Top 4 Examples of Acquisitions
Acquisition takes place when the financially strong entity acquires the entity which is less strong financially by acquiring shares worth more than fifty percent and the example of acquisition includes purchase of the company whole foods in the year 2017 by Amazon for $ 13.7 Billion and purchase of the company Time Warner by company AT&T in the year 2016 for $85.4 billion.
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 make 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.
Example #1 – Amazon acquires Whole Foods
Amazon acquired whole foods for a total of $13.7 billion deal. It made the e-commerce giant move into many physical stores. It 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. It 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 goodwillThe Acquisition, The GoodwillIn accounting, goodwill is an intangible asset that is generated when one company purchases another company for a price that is greater than the sum of the company's net identifiable assets at the time of acquisition. It is determined by subtracting the fair value of the company's net identifiable assets from the total purchase price. 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. It was before the announcement of Kroger’s lower earnings announcement.
This news led to lowering the average multiple to 7.8x. The implied EV to EBITDA multipleEV To EBITDA MultipleEV to EBITDA is the ratio between enterprise value and earnings before interest, taxes, depreciation, and amortization that helps the investor in the valuation of the company at a very subtle level by allowing the investor to compare a specific company to the peer company in the industry as a whole, or other comparative industries. of Amazon and whole foods was about 10.4x LTM EBITDALTM EBITDALTM EBITDA (Last Twelve Months EBITDA) calculates the company's earnings before taxes, interest, and amortization & depreciation of components for the past twelve consecutive months. It determines operating cash flow, helps in the valuation of a business.. It 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.
Example # 2 – Sun Pharmaceuticals acquiring Ranbaxy
This pharmaceutical deal is an example of a share swap Share Swap A share swap occurs when one equity-based asset is exchanged for another equity-based asset. This is common in acquisitions and mergers. When a share swap is initiated, the share values of both companies are accurately priced to determine the fair swap ratio.deal. According to the deal, Ranbaxy shareholders would receive four shares for every five Sun pharma shares held by them. It leads to a 16.4% dilution in the equity of Sun Pharma. The deal size was $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 profitGross ProfitGross Profit shows the earnings of the business entity from its core business activity i.e. the profit of the company that is arrived after deducting all the direct expenses like raw material cost, labor cost, etc. from the direct income generated from the sale of its goods and services., EBITDA, and net profit. The balance sheetBalance SheetA balance sheet is one of the financial statements of a company that presents the shareholders' equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner's capital equals the total assets of the company. clearly highlights the strengthened position of the company after the merger in every aspect. The fixed assetsFixed AssetsFixed assets are assets that are held for the long term and are not expected to be converted into cash in a short period of time. Plant and machinery, land and buildings, furniture, computers, copyright, and vehicles are all examples. have more than doubled, and the cash balances have also increased considerably.
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 LinkedIn’s net cashNet CashNet Cash represent the company's liquidity position and is calculated by deducting the current liabilities from the cash balance reported on the company’s financial statements at the end of a particular period. Analysts and investors examine it to have a better understanding of the company's financial and liquidity position.. It 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 primarily to boost data productivity.
Example # 4 – Disney and 21st Century Fox
Disney acquired 21st-century fox for $71.3 billion. It 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. It is one of the biggest deals 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 crucial 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 article has been a guide to Acquisition Examples. Here we discuss the 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 –