Chapter 1 Questions and Answers

Applied Mergers and Acquisitions, University Edition 1e Robert Bruner Joseph Perella

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Chapter 1 Questions and Answers

• “Best practice in M&A requires that we augment the deterministic focus on structure with a

probabilistic focus on conduct.” What does this mean?

Structural factors drive success in M&A. These are distinct—they are the resources and constraints one operates within—and can easily be rattled off: economic opportunity, strategy, organization, brand, etc. We can have a deterministic mindset about these factors and say, “If X structure is present, Y is the outcome.” However, M&A success is also driven by conduct, which lends itself less easily to such clear boundaries and definition, and is therefore more probabilistic. Best practice in M&A must therefore take in both a deterministic focus on structure, and a probabilistic focus on conduct.

• The chapter described six elements of structure that influence M&A transactions. What are

these and how do they influence success or failure in M&A?

The six elements of structure are:

Economics of the opportunity Ultimately, the success of an M&A deal is evaluated based on whether it creates or destroys value—does the M&A investment generate returns (cash) above the cost of capital? M&A practitioners must therefore pay careful attention to the economics of a deal – its cash flows, expected revenues and costs, 2 / 4

synergies, financial impact, capital costs, and returns.Strategy The strategic dimension of structure refers to the firm’s resources and competitive position within which it must operate. These are summarized in terms of its strengths, weaknesses, opportunities and threats (SWOT)—and whether and how these can be addressed by M&A. Proactive and critical analysis of strategy is crucial to success in M&A.Organization The ability of merging firms to mesh well will depend in part on organizational issues such as organization structure (who reports to whom), culture, and leadership.“Brand” The reputation and influence of buyer and target are key influences on the conduct of the M&A effort, and can influence post-merger success. Best practitioners seek to create and preserve brand value. Personal brand (e.g. the aura of a CEO, etc.) can also assist the development of a deal.Law Laws and regulations constrain the actions of buyer and target firms. But there are also opportunities to shape them. The M&A practitioner must be alert to such opportunities while at the same time managing legal exposure of the firm.Ethics Best practitioners in M&A consciously address the ethical dimension in deal development. It is not enough simply to stay above the law.

• Why is conduct important in due diligence?
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Conduct is important in due diligence because it makes the difference between due diligence that simply verifies facts and due diligence that identifies patterns, synthesizes facts into usable information, and answers important ‘why’ questions. Conduct encompasses an investigator’s care, stamina, and attitude toward critical thinking.

• How might conduct play a role in the search for partners?

While the search for partners is usually based on careful, structured research, sometimes, partners are discovered serendipitously. In such instances, social skills – networking skills – play a role in bringing partners together, hence, the importance of conduct.

• In what other areas of M&A might conduct have an influence?

Other areas of M&A in which conduct might have an influence are negotiation and bidding, dealing with laws and regulations, deal design, post-merger integration, leadership and communication, and managing the deal development process.

• Why is process

so important in deal development?

Process is important because it lends discipline to thinking and by doing so, helps ensure that deals are pursued based on well-founded reasons. Process also helps build good M&A practice – one that synthesizes lessons from past deals into a continually evolving body of knowledge for future deals.

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