What are M&A negotiations and how Fintalent can help you hire the best M&A Negotiation Consultants
An M&A negotiation is a negotiation that takes place when one company acquires another, when merger negotiations take place between two companies. It is more elaborate than an acquisition by approaching each other with a mutually negotiated set of terms and conditions that are acceptable to both parties.
Fintalent, the hiring and collaboration platform for tier-1 M&A and Strategy consultants is the go – to platform for hiring M&A negotiations consultants. Fintalent’s platform offers hiring managers the opportunity to select M&A experts from a large pool of pre-vouched freelance M&A experts from across the world willing and available to take on new projects.
M&A is an acronym for Mergers and Acquisitions. It essentially means that two corporations are merging together in order to make one bigger entity with more power or resources than either one independently had on their own. The major players involved in the process are usually the company being acquired and this company’s shareholders which could be individuals, mutual funds, corporation, or even other businesses.
The company looking to buy the other company through M&A negotiations is typically referred to as the acquirer. For example, a company like Daimler Chrysler may want to buy up Chrysler. The biggest hurdle when it comes to M&A negotiations is deciding on a fair price for each individual shareholder in the corporation being acquired . When these two corporations are trying to hammer out a deal, they are usually run by their board of directors. While they will be on opposite sides of the table, this doesn’t mean that they cannot come up with some sort of common ground; in fact, it’s something that M&A negotiations are all about.
Misconceptions about M&A negotiations
The biggest misconception people have about M&A negotiations is the idea that these corporations are the only ones involved in the process. This couldn’t be further from the truth. In fact, there are individual shareholders involved, who may not want to sell out at all. They may feel that their company is set to do very well and don’t want to sell it off as a result of an acquisition . There are also bankers who help facilitate these deals and stockholders who also play a role in mediating between acquirer and acquiree during M&A negotiations.
Another aspect of M&A negotiations is to find out if there are any outstanding debts or obligations before any merger can take place. The acquirer will want to be sure that any previous debts that the company has will not be tied to them when the final transaction goes through. To get around this, they may agree to pay off some of these debts if they are shown proof of them. This can be a very important part of M&A negotiations and can take some time to resolve depending on how much money is involved in being paid that debt off .
After all these details are finalized, the actual merger takes place, which includes transferring assets from one company to another.
Basic Types of M&A Agreements
Various types of M&A agreements can be reached through M&A negotiations. Some of the most prominent agreements include:
LBO: A LBO, or leveraged buyout, is a form of an M&A agreement whereby an acquirer forms a special type of partnership with a target company known as a master limited partnership in order to acquire the target company. The special purpose entity would invest in the target firm’s assets in order to finance the acquisition, which would be done through a use of debt. The special purpose entity can then sell these assets off piece by piece after the acquisition is completed. The LBO was popularized by Henry Kravis and his associates from their efforts with RJR Nabisco in 1988.
Hedge Acquisition: A hedge acquisition is also known as a takeover acquisition, which is where a company acquires another company for the purpose of securing management control rather than for the purpose of acquiring just enough assets to gain an absolute majority stake.
Proxy contest: One party in an M&A transaction might try to manipulate the outcome by not disclosing pertinent information about their target or trying to influence other shareholders in such a way as to cause them not to cast their votes with it. This is called a proxy contest.
Where multiple companies are involved in an M&A transaction, traditionally there is no mandatory requirement that each party must reveal all its financial information but this has changed. Companies are required to present their financials in a standard table format with certain items highlighted. This simplifies the act of analyzing the financials for the investing community, which is very helpful for an upcoming M&A negotiation.
Partial roll up: A partial roll up is a type of M&A agreement where a target firm that has been acquired by one party is merged into another target firm but is not on equal footing in that second corporation. This can be seen in large corporations where one company acquires as a subsidiary another, as well as purchases stocks or bonds from other companies while another parent company also owns other companies and/or subsidiaries. In a case where each shareholder is on equal footing, there is no need for FASB guidance on this type of situation.
Sometimes when companies go through M&A negotiations it may be necessary for investors to sell their shares in their target firm. This might be due to certain reasons such as internal corporate restructuring, an acquisition of another company, or a merger with another company. It also can happen when a firm decides that its shares are down-valued and sold off at a much lower price than they were purchased at. Sometimes this can occur while other companies in the same industry are offering their shares at much higher prices from where they have been purchased from. Often times this causes investor issues with that company due to the fact that they feel their shares were sold off too cheap and want compensation for this.
The trigger for any M&A negotiation is to understand both parties’ motivations and goals and then to proceed from there. By understanding both parties’ core values, you can gain critical strategic insights that can be used when developing tactics for your negotiation strategy. This is the only way to achieve your desired outcome through effective negotiations. An M&A agreement negotiates issues such as payment structure, price per shares, trading schedule, and engagement of intermediaries like banks or brokers. These issues can be similar to the other types of agreements such as an employment contract or a business agreement. Therefore, there are certain similarities between all four of the above-listed categories, but some differences do exist.
Different companies have different needs, and all companies should consider their specific situation and goals before executing any type of M&A agreement. This can be done by reviewing your competitors’ agreements for insights as well as analyzing what investors and analysts have to say about your industry as well.
Motivations for M&A Negotiations
Here are a few factors that motivate companies to engage in M&A negotiations.
Free cash flow or FCF— Free cash flow is the amount of cash generated by a company that is free to use to fund future growth projects. If a company plans on buying another firm in which it can access its free cash flow, it is known as the ‘cash takeover.’ Free cash flow is not something that you can get just by looking at the balance sheet. Free Cash Flow also includes certain things such as certain assets like property and intangible assets like goodwill and patents, as well as net operating income. This measurement includes all sources of non-cash income and expenses, but it is not necessarily equal to net income.
The price to book ratio is defined as the price of the stock compared to the book value of equity in a company. If this ratio is less than 0.5, then it signals that the stock is undervalued.
The Price-to-earnings or P/E ratio compares a company’s share price to its annual earnings per share. If a company has a high P/E, this would mean that it is currently being priced at a premium relative to its peers and also relative to its own history. For example, if there are companies that have similar earnings characteristics as A Company but they have higher market capitalization, then we would say that A Company’s P/E is higher than theirs. If an investor or company is looking to buy a company with a lower P/E, then they will be looking to buy the stock at a lower price.
The price-to-sales ratio is used to examine the relationship between how much investors are willing to pay for each dollar of sales generated by the company. If a company has a high market capitalization relative to its annual sales, then it is being priced at a premium. For example, if there are companies that have similar sales as B Company but they have less market capitalization, then we would say that B Company’s P/S ratio is higher than theirs. If an investor or company is looking to buy a company with a lower P/S ratio, then they will be looking to buy the stock at a lower price.
Debt-to-capitalization ratio refers to the percentage of debt owed by the company in relation to the total capitalization of all its assets. This ratio measures how much leverage a firm has when compared to its assets. A high debt-to-capitalization can be risky for a firm since it means that if something were to go wrong, there would not be enough capital on hand to cover it.
The Debt-to-Equity Ratio examines the proportion of outstanding debt in relation to common shareholders’ equity. This ratio is often used to assess the risk in a company’s capital structure compared to other firms. As companies reach the ideal situation of being debt-free, their ratios tend to increase.
The Market-to-Book value is a measure of the value of securities held by a company compared to the book value of its total assets. The market value of a firm is defined by its market capitalization reflecting both equity and debt securities issued by the firm. This ratio is meant to indicate how much investors are willing to pay for each dollar that they would expect from assets owned by the company. A high market-to-book ratio means that investors are willing to pay more than the actual assets’ worth.
The Enterprise Value (EV) is the total value of a firm. EV includes the market value of equity, plus debt, and minority interest in subsidiaries. It is also equal to the sum of all capital invested in the enterprise. EV can be an important tool used by investors and analysts to assess a company’s total value. We like to see companies with lower EV since it indicates that the company could be undervalued on the market.
In most cases, shareholders approve management-sponsored proposals by majority vote without exiting from the stock. In some instances a majority vote is required only from those shareholders who are present at the meeting or represented by proxy votes. However, the management-sponsored proposals must always represent a majority of the votes cast by shareholders present at the meeting or represented by proxy votes.
The use of a poison pill is an effective defense strategy against hostile takeovers. Because it is mostly anti-takeover, shareholders do not usually vote for poison pills. In some cases, even if a firm goes through with a hostile takeover, many poison pills will destroy themselves after 2 years unless renewed by the board. This makes it more difficult for another company to acquire their target in the future. Also, if enough shareholders are unhappy with this pill they can opt to sell their shares in the company and make it much harder for that company to acquire that target in the near future.
Why you need Fintalent’s freelance M&A Negotiations Consultants
M&A negotiations are extremely complex as you can see by this brief overview and it takes a lot for two companies to come together in order to form one bigger entity.Key figures involved in setting up the deal need to skilled in the art of negotiations in order to iron out all grey areas ahead of time and ensure a seamless integration of companies involved in the M&A.
Fintalent, has available for hire experienced and qualified experts that tick all the boxes to conveniently handle M&A deals of different sizes. Fintalent has a selection of qualified M&A Negotiations consultants from across the world available for hire on the platform.