CFM Mergers, Acquisitions & Corporate Restructuring

Question 1

What is the primary purpose of due diligence in a merger or acquisition?

Accepted Answer

To assess risks and verify the target's financial, legal, and operational information

Answer

To negotiate the final purchase price with the seller

Answer

To file the required regulatory paperwork with the SEC

Answer

To begin integrating the two companies' IT systems

Question 2

When an acquirer pays more than the fair market value of a target's identifiable net assets, the excess amount is recorded on the consolidated balance sheet as:

Accepted Answer

Goodwill

Answer

Retained earnings adjustment

Answer

Intangible asset premium

Answer

Acquisition reserve

Question 3

Which M&A valuation approach determines a target's value by benchmarking its financial multiples against those of similar publicly traded firms?

Accepted Answer

Comparable Company Analysis (CCA)

Answer

Discounted Cash Flow (DCF) analysis

Answer

Leveraged Buyout (LBO) analysis

Answer

Sum-of-the-parts analysis

Question 4

A leveraged buyout (LBO) is primarily financed by:

Accepted Answer

Borrowed funds secured by the target's assets and cash flows

Answer

Equity from the acquirer's retained earnings

Answer

Government grants and tax incentives

Answer

New stock issuance to the target's existing shareholders

Question 5

Operational synergies in an M&A transaction most commonly refer to:

Accepted Answer

Cost savings and revenue enhancements generated by combining operations

Answer

Reduced tax obligations arising from combining the two entities' tax attributes

Answer

Increased borrowing capacity created by merging two balance sheets

Answer

Regulatory advantages gained through greater market concentration

Question 6

A 'poison pill' shareholder rights plan is primarily designed to:

Accepted Answer

Make a hostile takeover prohibitively expensive by allowing existing shareholders to buy new shares at a steep discount

Answer

Increase regular dividend payouts to reward long-term shareholders

Answer

Attract competing friendly bidders to maximize the acquisition price

Answer

Accelerate debt repayment obligations upon a change of control

Question 7

The 'acquisition premium' paid in an M&A transaction is best defined as:

Accepted Answer

The percentage by which the offer price exceeds the target's pre-announcement market price

Answer

The target company's share price immediately before the deal announcement

Answer

The total advisory and legal fees paid to investment banks and attorneys

Answer

The market capitalization of the combined entity on the closing date