Investment Banking Tutorials
- Mergers and Acquisitions
- What is Mergers and Acquisitions?
- Mergers vs Acquisitions
- Acquisitions Examples
- Horizontal Merger
- Vertical Merger
- Synergy in M&A
- Successful Mergers and Acquisitions
- Financing Acquisitions
- Acquisition Premium (Takeover)
- Statutory Merger
- Joint Venture
- Advantages of Joint Venture
- Types of Joint Venture
- White Knight
- Hostile Takeover
- Golden Parachute
- Poison Pills
- Killer Bees Defense Strategy
- Show Stopper in M&A
- What is Amalgamation?
- Spin off vs Split Off
- Forward Integration
- Backward Integration
- Horizontal vs Vertical Integration
- What is Divesting / Divestiture?
- Bootstrap Effect
- PAC MAN Defense
- Flip-In Poison Pill
- Flip-Over Poison Pill
- Scorched Earth Defense Policy
- Tender Offer
- Friendly Takeover
- Amalgamation vs Merger
- Lobster Trap Defense
- Asset Purchase vs Stock Purchase
- Joint Venture vs Strategic Alliance
- Greenshoe Option
- Dawn Raid Takeovers
- Crown Jewels Defense
- Best Mergers and Acquisitions Books
- What is Asset Restructuring?
- Investment Banking Basics (44+)
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- Investment Banking Firms (27+)
- Top Banks (42+)
- Cryptocurrency Basics (10+)
Examples of Company Acquisitions
The following acquisition examples provide an outline of the most common types of acquisitions. It is impossible to provide a complete set of examples that address every variation in every situation since there are thousands of such acquisitions. Each example of the acquisition provides an overview of the acquisition, the relevant reasons, and additional comments as needed
The acquisition is when a company buys more than 50% ownership in its target. With gaining more than 50% in the target company, the acquisition company gains the right to take decisions without the consent of the stakeholders of the target company. The acquiring company gets this ownership by purchasing the stock and or buying the assets. The target company expects a premium to be paid over and above the current rate.
In this article, we are going to provide you the top 4 examples of Acquisitions.
Acquisition Example #1 – Amazon acquires Whole Foods
Amazon acquired whole foods for a total of $13.7 billion deal. This made the e-commerce giant move into many physical stores. This will make Amazon continue on its long goal of selling more groceries
Amazon paid $42 per share in an all-cash deal for whole foods which included debt. The premium paid was ~27% to whole foods closing price on Thursday, June 15
Amazon paid $9 billion of the total $13.7 billion deal acquisition price paid. This means that Amazon paid nearly 70% for future growth prospects and only the remaining 30% was based on the current business of whole foods. After the acquisition, the goodwill balance of Amazon was at $13.4 billion at the end of the fiscal year 2017 which was the largest in history and had more than 10% of the total assets.
As highlighted above, the grocery sector average including whole foods over the last twelve months before the acquisition was 8.4x. This was prior to the announcement of Krogers lower earnings announcement
This news led to lowering the average multiple to 7.8x. The implied EV to EBITDA multiple of Amazon and whole foods was about 10.4x LTM EBITDA. This means whole foods was acquired at a 30% premium in comparison to its previous multiple and the multiples of the other companies in the industry went down
Acquisition Example # 2 – Sun Pharmaceuticals acquiring Ranbaxy
This pharmaceutical deal is an example of a share swap deal. According to the deal, Ranbaxy shareholders would receive four shares for every five Sun pharma shares held by them. This leads to 16.4% dilution in the equity of Sun Pharma. The deal size was of $3.2 billion and was an all-share deal. The consolidated turnover of Sun pharma was of INR 11,326 crore and it acquired Ranbaxy a company with a turnover of INR 12,410 crore. Thus, Ranbaxy achieved a valuation of 2.2x times the last twelve month sales. The beauty of this deal is that a smaller size company acquired a bigger size company
The value of Ranbaxy shares was INR 457 per share, this represents an 18% premium to the thirty-day volume on the weighted average share price
Reasons of acquisition – This was a strategic acquisition for Sun pharma as it would help them to fill gaps in the US and also help them in getting better access to emerging markets and gain a strong foothold in the domestic market. Sun Pharma also had the opportunity to gain the number one position from the current third position in the dermatology space due to this acquisition
As you can see in the above table, the net sales of Sun pharma increased to 2,72,865 which shows the benefit it gained after the merger. Similarly, there is an increase in Gross profit, EBITDA and net profit. The balance sheet clearly highlights the strengthened position of the company after the merger in every aspect. The fixed assets have more than doubled and the cash balances have also increased considerably.
Acquisition Example # 3 – Microsoft and LinkedIn
Microsoft acquired LinkedIn for $196 per share to a $26 billion deal and fought with its competitor Salesforce.com to do so. The shares of LinkedIn rose 64% after the announcement was made. It was an all-cash deal and was inclusive of all the LinkedIn’s net cash. This represents a 50% premium to LinkedIn last closing price and the total amounted to $9 billion. Microsoft bought LinkedIn at a price that is lower by 25% than its all-time high.
Microsoft financed this deal with the issuance of new indebtedness. The deal is expected to have a dilution of ~1 percent to the Non-GAAP EPS.
The reason for this deal is mainly the 433 million LinkedIn subscribers and professional clouds. The core idea was mainly to boost data productivity.
Acquisition Example # 4 – Disney and 21st Century Fox
Disney acquired 21st-century fox for $71.3 billion. This was a real shakeup for the entertainment business. This deal brought together two major giants of the entertainment world. Disney won this deal from its competitor Comcast and took nine months to get the necessary approval. This is one of the biggest deal in recent times. This deal will lead to lay if of more than 4000 jobs.
Assets changing hands in the deal include:
- 20th Century Fox
- Fox Searchlight Pictures
- Fox 2000 Pictures – Fox Family,
- National Geographic Partners
- Fox Networks Group International
- Indian channels like – Star India
- Fox’s percentage interests in Hulu, Tata Sky, and Endemol Shine Group.
(Source- Company website)
There are various methods in which acquisitions can be conducted. It can either be friendly or hostile. As seen in the above examples of acquisition, it is not necessary that only a large company has the capacity to acquire a small company it is also possible the other way round as highlighted in the Ranbaxy and Sun pharmaceutical deal
There are various pre and post steps that the company needs to take before proposing the acquisition. The most important aspect to look at while going for an acquisition is of the synergies especially in the case of strategic acquisitions. The acquirer is looking for expanding his business or to gain assets and then using them to further expand the business. The target, on the other hand, is looking for either control over operations and also gains to its shareholders
This has been a guide to Acquisition Examples. Here we discuss top 4 practical examples of acquisitions like Amazon acquires Whole Foods, Microsoft and LinkedIn, Disney and 21st Century Fox, etc. You can learn more about financing from the following articles –