Question 1

When may a Schedule 13E-3 be issued?
A)In a tender offer
B)In a one-step merger transaction
C)When a public acquirer issues shares as part of the purchase consideration of a public target
D)In a leveraged buyout of a public company

Accepted Answer

D

Question 2

Calculate the offer price per share for a company in an all-cash transaction given the following information. Transaction Details: Cash offer price: $300.00mm Shares outstanding: 5.00mm Current share price $30.00 A)$60.00 B)$10.00 C)$6.00 D)$30.00

Accepted Answer

The offer price per share is calculated by dividing the total cash offer price by the number of shares outstanding. Therefore, $300.00mm / 5.00mm = $60.00 per share.

Question 3

What is the correct order for a precedent transaction analysis?
E.Select the universe of comparable acquisitions
F.Benchmark the comparable acquisitions
G.Locate the necessary deal-related and financial information
H.Spread key statistics, ratios, and transaction multiples
I.Determine valuation
A)E, H, F, G, I
B)E, G, H, F, I
C)I, H, G, E, F
D)F, G, H, I, E

Accepted Answer

The correct order for a precedent transaction analysis is to first select the universe of comparable acquisitions (E), then locate the necessary deal-related and financial information (G), followed by spreading key statistics, ratios, and transaction multiples (H), benchmarking the comparable acquisitions (F), and finally determining valuation (I). Thus, option B is the correct order.

Question 4

Which of the following choices is NOT a primary type of purchase consideration for a target's equity?
A)All-cash
B)Stock-for-Stock
C)Cash/stock mix
D)All-debt

Accepted Answer

All-cash, stock-for-stock, and cash/stock mix are common types of purchase considerations when acquiring a target's equity. All-debt is not a primary type of purchase consideration as it involves solely borrowing money to finance the acquisition, rather than using any equity-related means.

Question 5

Which kind of buyer generally pays the most for an acquisition?
A)Financial buyer
B)Strategic buyer
C)Private equity
D)Financial sponsor

Accepted Answer

Strategic buyers generally pay the most for an acquisition because they have a specific strategic plan or synergy with the target company that they are willing to pay a premium for. Financial buyers, private equity firms, and financial sponsors typically have a focus on financial returns and may not pay as much as a strategic buyer.

Question 6

What situation would generally result in a lower purchase price of a company?
A)The seller is in need of cash and is selling a non-core business
B)The target company is shopped to prospective buyers through an auction
C)The target company is seeking alternatives to a hostile bid
D)The buyer seeks to create synergies

Accepted Answer

If the seller is in need of cash and selling a non-core business, they may be more willing to accept a lower purchase price in order to secure a deal and get the cash they need.

Question 7

Calculate the offer price per share given the following details: Transaction Details: AcquirerCo agreed to buy TargetCo with a mix of cash and AcquirerCo stock.TargetCo stockholders will receive $5.00 in cash and one share of AcquirerCo common stock for every two shares of TargetCo stock.AcquirerCo's share price closed at $30.00 a day prior to the announcement. A)$15.00 B)$35.00 C)$25.00 D)$20.00

Accepted Answer

The offer price per share is calculated as $5.00 in cash plus half of AcquirerCo's share price ($30.00 / 2 = $15.00), totaling $20.00.

Question 8

What is NOT a reason why transaction comps generally provide a higher multiple range than trading comps?
A)Buyers pay control premiums
B)Buyers often have the opportunity to realize synergies
C)Buyers receive the right to control decisions
D)Transaction comps are more accurate than trading comps

Accepted Answer

The accuracy of transaction comps is not a reason why they generally provide a higher multiple range than trading comps. In fact, trading comps can be just as accurate if the comparable companies are chosen carefully and adjustments are made for any differences. The other three choices (A, B, and C) are all valid reasons why transaction comps may provide a higher multiple range, as they reflect the value of control and other synergies that may be realized in a transaction.

Question 9

Calculate the equity value in a fixed exchange ratio structure given the following information. Transaction Details: TargetCo's shareholders will receive one share of AcquirerCo's common stock for every four shares of TargetCo's common stock.AcquirerCo's share price prior to the announcement was $20.00.TargetCo has 25 million shares outstanding. A)$125.0mm B)$100.0mm C)$80.0mm D)$50.0mm

Accepted Answer

To calculate the equity value in a fixed exchange ratio structure, we need to determine the number of shares offered by AcquirerCo and then multiply it by the pre-announcement share price of AcquirerCo.

Here, we know that TargetCo's shareholders will receive one share of AcquirerCo's common stock for every four shares of TargetCo's common stock. As there are 25 million shares outstanding for TargetCo, AcquirerCo will need to issue 6.25 million shares (25 million / 4) to acquire TargetCo.

At a pre-announcement share price of $20.00, the equity value of AcquirerCo's shares is $20.00 x 6.25 million = $125.0mm.

Therefore, the correct answer is A) $125.0mm.

Question 10

Given the following information, calculate the EBITDA multiple that includes synergies. Details: Enterprise Value: $3,500.0 EBIT: $425.0 Depreciation and Amortization: $25.0 COGS: $500.0 Synergies: $50.0 A)3.5x B)8x C)14x D)7x

Accepted Answer

EBITDA is calculated as EBIT + Depreciation and Amortization. Here, EBITDA = $425.0 + $25.0 = $450.0. Including synergies, the adjusted EBITDA = $450.0 + $50.0 = $500.0. The EBITDA multiple including synergies is calculated as Enterprise Value / Adjusted EBITDA = $3,500.0 / $500.0 = 7x.

Question 11

A ratio that defines how many shares of the acquirer's stock are exchanged for each share of the target's stock is referred to as a:
A)Fixed exchange ratio
B)Secure exchange ratio
C)Floating exchange ratio
D)Stock-for-stock ratio

Accepted Answer

A fixed exchange ratio is used in mergers and acquisitions to determine how many shares of the acquiring company's stock will be exchanged for each share of the target company's stock.

Question 12

Which form of consideration typically triggers a taxable event?
A)All-cash
B)Stock-for-Stock
C)Cash/stock mix
D)None

Accepted Answer

All-cash consideration typically triggers a taxable event as it involves the transfer of money, which is a readily ascertainable amount for taxation purposes. The other forms of consideration may or may not lead to a taxable event, depending on various factors such as the nature of the transaction, the tax laws applicable, and the parties involved.

Question 13

Which structure generally gives greater certainty to the target's shareholders in terms of value received?
A)Floating exchange ratio
B)Fixed exchange ratio
C)They both are the same
D)It depends on the terms

Accepted Answer

The answer of Which structure generally gives greater certainty to...

Question 14

Calculate the percentage of premium paid given the following details: Details: Although rumors of the transaction leaked out yesterday, AcquirerCo officially announced today that it has agreed to buy TargetCo for $25.00 a share.TargetCo shares closed higher yesterday at $20.00. A)25% B)20% C)15% D)Not enough information

Accepted Answer

The percentage of premium paid refers to the extra amount over the current share price that a company is willing to pay to acquire another company. However, without knowing the share price of TargetCo before the rumors leaked, we cannot calculate the premium percentage accurately.

Question 15

How is the equity value calculated for an M&A transaction when the target company is private?
A)Share price multiplied by shares outstanding
B)Acquirer's price per share multiplied by shares outstanding
C)Enterprise value less assumed/refinanced net debt
D)There is no equity value for a private company

Accepted Answer

In an M&A transaction, the equity value for a private company is typically calculated as the enterprise value less any assumed or refinanced net debt. This is because as a private company, the target's shares are not publicly traded, so there is no share price or acquirer's price per share to use in the calculation. Since enterprise value represents the total value of a company, subtracting out net debt gives the equity value.

Question 16

Calculate the equity value for a public target in a precedent transactions analysis given the following information. Details: Share price: $20.00 Acquirer's offer price per share: $40.00 Fully diluted shares outstanding: 100.00mm A)$200.00mm B)$400.00mm C)$150.00mm D)$250.00mm

Accepted Answer

To calculate the equity value in a precedent transactions analysis, we use the acquirer's offer price per share and multiply it by the fully diluted shares outstanding. 
Equity value = offer price per share x fully diluted shares outstanding 
Equity value = $40.00 x 100.00mm 
Equity value = $4,000.00mm 
Since we want to find the equity value for the target, we need to subtract the target's debt and minority interests if any. Assuming the target has no debt or minority interests, the equity value for the target would be the same as the equity value calculated above, which is $4,000.00mm or $400.00mm (rounded to the nearest million). Therefore, the correct answer is B.

Question 17

Calculate the fixed exchange ratio based on the following transaction details. Transaction Details: AcquirerCo agrees to purchase TargetCo in an all-stock transaction valued at $2.0 billion.TargetCo's shareholders will receive one share of AcquirerCo's stock for every four shares of TargetCo stock they own. A)4 B).25 C)1.00 D).5

Accepted Answer

The fixed exchange ratio is determined by the number of shares of AcquirerCo's stock that TargetCo's shareholders receive for each of their shares. Since they receive one share of AcquirerCo for every four shares of TargetCo, the fixed exchange ratio is 1/4 = 0.25.

Question 18

All of the following are weaknesses of a precedent transactions analysis EXCEPT:
A)Multiples may be skewed, depending on the economic environment
B)Precedent transactions by definition have occurred in the past, and may not be reflective of the current environment
C)A precedent transactions analysis makes too many assumptions about future performance
D)Information may be insufficient to determine transaction multiples for many comparable acquisitions.

Accepted Answer

A precedent transactions analysis does not make too many assumptions about future performance as it is based on actual past transactions. A weakness of this analysis is that multiples may be skewed depending on the economic environment, precedent transactions have occurred in the past and may not be reflective of the current environment, and information may be insufficient to determine transaction multiples for many comparable acquisitions.

Question 19

Determine the type of exchange ratio in the following Stock-for-Stock transaction. Transaction Details: AcquirerCo will acquire TargetCo for stock.TargetCo stockholders will receive $40.00 of AcquirerCo's common stock for each share of TargetCo common stock they hold. A)Fixed exchange ratio B)Secure exchange ratio C)Floating exchange ratio D)Linear exchange ratio

Accepted Answer

In a floating exchange ratio, the number of shares received is based on a fixed dollar amount, which is the case here as TargetCo stockholders receive $40.00 worth of AcquirerCo's stock per share.

Question 20

Calculate the percentage of premium paid given the following details. Details: AcquirerCo officially announced today that it has agreed to buy TargetCo for $35 a share.TargetCo shares closed yesterday at $20.00. A)75% B)175% C)42% D)35%

Accepted Answer

The premium paid is calculated as ((Offer Price - Market Price) / Market Price) * 100. Here, ((35 - 20) / 20) * 100 = 75%.

Quiz 2: Precedent Transactions Analysis

When may a Schedule 13E-3 be issued?

Calculate the offer price per share for a company in an all-cash transaction given the following information. Transaction Details: Cash offer price: $300.00mm Shares outstanding: 5.00mm Current share price $30.00

What is the correct order for a precedent transaction analysis? E.Select the universe of comparable acquisitions F.Benchmark the comparable acquisitions G.Locate the necessary deal-related and financial information H.Spread key statistics, ratios, and transaction multiples I.Determine valuation

Which of the following choices is NOT a primary type of purchase consideration for a target's equity?

Which kind of buyer generally pays the most for an acquisition?

What situation would generally result in a lower purchase price of a company?

What is NOT a reason why transaction comps generally provide a higher multiple range than trading comps?

Given the following information, calculate the EBITDA multiple that includes synergies. Details: Enterprise Value: $3,500.0 EBIT: $425.0 Depreciation and Amortization: $25.0 COGS: $500.0 Synergies: $50.0

A ratio that defines how many shares of the acquirer's stock are exchanged for each share of the target's stock is referred to as a:

Which form of consideration typically triggers a taxable event?

Which structure generally gives greater certainty to the target's shareholders in terms of value received?

Calculate the percentage of premium paid given the following details: Details: Although rumors of the transaction leaked out yesterday, AcquirerCo officially announced today that it has agreed to buy TargetCo for $25.00 a share.TargetCo shares closed higher yesterday at $20.00.

How is the equity value calculated for an M&A transaction when the target company is private?

Calculate the equity value for a public target in a precedent transactions analysis given the following information. Details: Share price: $20.00 Acquirer's offer price per share: $40.00 Fully diluted shares outstanding: 100.00mm

All of the following are weaknesses of a precedent transactions analysis EXCEPT:

Determine the type of exchange ratio in the following Stock-for-Stock transaction. Transaction Details: AcquirerCo will acquire TargetCo for stock.TargetCo stockholders will receive $40.00 of AcquirerCo's common stock for each share of TargetCo common stock they hold.

Calculate the percentage of premium paid given the following details. Details: AcquirerCo officially announced today that it has agreed to buy TargetCo for $35 a share.TargetCo shares closed yesterday at $20.00.