INVESTMENT BANKS - MERGERS AND ACQUISITIONS
We represent Clients in Buy-Side Mergers & Acquisitions, Sell-Side Mergers & Acquisitions, and Capital Raising Transactions.
Have you heard of Wallstreet ever? If that's a yes! You probably know that it is the cockpit and Investment Banks are the pilots driving this plane to new heights every day.
The loan you are thinking to take to purchase that new house, or the new crypto investment you are about to make, everything is "influenced," or we should reframe it and say it is a "by product" of what happens in those glass skyscrapers.
The example above was enough to defeat the general notion of what investment banks do, just helping companies launch their Initial Public Offering (IPO). But there’s a lot more what those “suited investment bankers do, and this article here aims to clear all your doubts about such service. Investment banks are large and complex financial institutions which follow provide an array of services like:
Sales & trading, proprietary trading services
Merger and acquisitions advisory (M&As),
Corporate finance (leveraged finance and finance restructuring)
Helping a firm go public (through IPO’s)
Relationships and Lainson
But here, we'll dive deep into one of the most lucrative and cumbersome services, that is, "Merger & Acquisition," or referred to as M&A.
WHAT ARE MERGERS AND ACQUISITIONS?
They are often used interchangeably, but these are 2 ends of the spectrum. However, both the words mean combining 2 companies in some form. But the true essence of both of them is different.
A merger occurs when 2 companies or entities (usually of similar size) combine their resources and consolidate into a single new joint organization. On the other hand, an Acquisition refers to the takeover of one entity by another (usually a more prominent company absorbs the smaller company). Merger deals are considered friendly; meanwhile, Acquisition deals are deemed hostile, but this might not be true in every case.
Before we move further, we like to clear another technical Jargon, Buy-Side vs. Sell-Side:
Buy-Side refers to the right side of the financial market where firms and institutions buy and invest significant portions of securities for money management. It includes investment managers, pension funds, hedge funds, etc.
Sell-Side refers to the other side of the financial market where firms and institutions issue, sell, or trade securities. It includes investment banks, corporations, Boutique banks, advisory firms, etc.
We at BancorpTrust are a licensed investment bank and statutory trust with the presence of over 3 decades and specialized in, Merger & Acquisitions, establishing of investment banks, setting of offshore banks, etc. We provide global reach to both Buy-side and sell-side clients we represent.
Contact us today to tap into our vast array of expertise!
TYPE OF MERGER AND ACQUISITION TRANSACTIONS:
M&A happened between 2 companies operating in the same industry and offering similar products or services, i.e., direct competitors.
When a company merges or acquires northward or southward along its supply chain.
3.) EXTENSION MERGERS
a) MARKET EXTENSION
M&A between companies offering products or services which are similar to each other but operate in different markets. Example: Oversea M&A
b) PRODUCT EXTENSION
M&A between companies offering products or services which are complementary to each other. Example: A pen manufacturer merger with a company producing ink.
Diversification done to expand the customer base, offset the risk of one industry from the gain of others, increase in efficiency, increase in brand presence is some of the many benefits of being a conglomerate.
REASONS FOR MERGER AND ACQUISITION (M&A):
1.) ESCALATING GROWTH
Organic growth and Inorganic growth are 2 available strategies with a company to choose from; keeping in mind time is an invaluable asset we own. And M&A has proven to be a faster way to grow compared to organic growth.
2.) DOMINATING MARKET SHARE
In correlation with the above point, you can either fight for your fair share in the market or merge (horizontal) with other companies to achieve a higher market share.
3.) UNLOCKING SYNERGIES
It helps create better value for your existing customer base and allows it to grow exponentially (if used wisely). As the M&A quote says, "1 plus 1 equal 11.”
a) Revenue synergies
Synergy improves an entities existing revenue-generating ability. For example, expanded consumer base, product diversification, R&D activities, etc.
b) Cost synergies
Synergy also helps in improving the company's overall cost structure if appropriately managed. Economies of scale, access to better and comprehensive information (data), availability of new technology, etc.
“Don’t keep your eggs in one basket” is a quote valid for every business and investment. Entry into a new market, offering a unique and enhanced product or service, offset the cyclical industry risk are some of the few benefits of M&A.
5.) TAX BENEFIT
For clarity merger's main objective isn't to achieve tax benefits. But if one of the two companies realizes considerable taxable income while the other incurs tax loss carryforwards. This merger or acquisition can help in lowering the tax liability of the new joint entity.
AT WHAT PRICE TO BUY OR SELL- VALUATIONS FOR MERGER AND ACQUISITIONS:
Price at which acquirer values a company and price at which the target values itself. It has been an ongoing debate. An acquirer wants to purchase the target at the least possible price, while the target wants the highest price.
Valuations are tricky, and there are several methods used to value the target company.
1.) DISCOUNTED CASH FLOW MODEL
Value is discounted based on its future cash flows.
2.) COMPARABLE COMPANY MODEL
Using the valuations of a public company. It is Purest valuations as the laws of Demand and Supply determine it.
3.) COMPARABLE TRANSACTIONS MODEL
Using the data from past M&A activities done in the same industry to determine the value of the target.
Are you a business owner and want to expand the horizon of your growth? And are you looking to join hands with some other firm that operates with similar zeal and growth minds like you? M&A is the solution for you, but it can be a bit overwhelming considering the valuation, legal formalities, complying with companies' rules and regulations, and tones of paperwork.
We at BancorpTrust are the one-stop solution for you. Our management team has been in the investment banking industry since 1990, and through our years of experience and extensive global reach, we strive to produce incomparable results to Buyers, Sellers, Private investors, and financial institutions.
Contact us for a confidential consultation! Our experts will respond to you within 24 hours.