Mergers & Acquisitions
Definition
The mergers & acquisitions (M&A) department of a bank advises buyers and sellers on the sales, acquisitions and mergers of companies. It also assists issuers or investors in fundraising operations and can intervene in specific operations or situations such as the implementation of a defense strategy against activist shareholders (in the case of a listed company) or the setting up of a joint venture. Its clients are mainly companies, financial institutions, funds or public entities. Occasionally, the client can also be an individual, a corporate shareholder or an investor.
On behalf of its clients, the M&A department identifies and analyzes potential acquisition targets, structures the transactions, values the companies, prepares the necessary documentation for the marketing of the transactions (such as the sale of a company or the raising of funds). In the case of a takeover bid, the bank contacts and negotiates with counterparties to the deal, including buyers/investors, etc.
Within the bank, the M&A banker works closely with the coverage team (advisory bankers and account managers), which manages client relationships. Occasionally, M&A also works with the Equity Capital Markets (ECM) department and Leveraged Finance (for LBO financing) and Acquisition Finance (for structured financing of corporate acquisitions).
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Video:
[Man 1] Hey! No way! Going to Paris too?
[Man 2] Yes, I am, thanks. You don't mind if I catch my breath, do you?
[Man 1] No problem! M&A, now that's complicated! Say, before you nod off, you wouldn't mind explaining it?
[Man 2] Sure, but quickly. M&A stands for Mergers and Acquisitions. Are you with me so far? Okay. You have a company and we're going to…
[Man 1] No I don't!
[Man 2] No, not you. You, me, anyone… I'm just giving you an example. Okay, so you have a company and there's another company whose line of business fits in very well with yours. So, you and the other company decide to merge. That's just one example of an M&A transaction.
[Man 1] But where does the bank fit in all of this?
[Man 2] Okay. The bank has an advisory role. If you decide to sell or buy something from someone else, you need to make sure you do it at the right price. It needs to be appealing enough for the seller - what I mean is: so the best price he can hope for - but not so exorbitant that it's no longer worthwhile for the buyer. Let's say you decide to sell your company. Your banker can help you set up a sale by auction.
[Man 1] Like on the Internet, right? That's how I sold my couch.
[Man 2] Right. Well, for a company, the sales process is more complex and has several steps. The first will be to approach companies that might be interested in buying your company. Your banker would intervene by finding these potentially interested companies without telling them the name of your company.
[Man 1] Okay.
[Man 2] The interested companies then sign a confidentiality agreement, after which they can get detailed information on the company for sale, its development plan, financial statements, and other information they would need to confirm whether or not they're interested in the sale and at what price.
[Man 1] Wow, that is a lot of steps!
[Man 2] Then, the interested companies make an offer and put forward the business plan to implement for the company being sold. The offers are reviewed and only a few potential buyers will be selected. From there, they will have a number of meetings with management.
[Man 1] It's about time!
[Man 2] Yes, but it's not over yet! After that, the buyers have to make their final offer with exact figures. The bank will then review the submitted offers with the seller before the final buyer is chosen.
[Man 1] Oh yeah, I see. Let’s say…
[Man 2] Let's say nothing. I really need a nap.
[Man 1] Oh, sure. No problem. We can always continue tomorrow! You're taking the same train, right?