This is my third week in UBC as an exchange student and after two weeks learning, I’ve developed a deeper understanding of M&A. The SDB case is very impressive in that it’s my first M&A case and I’ve learned a lot from it.

The first class introduced an overview of M&A. The objective of M&A is to create shareholder value through operations, finance or strategy. The professor told us to reconsider the corporate objective. She told us to introduce the legal framework of different countries since students are from all over the world in the classroom. For example, in the United States, maximizing shareholder value is the objective, in Canada, the goal is to maximize the firm value. However, due to the agency problem, managers and shareholders are very likely to have different incentives, which means the managers may not do their best to maximize the shareholder value, in United States for example.

Acquisition shouldn’t be considered a corporate objective because acquisition is only one among many possible tactics or strategies to achieve the corporate objective. There are two kinds of acquisitions, which are conducted by strategic buyer and financial buyer.

Then the professor introduced three frameworks to understand M&As, which are microeconomics, principal-agent theory and financial engineering.

In the microeconomics framework, industry structure is an equilibrium involving technology, legal and regulatory environment and macro economy. In order to make some rapid adjustment in the industry, M&As become more important. For example, in the case of Microsoft and Nokia, Microsoft wanted to break into the mobile phone industry and the valuation of Nokia had been decreasing, so Microsoft took most of the mobile phone business under Nokia.

In the principal-agent theory framework, separation of ownership and management creates agency problems.

In the financial engineering framework, the value can be unlocked by changing corporate or financial structure.

There are several merger waves in the history. In the merger wave of 1993-2000, economy was in rapid expansion; new technologies are emerging, including telecommunications, semiconductors, software and the internet. And there were some regulatory factors that contribute to the merger wave. And most of the mergers in 1993-2000 are friendly, however the increasing stock financing lead to some spectacularly huge loss deals between 1998 and 2001. In the merger wave of 2002-2007, which is the sixth wave in the history, senior management at that time were much more attuned to shareholder opinions, and are more accountable for demonstrating shareholder value. And compare to 1993-2000, the due diligence in 2002-2007 is better since companies have learned from mistakes that were made in the last two merger waves. In addition, Cultural synergies are taken much more seriously than they were in the previous two merger waves.

And after going over the merger waves we can tell that all of the U.S. merger waves are Associated with economic expansion, and end with recessions. They are Greatly affected by the regulatory environment and technology. Furthermore, financial innovation also plays a role.