What are the terms used in Merger & Acquisition?

The terms used in Merger & Acquisition are explained below −

  • Acquirer − It is someone who purchases a company.

  • Acquisition − A company (1) taking control over another company (2) by purchasing more than 50% shares in company (2).

  • Amalgamation: − Combining two companies into a single company.

  • Asset deal − Acquirer buys only assets of selected companies.

  • Backward integration − Acquires purchases of Ancillaries Company of its own product.

  • Bootstrap effect − Bad reason to merge.

  • Cash considerations − Part of purchase price is given in the form of cash.

  • Compensation manipulation − Bad reason to merge

  • Conglomerate − Merge of unrelated units.

  • Debt issuance fees − Charges are charged by the investment banks.

  • Economics of scale − Decrease in fixed cost due to merger.

  • Economics of scope − Gain of technology or skills due to merger.

  • Empire building − Bad reason to merge.

  • Equity issuance fees − Fees charged by investment banks.

  • Excess purchase price − Purchase price is more than the net book value of assets.

  • Fair value adjustments − Increase/decrease of net book value of assets to its market fair value.

  • Friendly takeover − Board of directors approves the takeover.

  • Forward integration − Company acquires its retail outlet company of its products.

  • Goodwill: − Purchase price of net identifiable assets is more after market value adjustments.

  • Horizontal integration − Merge of companies in similar product lines.

  • Hostile takeover − Boards of directors don’t approve for takeover.

  • Identifiable assets − Tangible and intangible assets are assigned for fair value.

  • Statutory − Company acquires all assets of targeted company (only acquirer survives).

  • Net book value of assets − Book value (asset) – book value (liabilities).

  • Offer price − Offering a price to a share by the acquirer.

  • Other closing costs − Fees (legal, accounting, etc.) relates to deals.

  • Purchase price allocation

  • Restructuring charges − Charges related to repayment of early debt in restructuring.

  • Share exchange ratio − Offer price/acquirer’s share price.

  • Stock deal − Purchasing shares of targeted companies.

  • Stock considerations − Part of purchase price is given (form of shares) to targeted companies to acquire stock.

  • Subsidiary − Taking full control of the targeted company and continuing its business due to various reasons.

  • Synergies − combined performance and value of companies that are involved in merger and acquisition

  • Takeover premium − Offer price is more than the current share price of the targeted company.

  • Target − Company being acquired.

  • Timing of synergies − Time taken to realize of synergies in transaction.

  • Transaction closing date − Date on which the transaction is officially completed.

  • Vertical integration − Company mergers with another company, who are in its supply chain.

  • Volume weighted average price − Used as reference in takeover premium.

  • Black knight − Uninvited takeover bidder.

  • Creeping takeover − Acquiring slowly.

  • Dawn raid − Buys shares of targeted companies as soon as the market is opened at opening price.

  • Godfather offer − It is an offer which cannot be refused and is given to the targeted company.

  • Tender offer − Attractive price offered to the targeted company shareholders for their shares.

  • Crown jewels defense − Selling of valuable assets in a hostile takeover occurs.

  • Flip – in − Purchasing more shares at discount by shareholders.

  • Flip over − Shareholders can buy the company’s acquired stock at discount after the merger.

  • Golden parachute − Benefits given to the executives, if they are made to leave after the merger.

  • Greenmail − Repurchasing stock from acquirer to avoid stock falling to acquirer for premium price.

  • Killer bees − The targeted company hires the law firms or investment bankers to help them in hostile takeover.

  • Lobster trap − Restricting the conversion of convertible securities by offering huge amounts.

  • Poison pill − Discouraging the acquirer from pursuing the takeover.

  • Poison put − Making costlier for hostile takeovers by selling bonds backs at premium.

  • Sandbagging − Company plays with hostile bidder and waiting for white knight.

  • Scorched earth policy − o make takeover unattractive, targeted companies get money at high rates.

  • Show stopper − The targeted company makes an attempt to prevent takeover by litigations.

  • Supermajority amendment − Large percentage of shareholders approves company decisions.

  • White knight defense − Outbids black knight.

  • White squire defense − A friendly target company buys the sufficient shares to prevent hostile takeover. It buys shares only to prevent takeover but not to gain control.

Updated on: 18-May-2022


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