Series 79, Chapter 06 - Precedent Transactions Analysis
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41 terms
Terms | Definitions |
|---|---|
 When is precedent transactions analysis used v. comparable companies analysis? | Precedent transactions is primarily used in M&A, and comparable companies is primarily used in IPOs. (6-183) |
| What transactions are likely to be most relevant in a transaction comps analysis? | the most recent transactions. (6-183) |
| Do transaction comps tend to provide a higher or lower multiple range than trading comps? Why? | Higher range. They reflect a control premium paid when acquiring a full company and/or potential for synergies with a strategic buyer. (6-183) |
| Thomson Reuters SDC Platinum | financial transactions database used in building a universe for comps analysis. (6-188) |
| What parties generally pay more for an acquisition - strategic buyers or financial sponsors? | GENERALLY strategic buyers, as they have potential for synergies. (6-190) |
| How does the use of stock as consideration for sale affect the valuation of a potential acquisition? | Generally results in lower valuation, as shareholders of the target have potential to realize upside. (6-191) |
| What filing document typically contains a fairness opinion for a tender offer? | Schedule 14D-9, filed in response to a Schedule TO tender offer. (6-192) |
| When must an acquirer file a proxy statement? | If it is issuing new shares > 20% of pre-deal shares in order to fund the transaction. (6-192) |
| PREM14C/DEFM14C | Preliminary/Definitive information statement (not a proxy) filed relating to M&A. (6-196) |
| Schedule 13E-3 | Reports going private transactions. (6-196) |
| Scheudle TO | Filed by an acquirer on commencement of a tender offer. (6-196) |
| Schedule 14D-9 | recommendation from target board on how shareholders should respond to tender. (6-196) |
| S-4 | Registration statement for shares issued in connection with a merger. (6-196) |
| 424B | Prospectus (6-196) |
| What financial database is used to screen for precedent transactions? | SDC Platinum. (6-198) |
| Which two of the following are important sources for identifying trends in a given industry? (I) Sell-side research reports, (II) Schedule 13D, (III) Form 8-K, (IV) Company 10K | I, IV (6-198) |
| What is the final proxy statement filed with the SEC for an ordinary annual shareholder meeting? | DEF14A (6-198) |
| How is equity value calculated differently for precedent companies analysis v. precedent transactions analysis? | company analysis is announced based on price per share AT CLOSE ON A GIVEN DAY. Transaction analysis is based on ANNOUNCED OFFER price per share. Both are multiplied by fully diluted shares outstanding. (6-202) |
| An acquirer purchases 90% of a company's 1M shares in a tender at an offer price of $20/share. What is the implied equity value for the entire company? | 1M x 90% x 20 = $18M paid in the tender/90% = $20M implied equity value for whole company. (6-202) |
| How are unexercisable in-the-money options and warrants treated when calculating fully diluted shares outstanding in a company acquisition? | All are treated as exercisable, as they will vest upon a change in control. (6-202) |
| Fixed Exchange ratio Stock-for-Stock Acquisition offer | A specific number of shares of acquirer stock are given to each holder of a share of target stock. More common than floating exchange ratio. (6-203) |
| Floating Exchange Ratio/Fixed Price stock-for-Stock Acquisition offer | The number of acquirer shares that will be exchanged for target shares will fluctuate based on share prices so as to ensure a fixed value for the target shareholders. (6-203) |
| How is offer price per share calculated in a fixed ratio transaction? | the exchange ratio is multiplied by the acquirer stock price, typically 1 day prior to announcement. (6-203) |
| In a fixed exchange ratio transaction, who assumes the risk of fluctuations in the acquirer's share price? | The Target, as they will receive the same number of shares regardless of current price. (6-205) |
| How can target shareholders mitigate risk of fluctuations in the acquirer share price? | a COLLAR on the exchange ratio will stipulate a min and max value at which the stock will be exchanged, (with the difference made up in cash or adjustments to ratio?). (6-204) |
| When is a floating exchange ratio typically used in a stock-for-stock acquisition? | When the acquirer is significantly larger than the target. (6-206) |
| How is the equity value calculated in a combination cash and stock acquisition? | EQUITY VALUE = [cash offer per share + (exchange ratio x acquirer share price)] x Target's fully diluted shares outstanding (6-207) |
| Calculation of Enterprise Value | EV = (equity value) + (net debt) + (noncontrolling interests) + (preferred stock) (6-207) |
| In transaction analysis, financial statistics from what time period are used to establish valuation multiples? | Trailing 12 months. (6-208) |
| P/E equation in transaction analysis | (OFFER price per share)/(trailing 12 Diluted earnings per share) OR (equity value)/(Trailing 12 net income) (6-208) |
| When calculating premium paid in a transaction, what day's closing share price is typically considered to represent the unaffected share price? | the day prior to the official transaction announcement. (6-209) |
| Synergies adjusted EV/LTM EBITDA | adjusted ratio = (enterprise value)/[(LTM EBITDA) + (synergies)] (6-211) |
| Which criteria are relevant for determining whether a precedent transaction would make a relevant comp? (select all that apply) (I) Target Company Sector, (II) Period during which transaction took place, (III) Size of target company, (IV) Target company domicile | All (6-214) |
| All of the following help explain why precedent transactions are calculated based on LTM earnings (rather than earnings estimates) EXCEPT: (a) Acquisition financing is typically based on LTM metrics, (b) LTM data serves as a universal standard that can be calculated from public filings, (c) Buyers are less interested in future earnings, (d) Buyers assume responsibility for future earnings. | C (6-214) |
| For a public company with 200 M basic shares outstanding, should one expect to pay more, less, or the same per share for 110M shares vs. 110 shares? | More per share for 110M shares, due to the control premium and the challenge of collecting a large block of shares. (6-214) |
| What does the control premium refer to in an M&A transaction | The additional amount paid per share because the purchase will allow the acquirer to control the target's business. (6-214) |
| Which type of offer (ie, what form of consideration) do PE firms generally make for private companies? | All cash (6-214) |
| Which type of exchange ratio is most common in a stock transaction? | Fixed Ratio. (6-215) |
| Who assumes risk for share price movements in a floating exchange ratio? | The acquirer. (6-215) |
| Who assumes the share price movement risks in a fixed exchange ratio? | Both. The target runs the risk of receiving less money if shares drop in value, acquirer assumes risk of paying more if shares increase in value. (6-215) |
| For which reasons might target shareholders prefer stock to cash as purchase consideration in an M&A transaction? (select 2) (I) Highest premium paid, (II) Ability to retain upside, (III) Tax planning, (IV) Fixed value. | II, III (6-215) |
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