Question 1

Which of the following is not typically true of post-closing evaluation of an acquisition?
A) It is important not to change the performance benchmarks against which the acquisition is measured
B) It is critical to ask the tough questions
C) It is an opportunity to learn from mistakes
D) It is commonly done
E) It is frequently avoided by acquiring firms because of the potential for embarrassment.

Accepted Answer

The answer of Which of the following is not typically...

Question 2

Which of the following do not represent typical closing documents in an asset purchase?
A) Letter of intent
B) Listing of any liabilities to be assumed by the buyer
C) Loan and security agreements if the transaction is to be financed with debt
D) Complete descriptions of all patents, facilities, and investments
E) Listing of assets to be acquired

Accepted Answer

A Letter of Intent is typically a preliminary document outlining the terms of a potential deal, not a closing document.

Question 3

Earnouts are generally very poor ways to create trust and often represent major impediments to the integration process.

Accepted Answer

Earnouts create uncertainty and can lead to disagreements between the seller and buyer. This can damage the trust that needs to be established for a successful integration process.

Question 4

All of the following are true about a confidentiality agreement except for
A) Often applies to both the buyer and the seller
B) Stipulates the type of seller information available to the buyer and how the information can be used
C) Limits the use of information about the seller that is publicly available
D) Includes a termination date
E) Limits the ability of either party to disclose publicly the nature of discussion between the buyer and seller

Accepted Answer

A confidentiality agreement is meant to protect confidential or sensitive information from being shared with unauthorized parties. It does not limit the use of information about the seller that is publicly available, since such information is already in the public domain and therefore not considered confidential.

Question 5

Each of the following is true about the acquisition search process except for
A) A candidate search should start with identifying the primary selection criteria.
B) The number of selection criteria should be as lengthy as possible.
C) At a minimum, the primary criteria should include the industry and desired size of transaction.
D) The size of the transaction may be defined in terms of the maximum purchase price the acquirer is willing to pay.
E) A search strategy entails the use of electronic databases, trade publications, and querying the acquirer's law, banking, and accounting firms for qualified candidates.

Accepted Answer

The statement "The number of selection criteria should be as lengthy as possible" is incorrect. The selection criteria should be specific and focused to ensure that the search process is efficient and effective. Having too many criteria may limit the pool of potential candidates and make the process more difficult.

Question 6

All of the following are true of buyer due diligence except for
A) Due diligence is the process of validating assumptions underlying valuation.
B) Can be replaced by appropriate representations and warranties in the agreement of purchase and sale.
C) Primary objectives are to identify and to confirm sources and destroyers of value
D) Consists of operational, financial, and legal reviews.
E) Endeavors to identify the "fatal flaw" that could destroy the deal

Accepted Answer

Buyer due diligence cannot be replaced by appropriate representations and warranties in the agreement of purchase and sale. It is a separate and necessary process to validate assumptions underlying valuation, identify and confirm sources and destroyers of value, conduct operational, financial, and legal reviews, and identify any potential fatal flaws that could destroy the deal.

Question 7

In a merger, the acquiring firm assumes all liabilities of the target firm. Assumed liabilities include all but which of the following?
A) Current liabilities
B) Long-term debt
C) Warranty claims
D) Fully depreciated operating equipment
E) Off-balance sheet liabilities

Accepted Answer

Fully depreciated operating equipment is not a liability and therefore is not assumed by the acquiring firm in a merger. The other options listed are all liabilities that would be assumed by the acquiring firm.

Question 8

Which of the following is generally not true of a financing contingency?
A) It is a condition of closing in the agreement of purchase and sale
B) Trigger the payment of break-up fees if not satisfied.
C) Protects both the lender and seller
D) Primarily protects the buyer
E) Primarily protects the seller

Accepted Answer

A financing contingency primarily protects the buyer, not both the lender and seller. It allows the buyer to back out of the purchase if they cannot secure financing.

Question 9

Initial contact should be made through an intermediary as high up in the organization for which of the following firms
A) Companies with annual revenue of less than $25 million
B) Medium sized companies between $25 and $100 million in annual revenue
C) Large, publicly traded firms
D) Small, privately owned firms
E) Small, privately owned competitors

Accepted Answer

Large, publicly traded firms typically have a complex and hierarchical organizational structure. Thus, an intermediary who is high up in the organization would be necessary to ensure proper communication and access to decision-makers.

Question 10

Loan covenants are promises made by the borrower that certain acts will be performed and others will be avoided.

Accepted Answer

Loan covenants are indeed promises made by the borrower to perform certain actions and refrain from others. These promises are often included in loan agreements to ensure that the borrower will maintain certain financial ratios or meet specific performance targets. Breaching a loan covenant can result in severe consequences, such as defaulting on the loan or triggering penalties or fees.

Question 11

The actual price paid by the buyer for the target firm is determined when
A) The initial offer is made
B) As a result of the negotiation process
C) When the letter of intent is signed
D) Following the completion of due diligence
E) Once a financing plan has been approved

Accepted Answer

The actual price paid for the target firm is often determined as a result of the negotiation process between the buyer and the seller, after the initial offer is made and before any formal agreements are signed. This process allows both parties to adjust their terms based on various factors such as due diligence findings, market conditions, and financing arrangements.

Question 12

All of the following statements are true about letters of intent except for
A) Are always legally binding
B) Spells out the initial areas of agreement between the buyer and seller
C) Defines the responsibilities and rights of the buyer and seller while the letter of intent is in force
D) Includes an expiration date
E) Includes a "no shop" provision

Accepted Answer

Letters of intent are not always legally binding, as they are generally considered to be a preliminary agreement or expression of intention to enter into a binding contract. The other statements are generally true about letters of intent.

Question 13

A data room is a method commonly used by sellers to limit buyer due diligence.

Accepted Answer

A data room is a secure online platform that allows sellers to control access to confidential information during a due diligence process. This is done to limit the risk of sensitive information falling into the wrong hands or being used by competitors.

Question 14

Buyers generally want to complete due diligence on the seller as quickly as possible.

Accepted Answer

The answer of Buyers generally want to complete due diligence...

Question 15

The screening process represents a refinement of the search process and commonly utilizes which of the following as selection criteria
A) Market share, product line, and profitability
B) Product line, profitability, and growth rate
C) Profitability, leverage, and growth rate
D) Degree of leverage, market share, and growth rate
E) All of the above

Accepted Answer

The screening process in various contexts, such as investment, business analysis, or strategic planning, often utilizes a combination of factors to refine search results or choices. These factors can include market share, product line, profitability, growth rate, and degree of leverage, as they provide a comprehensive view of a company's performance, potential, and risk profile. Therefore, all the options listed (A, B, C, D) represent valid selection criteria that could be used in a screening process, making E the correct choice.

Question 16

All of the following are true of closing except for
A) Consists of obtaining all necessary shareholder, regulatory, and third party consents
B) Requires significant upfront planning
C) Is rarely subject to last minute disagreements
D) Involves the final review and signing of such documents as the agreement of purchase and sale, loan agreements (if borrowing is involved), security agreements, etc.
E) Fulfillment of the so-called closing conditions

Accepted Answer

Closing can often be subject to last minute disagreements or unexpected issues that arise. The other statements about closing are generally true.

Question 17

Which of the following are commonly used sources of financing for M&A transactions?
A) Asset based lending
B) Cash flow based lending
C) Seller financing
D) A and B only
E) All of the above

Accepted Answer

All of the above options are commonly used sources of financing for M&A transactions. Asset based lending, cash flow based lending, and seller financing are all popular methods for companies to obtain the necessary funds to complete a merger or acquisition. Asset-based lending involves using assets, such as inventory or accounts receivable, as collateral for a loan. Cash flow based lending involves borrowing against future cash flow. Seller financing involves the seller providing financing to the buyer.

Question 18

Total consideration is a legal term referring to the composition of what is paid for the target company and can
consist of cash, stock, debt or some combination of all three.

Accepted Answer

Total consideration does refer to the composition of what is paid for the target company, which can include cash, stock, debt, or a combination of all three.

Question 19

Which of the following is generally not true of integration planning?
A) Is of secondary importance in the acquisition process.
B) Is crucial to the ultimate success of the merger or acquisition
C) Represents an opportunity to earn trust among all parties to the transaction
D) Involves developing effective communication strategies for employees, customers, and suppliers.
E) Is often neglected in the heat of negotiation.

Accepted Answer

Integration planning is not of secondary importance in the acquisition process. In fact, it is crucial to the ultimate success of the merger or acquisition. Neglecting integration planning can lead to failure of the transaction.

Question 20

The negotiation process consists of all of the following concurrent activities except for
A) Refining valuation
B) Deal structuring
C) Integration planning
D) Due Diligence
E) Developing the financing plan

Accepted Answer

All of the choices (A, B, D, and E) are concurrent activities involved in the negotiation process, while C (integration planning) is not typically part of the negotiation process but rather occurs after a deal has been reached and involves integrating the two companies or entities.

Quiz 5: Implementation: Search Through Closing: Phases 310 of the Acquisition Process

Which of the following is not typically true of post-closing evaluation of an acquisition?

Which of the following do not represent typical closing documents in an asset purchase?

Earnouts are generally very poor ways to create trust and often represent major impediments to the integration process.

All of the following are true about a confidentiality agreement except for

Each of the following is true about the acquisition search process except for

All of the following are true of buyer due diligence except for

In a merger, the acquiring firm assumes all liabilities of the target firm. Assumed liabilities include all but which of the following?

Which of the following is generally not true of a financing contingency?

Initial contact should be made through an intermediary as high up in the organization for which of the following firms

Loan covenants are promises made by the borrower that certain acts will be performed and others will be avoided.

The actual price paid by the buyer for the target firm is determined when

All of the following statements are true about letters of intent except for

A data room is a method commonly used by sellers to limit buyer due diligence.

Buyers generally want to complete due diligence on the seller as quickly as possible.

The screening process represents a refinement of the search process and commonly utilizes which of the following as selection criteria

All of the following are true of closing except for

Which of the following are commonly used sources of financing for M&A transactions?

Total consideration is a legal term referring to the composition of what is paid for the target company and can consist of cash, stock, debt or some combination of all three.

Which of the following is generally not true of integration planning?

The negotiation process consists of all of the following concurrent activities except for