Transaction Structures

Mergers

When companies realize the benefit of close cooperation, they often merge to utilize resources more efficiently. Mergers generally involve combining two or more companies, by offering the previous owners (stockholders or limited company members depending on the corporate structure) of one company securities in the acquiring company in exchange for the surrender of their stake in their company. When two companies become one through a merger, the decision is usually mutual between both firms. Mergers are often formed by companies of similar size, and they will become equal partners in the new organization.

Acquisitions

In an acquisition usually a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm. Acquisitions are often made as part of a company's growth strategy whereby it is more beneficial to take over an existing firm's operations as opposed to expanding internally. Acquisitions are often paid in cash, in the acquiring company's stock or in a combination of both.

Generally a larger firm acquires a smaller one even though it is not always the case. Often a small company purchases a larger one through leveraged buyout or reverse takeover. When a smaller company acquires a larger one, it has to finance it from external sources, which could be financial institutions or the owners themselves. Sometimes, owners of a large company purchase a small one to merge with their large company, when the small company is listed on a stock exchange. Such reverse takeovers represent alternatives to an Initial Public Offering. (IPO )

Acquisitions can be either friendly or hostile. Friendly acquisitions occur when the target firm expresses its agreement to be acquired, whereas hostile acquisitions don't have the same agreement from the target firm. In that case, the acquiring firm needs to actively purchase large stakes of the target company in order to have a majority stake. When a competitor approaches a company, the potential target often fears that this is hostile takeover attempt, and it will initiate all types of defenses prevent it.

Most commonly used defenses are the implementation of a shareholders rights plan; a voting rights plan; staggered board of directors; greenmail; white knight; increasing debt or triggered option vesting. Sometimes, the target can become less attractive to the acquirer by taking over another company, or defend the most effectively by taking over the acquirer itself.

Yet target shareholders can experience significant financial consequences when activating a defense or signaling the intention to do so by adding defensive strategies to the corporate charter after the news of an impending takeover breaks. Most often the acquiring company offers a premium on the market price of the target company's shares in order to entice shareholders to sell.

There is no tangible difference between an acquisition and a takeover; both words can be used interchangeably - the only difference is that each word carries a slightly different connotation. Typically, takeover is used to reference a hostile takeover where the company being acquired is resisting. In contrast, acquisition is frequently used to describe more friendly acquisitions, or used in conjunction with the word merger, where both companies are willing to join together.

International Mergers and Acquisition can create the best plan for both acquirers and targets, creating a strategy which represents the best interest of the present shareholders. Taking over a company is significantly easier, when an independent third party, IM&A assures anonymity and confidentiality.

Divestitures

Divesture is a possible solution to temporary Cash Flow problems, high fixed costs, or lack of efficiency. When facing financial problems, selling non-working assets or loss making businesses can be a good alternative to debt financing. Divesture is the partial or full disposal of an investment or asset through sale, exchange, closure or bankruptcy.
When clients need to make a decision regarding the sale of certain businesses, assets or their entire company, IM&A can help in the decision evaluating and recommending financial and strategic alternatives with respect to what to sell, the appropriate sales process and in the valuation of the business or the assets. IM&A also prepares an offering memorandum or other required sales documents and a fairness opinion if required.

Joint Ventures

When two companies are planning to work together with a common goal, but not ready to go through a merger, they often form a Joint Venture. This common goal could be achieving operating synergies, fight off competition, use the same distribution system, or enter a new market together. Joint ventures usually involve the cooperation of two or more individuals or companies, each agreeing to share profit, loss and control in a specific enterprise.

Joint ventures are generally formed as partnerships, and taxed as such. There are several versions of a joint venture:

Consortium

A group made up of two or more individuals, companies or governments that work together toward achieving a chosen objective. Each entity within the consortium is only responsible to the group in respect to the obligations that are set out in the consortium's contract. Every entity remains independent in its normal business operations and has no say over other members operations that are not related to the consortium.

Foreign Invested Enterprise - FIE

Any one of a number of legal structures under which a company can participate in the foreign economy. FIEs tend to have tight government regulation at nearly every important business juncture, which limits the efficiency at which any foreign company can profit from foreign ventures as well as the amount of control that a foreign parent has over the FIE. FIE is a common method of creating an operation in Asia, especially in China. In China, any one of a number of legal entities can be considered FIEs including equity joint ventures (EJV), cooperative joint ventures (CJV), wholly-owned foreign enterprises (WFOE) and foreign-invested companies limited by shares (FCLS).

Keiretsu

Loose cooperation of firms sharing one or more common denominators. The companies don't necessarily own equity in one another, but work closely on various projects. This form of joint venture is commonly used in Japan, where the term originally came from.

Strategic Alliance

Strategic alliance is an arrangement between two companies sharing resources in a specific project. In a strategic alliance participants are less involved than in a traditional joint venture where two companies typically pool resources in creating a separate entity.

Leveraged Buyouts (LBO)

Leveraged buyout means the acquisition of another company financed by a significant amount of borrowed money. The acquirer usually receives external financing from banks, or other financial institutions, or a consortium organized by an investment banking firm. Sometimes an LBO can be financed by a bond issue if the company is large enough for their bonds to be liquid enough to be able to mobilize sufficient amount of cash for the acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital.

In an LBO, there is usually a ratio of 90% debt to 10% equity. Because of this high debt to equity ratio, bonds usually are not investment grade and are referred to as junk bonds. Leveraged buyouts are frequently applied in recovery when there is more available credit. In a recession bonds are less marketable and bank financing is also scarce. Leveraged Buyouts often lead to bankruptcies when interest payments are so high that the company's operating cash flows are unable to meet the obligation.

International Mergers & Acquisition evaluates both the acquirers and the target to see if the LBO is feasible, and if risk of bankruptcy can be reduced to a minimal. IM&A also evaluates the potential sources of financing and helps the acquirer find the most secure way of completing the transaction. Leveraged Buyouts are mostly recommended to management and minority shareholders who wish to achieve control of the company they are already involved with. Knowing the target can often offset the high risk caused by the additional leverage.

Spin Offs and Split Offs

Spin off:
Businesses wishing to 'streamline' their operations often sell less productive, or unrelated subsidiary businesses as spinoffs. The spun-off companies are expected to be worth more as independent entities than as parts of a larger business. A spinoff is a type of divestiture, where an independent company is created through the sale or distribution of new shares of an existing division of a parent company.

Split-Off is a type of Spin Off where whereby the stock of a subsidiary is offered to stockholders in exchange for shares in a parent company. This way the subsidiary becomes an independent organization.
International Mergers & Acquisition provides thorough analyses to determine whether a company should initiate a spin-off or split-off transaction. External advisors often have a more objective view in identifying divisions and assets that could be separated without a detrimental effect on the profitablity of the company's core business.

Privatization

Benefitting from privatization mostly lies on knowing the local system, local people and through research of the industry. International Mergers & Acquisition is well established in the Central Eastern European region, has the necessary connections to direct client in the right direction. IM&A is in possession of relevant statistics to assist clients in the preparation of a potentially winning bid making sure that the client does not overpay for the company or assets. The main objectives of the privatization process is buying a company or assets which can be managed more efficiently by the private sector than by a government organization, therefore, creating value. Replacing an inefficient management can already create value from the very start.
IM&A privatization services include valuation of potential targets, market analysis, business planning, assistance in the preparation of bids and bank applications and other related documentation, and post-privatization support.

IPO Preparation (Initial Public Offering)

An Initial Public Offering is an effective way for a company to manage its capital structure. An IPO increases equity and liquidity, subsequently facilitating access to other methods of raising funds: convertible bonds, and pledging shares.
Turning a privately owned enterprise into a publicly traded company through an Initial Public Offering (IPO) is a rigorous process that demands the efforts of skilled professionals drawn from legal, accounting and underwriting backgrounds. Your advisors and accountants need to work together to deliver the best product and a successful IPO for our company. Prior to starting the IPO process, IM&A will help the client evaluate its situation, whether the initial public offering is the most suitable way for raising capital. Once the decision has been made, it will coordinate these professionals and help clients in smoothen the process of taking the company public.

In cooperation with brokerage firms and legal advisors IM&A provides advisory services for companies in the preparation for entering the global capital markets, assisting in developing methodological frameworks in the following areas:

• Evaluating the current capital structure
• Determining capital needs
• Exploring alternative sources of financing
• Locating the most suitable exchange
• Providing insights into costs and cultural changes that will be involved
• Establish a reasonable timetable
• Advise on necessary management restructuring
• Organizing a consortium of professionals for the IPO
• Analyzing financial statements accordance with exchange requirements
• Budgeting in accordance with the process
• Review your preliminary prospectus for internal consistency
• Services that will result in the development of the company's financial function capabilities to meet the expectations of potential investors
• Plan for the consequences of public life