Mergers, Acquisitions and Value Creation

An acquisition creates value for the buyer when net synergies exceed the premium paid and the resources required for execution. The course separates industrial value from the sharing of that value.

Course purpose

The decision examined

Standalone target value, value to a particular buyer and the final transaction price are different amounts. Large gross synergies can coexist with a poor return when they are surrendered through the premium or consumed by integration.

Objectives

Learning outcomes

Value the target on a standalone basis.
Construct after-cost synergies.
Calculate buyer NPV and analyse consideration.

Concepts

Key concepts

Standalone value
Synergies
Premium
Buyer NPV
Integration costs
Exchange ratio

Syllabus

Course structure

Acquisition as investment
Standalone value
Premium
Synergies
Financing
Integration

Extract

Analytical framework

Measure value retained by the buyer

Buyer NPV deducts the premium and execution resources from the present value of synergies:

Acquisition net present value

Buyer NPV = PV(Synergies) − Premium − Transaction costs − Integration costs

A transaction can therefore deliver substantial operational synergies while creating little or negative value for the buyer's shareholders.

Full course

Continue the course

Sign in or create a free RicherFin account to access the complete course, its derivations, formulas and detailed curriculum.