Investment Banking
1. In the first part, you are asked to analyze the IPO deals assigned to you randomly, and
fill in the related properties of these deals. This part will have 30% weight in your total
homework score. You can find below a sample table that you are asked to fill in.
Your assignments are attached in the file named “ipo-deals.xlsx”
Company
Name
Sector Deal
Size ($ /
Euro)
Underwriter Date of
the IPO
IPO
Price
Current
Price
France
Telecom
Telecommunication $ 7.3
Billion
Merrill
Lynch
Oct. 6,
1997
187
francs ~
$32
10.48 Eur
~ $12.65
2. In the second part, you are given the company list of S&P 500 and BIST stock indexes in
“index_list.xlsx”. These lists are provided to you as a sample, but you are not restricted
with these two indexes, or with any index. You can recommend any other company that
is listed/not listed on any stock exchange.
For this part of the homework, you are asked to propose a merger of two companies, or an
acquisition of one company by any other company, considering the benefit it may provide to
any of these companies, and/or the synergy that may come up after the acquisition.
You are supposed to fill the following table regarding your proposition:
Parent Company Target Company
Type of the
deal Rationale
for the
deal Possible
Name Sector Definition Mcap Name Sector Definition Mcap Synergies
Merger /
Aquisition
“Achieving synergies is the fundamental rationale for M&As, and it is generally believed that a
combination of businesses will create value only if the value of synergies is positive. IBs have
become more involved in the kinds of detailed, bottom-up estimations of synergies that are
needed to produce a successful transaction. There are synergies when the value and
performance of the merged entity are more than the sum of the two original entities taken
separately.
Synergies can be either revenue or cost synergies, as illustrated by two simple equations:
• 2 + 2 = 5. On the revenue side, the goal of the transaction is to cross-sell the products
and services of one company to the customers of the other or to develop and sell more
products and services or both.
• 2 + 2 =3. On the cost side, the combination of two firms permits the reduction of
operating costs and expenditures.”
https://www.investopedia.com/terms/s/synergy.asp
There can be several reasons for generating an m&a deal as the most general ones are listed
below.
Horizontal Integration — When a company looks to integrate, acquire and grow horizontally
they typically are not looking far outside the schoolyard. For instance, horizontal integration
involves principal industry and geographic markets to which the acquirer has an existing
understanding. This could be an area where existing product lines or services already exist. As
the acquirer seeking a target, they likely already have a good read on the closest competitors or
likely acquirers they would love to own within said niche. They will also either already know (or
need to know very soon) the market share of each of said competitors. Understanding the
market growth in the given sector is also a must.
Market Extension — The next step of determining fit is to target all the eventual or desired
geographic markets you may wish to enter. Rank each by their appropriate fit or “desire” from
most desirable to least. Where possible, it is helpful to gauge the potential market penetration
that could occur by acquisition vs. organic penetration if the company were to enter each of
these new geographic markets by buying instead of building. Doing so can also help determine
the “desire” rankings from say one to ten, if appropriate.
Vertical Backward Integration — Here’s a great breakdown to understand the nomenclature
for both vertical “backward’ and vertical “forward” integration. If you wish to integrate in
reverse, look at yours and others’ suppliers in the industry, make assessments and find a way to
extend and add to your revenue by creating synergies via acquisition of suppliers backward to
you down the chain of command.
Vertical Forward Integration — Similarly, looking forward a direct assessment will need to take
place of customers. This will include a detailed look at how customers might be acquired by
industry or individually. This is especially helpful to view this type of integration or acquisition
activity when individual or industry customers are large and another market leader could hold
the proverbial “keys to the kingdom.” Buyer beware: smaller acquisitions to acquire larger
customers can potentially include customer diversification issues within the target firm. A
discount on the company valuation is certainly warranted in this case.
