as macroeconomic phenomenon
Mergers are planned and executed
by managers who have better
information about the target's
value than the stock market.
Valuation (investment) theory
Merger (waves) are caused by economic disturbances:
• they change individual expectations and increase
uncertainty;
• previous non-owners of assets now place a higher
value on these assets than their owners, and vice-
versa.
Disturbance theory
Mergers are planned and executed
by managers of acquiring firms
who overestimated their
managerial ability and the value of
the targeted firm.
Hubris hypothesis

30. Classification of M&A motives
Survival
Attempting to prevent the
acquirer’s end through being
acquired itself.
Preservation (stasis)
Attempting to defend the acquirer’s
competitive situation through
control of potential new
competitors.
Exploration
Exploration of new territories through
greenfield entry or learning with low
certainty of improving returns to the
acquirer but with a big potential.
Exploitation (synergy)
Exploitation of the target through
synergies to increase acquirer value
with a high degree of certainty.
Non-value maximizing
motives
Value maximizing
motivesMotives do not occur in a vacuum and the ‘context’ determines the acceptable type of M&A
that may take place.
Payoffs
 For preservation deals the acquirer may not receive any
direct benefit, with neutral or even mildly negative
returns but the negative threat of severe future change
maybe reduced.
 Survival deals are not so much about increasing value
as to survive potential takeover threat or current
demise of the firm.
 For preservation and survival type deals,
value creation maybe an inappropriate
way of viewing performance.
 Exploration deals may have the potential for much
greater returns than exploitation deals as well as much
higher risk about whether those returns will be
achieved and how far into the future.
 From exploitation deals there should be reasonable
certainty about value created.
Payoffs

31. Typical motives
In general, there are three aspects of motivation that directly or indirectly interconnect and materialize after successful
M&A.
• Growth and its speed
• Market share, customers
position, power
• Balance of competition
• Entry to new markets/
segments
• Satisfy markets demand for
additional/new
products/services
• Synergies
• Backward or forward
integration, channels control,
distribution system, natural
resources
• Economy of scale or scope
• Diversification
• Core competencies
• Risk reduction
• Balancing product life cycle
• Recession management
Strategic
• Creation of shareholders value
• Surplus fund investment
• Higher market capitalization
• Cost of capital reduction
• Tax benefits or reduction of tax
liabilities
• Debt profile adjustment
• Access to cash or other
financial resources
• Cash flow generation
• Stripping of undervalued assets
• Revival of sick units
• Improving stock market
measures: Share Price, EPS, P/E
• Speculative transactions
• Reinvestment of financial
resources
Financial
• Management: enhance
power/prestige of owners/CEO/
Mgt, talents retention, removal
inefficient mgt, increase mgt
quality
• Organizational growth:
emergence or evolution as a
conglomerate or multinational
corporation
• Utilization: increase utilization
of resources, offset seasonal/
cyclical fluctuations in business
• Overcapacity reduction
• Access competence and
capabilities (hard and soft):
know-how, people, knowledge,
skills, technology, intellectual
property, patents, brands
• Lobby power
Operational
Current
capabilities
Target
capabilities
Window of
opportunities

32. vdadonas@gmail.com
Outline of subject
CHAPTER 1:
Introduction − M&A landscape
CHAPTER 2:
M&A outlook − facts & figures
CHAPTER 3:
Pre-merger − Planning
CHAPTER 4:
Pre-merger − best practice
CHAPTER 5:
In-merger − Combination
CHAPTER 6:
In merger − best practice
CHAPTER 7:
Post-merger − Integration
CHAPTER 8:
Post merger − best practice
CHAPTER 9:
Skills & practices for effective M&A
management