M&a Pitch 2
M&a Pitch 2
M&a Pitch 2
Answers:
Q1.
Any outcome that raises the value of a merged company above the sum of the values of the two distinct
companies is referred to as synergy. Synergies can occur in M&A deals for a variety of reasons, including
cost savings through operational improvements or revenue growth from more effective asset utilization.
In the case of the radicle company, the possible synergies can be classified into two board categories:
Cost saving
• Shared Information technology: If implemented or employed at the other firm, each company may
have exclusive access to information technology that would enable operational efficiencies.
• Improved sales and marketing: Better distribution sales and marketing channels may allow the radicle
company to save on costs that were being expensed by the company it was alone.
• Research and Development: Both companies might have had access to research and development
projects that, when used by their rival company, could lead to superior development or allow for
production cost reductions without compromising quality.
Revenue Upside
Patents: Similar to the cost-saving effect of a patent, access to patents or other IPs may allow the radicle
company to create more competitive products and services that produce higher revenue.
Complementary products: Both individual firms may have been producing complementary products pre-
merger. These products can now be bundled in such a way as to produce higher sales from their
customers.
Here’s a typical outline of how a business plan for an acquisition or merger should look:
Executive Summary
Even though it comes at the beginning, most how-to guides on business acquisition plans suggest
leaving the summary of an acquisition transaction until you’ve written everything else.
While this is pretty sound advice, a good rule of thumb is that, if what you’re proposing is compelling
enough, you should have a rough draft of the executive summary in mind before even beginning.
Target Description
This section of the acquisition or merger describes the company you’re acquiring and explains why you
think it’s worth the price you’re willing to pay. Here, be as thorough as you can. Introduce any flaws you
notice in the company and discuss how to strengthen them so that you can add value.
The company’s long-term assets (factory, headquarters, facilities, stores, etc.) and liabilities are broken
out, along with its headline financials, a SWOT analysis, and its corporate structure.
Show how you can use the company’s operation in a different market sector from your own to your
advantage.
Financial History
When looking for financing for an acquisition or merging, this section is the one that will make or break
the deal. Thus, you should be as thorough as possible here, analyzing the target’s past financial
performance.
At a minimum, this should involve three years of financial statements and tax returns but five or more is
even better.
The analysis should be comprehensive and honest. It should raise issues that may conflict with your own
business – for example, different credit arrangements with customers or a significant difference in
capital structure.
Q2.
Price differentiation: Price plays an important role for any two companies for merging. If the difference
between the prices is huge then there is a possibility that the merging might not work.
Default rate: In the case of zupple, the default rate for credit is nearly 7.8% which is very high as
compared to 2% in radicle. That means it creates a bad debt for the radicle company too, which is a
liability that a company should avoid.
Customer Acquisition Cost: In the case of verification, the customer Acquisition Cost is nearly 30%
greater than the cost incurred by the radicle company. Increased expenses are also a bad sign that the
company should avoid.
Q3.
Only one-third of mergers and acquisitions successfully create shareholder value. More often than not,
this is down to failures during the post-merger integration (PMI) process. So, to succeed in the
acquisition or merger process, it is important to choose the right strategies and execute them rightly.
A bolt-on integration is generally applied when there’s a large disparity in both the size and business
model of the target and buyer companies. As a result, while some of the companies’ functions will be
integrated, most of them will remain separate. The target will then continue to operate as an
autonomous subsidiary of the buyer company, often retaining its name and branding.
Facebook’s acquisition of Instagram is a good example of a bolt-on integration. While Instagram is part
of Facebook, Inc’s portfolio, it still maintains its own identity among the rather large array of social apps
Facebook has acquired over the years.
Tuck-in acquisitions are quite common in the tech sector. This is the scenario of a very large corporation
engulfing a much smaller start-up before it becomes a competitor further down the road. Essentially,
with a tuck-in integration, a small company with similar products or services is acquired and then “shut
down.”
Tuck-in integrations aren’t only beneficial for acquiring new tech or a particularly innovative product;
they’re also instrumental in acqui-hiring. Given the highly competitive tech industry, courting individual
engineers can be costly, time-consuming, and may not even result in recruitment.
Acqui-hiring, however, allows a company to “recruit” an entire team of bright, young engineers in one
fell swoop. Tuck-in integrations are a pretty effective way to do this.
Consolidation post-merger strategy: Gain scale and cost synergy
This scenario works best when both the target and buyer companies have a similar size and business
model. Consolidation can happen either horizontally or vertically but is generally pursued with the hope
of achieving economies of scale.
The focus of a consolidation integration strategy is combining most or all of the processes, policies, and
procedures of both companies into a new, single entity. Technically, after this type of integration,
neither of the original companies will exist, although it’s not uncommon for the new entity to retain the
buyer’s name and branding.
Q4.
M&A activity doesn’t always mean that cash needs to trade hands. Sometimes you can implement a
merger by basically using your equity as a currency, and negotiating a pro-rata stake in the combined
company. For example, if you have two equal-sized businesses both valued at about the same valuation
stand-alone, you can merge the companies and your original shareholders would own 50% of Newco
and the other company’s shareholders would own the other 50% of Newco. If they are not the same
size, use a metric like relative revenues or relative EBITDA and set the relative ownership that way (e.g.,
if one business generates 75% of the combined profits on day one, they could own 75% of the combined
equity in Newco).
f cash is needed, maybe your business has cash on its balance sheet or it is generating material profits,
and you can fund your M&A activity that way, with no outside capital. Since companies are typically
valued as a multiple of EBITDA, you may need to save up a few years of profits, to afford the other
company you are trying to buy, if they are the same size as you.
3. Seller Notes
The easiest way to finance an M&A transaction is to have the seller agree to not take all of their cash
upfronts. As an example, maybe you pay them 80% at closing, and you pay them 20% in a seller note a
year or two down the road. Any seller that has confidence in their business, should be willing to agree to
at least a small amount of seller note to help you afford the upfront transaction.
Seller Equity
In many scenarios, having the seller involved with the future of Newco can be very helpful. Maybe you
don’t know their industry very well? Or, they bring some specific skillset to the table, and they would
enjoy keeping part ownership and future involvement in “their baby.” That helps them to get some
upfront liquidity by selling a large portion of their ownership, but at the same time, let’s them
participate in the long-term growth that is created, as a minority shareholder. So, as an example, if you
give the seller a 10% stake in Newco, you only need to fund 90% of the company’s valuation upfront.
Market share—Under this strategy, the company seeks to capture a bigger share of its current
market with the products it already has. For example, it can be done by increasing marketing
efforts or adjusting prices. Radicle can adopt this structure to acquire new customers and
remove competitors from the market.
New markets—Another strategy is to find new markets for your current products. For example,
the company can expand sales to a new city, province, or country.
Repositioning and efficiency—Under this strategy, the company target growth in its profit
margin by repositioning its current products or improving its efficiency.
For example, the company can analyze each of its current products or services to determine its
profit margin and alignment with its business strategy. It can then shed any product which is
underperforming and/or non-strategic. Alternatively, the company can also study its operational
processes to find efficiency improvements.
Radicle company can use this strategy to terminate unnecessary products and services and this
will also reduce the cost to the company.
PROBLEM I FACED WHILE SOLVING THE CASE
I FELT THE CONTENT WAS NOT THAT ORGANISED
THE COMPLICATED INFORMATION MADE IT HARD TO
PERFORM FOR ME SO THAT MAYBE A REASON WHY
PARTICIPANTS NOT PERFORM FURTHER.