Module Structure

Mergers and acquisitions (M&A) constitute an economically extremely important mechanism to reallocate resources. However, adding value with M&A deals is often easier said than done, especially for the acquiring company. The core element of the course is a fairly simple model that allows us to better understand the value allocation among the deal parties as well as the market reaction to the announcement of a deal.

The module proceeds as follows:

• This introductory section highlights the economic relevance of M&A transactions and inquires into the various reasons why firms engage in M&A.
   
• We discuss the different Forms of Takeover and how a firm can actually gain control over another firm.
   
• We present the typical steps in the Takeover Process, from the pre-purchase decision activities over the negotiation phase, to the post-purchase decision activities.
   
• We briefly summarize the main valuation steps on the way to an Offer Price.
   
  
• We discuss the main forces that determine the Initial Offer Price and we highlight the difference between value and value creation.
   
• We present a simple model that allows us to go from the Acquisition Price to the Value Implications of a Deal, and that allows us to better understand how and why the market reacts to the announcement of a transaction.
   
• Finally, we discuss how hard it is to Create Value with M&A. We show that, as a rule of thumb, the expected synergies from the deal have to be at least 50% of the targets value for the transaction to make financial sense for the acquirer!

Each section consists of a short reading assignment, followed by a quiz that tests the key takeaways of the section.