Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit

FIN 674 

Spring 2023

Critical Analysis of an Existing Buy-out:

1) Choose an acquisition of a publicly traded company that closed between January 2019 and December 2021 unless I have given you permission to go outside these boundaries.  

2) Assume you are an analyst for the Corporate Treasurer of a firm that is a direct competitor of the acquirer. Your firm has just learned about the deal you are going to study and has asked you to analyze the information available to the public.

Crucial Details:

Due Monday May 1st, by 3:00 p.m.,  in a paper copy.  I am happy to answer questions or review any of your work as you go along if you e-mail it to me. It will take me 24 hours to get to it though.     

Maximum Length:  7 pages including graphs and charts

Points to cover in your report: keep it short and sweet, bullet points are great!

A. Summarize the specifics of the completed acquisition: who is the target, who is the acquirer, what industry are they in, what was the deal price, were the target’s shareholders offered cash, stock, both a choice?  Describe the deal: was it friendly or hostile? Was there a battle with a competing bidder? Any interesting corporate control issues? (5)

B. Summarize the outsiders’ reaction to the deal announcement. Did the business writers and analysts think it made sense?  Why or Why Not? (5)

C. Was the announced agreement a surprise or had it been expected. Do you see any evidence word of the deal leaked out before the announcement? Compute the deal value added based on the changes in the market cap of the target and the acquirer from three days before the announcement to three days after the announcement day and compute the 20- trading day VWAP for the target. (5) Show the calculation for the DVA in the report and the calculation for the VWAP, probably in an appendix.

D. Comment on the strategic aspects of the deal.  Did the deal build on operating or financial synergies? If operating, are they revenue based or cost based or both?  Is the deal expected to generate economies of scale or economies of scope or both or neither? Do you think the deal made sense from a strategic perspective? Give at least three reasons for your answer.   (5)

E. Are there any deal-specific motives such as tax losses, patents, hidden assets, etc? (5)

F. Evaluate the perceived risks of the target firm and the acquirer by comparing the unique risk factors each firm shows in its pre-merger 10-K filings. Given your evaluation, do you think the acquisition has the potential to reduce the overall risk of the combined firm? Are there risks at the target that the acquirer can help offset? Are there risks at the acquirer that the target can help offsett? Explain. (5) List important unique risk factors for each firm and then compare, decide if the combined firm’s risks are lowered by the deal.

G. Compare the product lines of the target and the acquirer. Does the target add to existing lines at the acquirer or fill in holes.  (5)

H. Collect the TV/TTM Rev, TV/TTM EBITDA, and TV/TTM EBIT multiples for the target and the deal comps from the Bloomberg data file and separate the deal comps into those that came before and those that came after your deal was announced.  Does it look like the acquirer paid the right price, got a good deal or paid too much when you compare the size of the deal multiples to the size of the multiples for the pre-acquisition comps? Explain your reasoning.  Then, complete the same analysis for the post-acquisition comps if there are any available.   (10)   Show all the deal comps and their multiples from Bloomberg in a table in the body of your report.

I. Collect the Highlight and Income Statement Bloomberg sheets for the target and competitors of the target from Bloomberg .  You will need historical revenue growth for the target and the comps and Gross Profit, EBITDA, a d EBIT   (EBIT = Operating Income on the Income statement). Be sure that you collect the financial information that was available at the time of the announcement. This is usually the last complete fiscal year for each possible comp that ended before the deal you are studying was announced. Create a matrix of key Financial Statistics: Revenue Growth and Gross Profit, EBITDA, EBIT for the target and the comps.

a. Compare the target’s expected revenue growth to that of the comps. Compare the target’s operating margins to the operating margins of the comps.  Is the target growing faster or more slowly than the comps? Do its margins compare favorably or unfavorably with the comps? Does this comparative analysis make the target look attractive or not? Summarize what you think are the most important points of comparison between the target and the comps. (5) 

J. Sort the matrix from part J. based on historical revenue growth and then on operating margins.  Identify firms you think are comparable on each dimension and use this information to settle on a final set of comps for the target. Collect the EV/Revenue, EV/EBITDA and EV/EBIT multiples for your final set of comps from the multiples pages on Bloomberg. Compute the mean of the three multiples for the comp set. Use this information to compute implied Enterprise Value and the implied value per share for the target based on your set of trading comps.  (10) Show the sort summary and the multiples from the comp set.

Summarize the valuation analysis by deciding whether your trading comparable companies analysis suggests the acquirer paid too much, got a good deal or paid the right price for the target.

K. Summarize your thoughts on whether the acquisition price was too high, too low or just right based on the deal comps and trading comps analysis, the comparative attributes of the target relative to the comp set and any other benefits the target brings to the acquirer. Give at least three reasons for your conclusion. Put this at the end of the report. (5)

L. Put the summary and any other important points of information about the transactions in an Executive Summary that is your cover page. Include a price graph for the target on the cover that goes back at least one year before the acquisition and show the acquisition price on the graph.  Also show your estimate of the value of the target from your trading comps analysis. (10)   The cover should include information and numbers to back up all the work you did in addition to the merger information. Fill the page. Show off your analysis. Make sure the numbers on the graph axes are legible.

M. In an Appendix, compare the post-merger and current Revenue Growth and the Gross Profit, EBIT and EBIT (Operating Income) Margins of the combined firm to those on   a Pro Forma based on the annual numbers known at the time of the acquisition. From what you can see now does it look like the merger is working out as planned? Why or Why Not? (5)

Writing, organization, flow and appearance (15). Remember that you are writing this for someone who does not have the assignment in front of them so use section titles and sub-heads to convey the subject of your discussion.