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Mergers and Acquisitions
What is a Merger?
What is an Acquisition?
What is a cash flow analysis?
What is Net Present Value?
What is an Asset?
What is a Liability?
What does the actuary do for a merger and/or acquisition?
What is a Merger?
The union of two or more organizations under single ownership, through the direct acquisition by one organization of the net assets or liabilities of the other. A merger can be the result of a friendly takeover, which results in the combining of companies on an equal footing. After a merger, the legal existence of the acquired organization is terminated. There is no standard definition of a merger, as each union is different, depending on what is expected from the merger, and on the negotiations, strategy, stock and assets, human resources, and stockholders of the players. Four broad types of mergers are recognized. A horizontal merger involves firms from the same industry, while a vertical merger involves firms from the same supply chain. A circular merger involves firms with different products but similar distribution channels. A conglomerate company is produced by the union of firms with few or no similarities in production or marketing but that come together to create a larger economic base and greater profit potential.
Definition from Bnet Business Directory
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What is an Acquisition?
Acquisition is the process through which one company takes over the controlling interest of another company.
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What is a cash flow analysis?
The amount of net cash generated by an investment or a business during a specific period. One measure of cash flow is earnings before interest, taxes, depreciation, and amortization. Because cash is the fuel that drives a business, many analysts consider cash flow to be a company's most important financial statistic. Firms with big cash flows are frequently takeover targets because acquiring firms know that the cash can be used to help pay off the costs of the acquisitions.
Definition from The Free Dictionary
A measure of a company's financial health. Equals cash receipts minus cash payments over a given period of time; or equivalently, net profit plus amounts charged off for depreciation, depletion, and amortization.
Definition from InvestorWords
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What is Net Present Value?
Net Present Value is defined as the total present value (PV) of a time series of cash flows. It is a standard method for using the time value of money to appraise long-term projects. Used for capital budgeting, and widely throughout economics, it measures the excess or shortfall of cash flows, in present value terms, once financing charges are met.
Definition from Wikipedia
The current value of one or more future cash payments, discounted at some appropriate interest rate.
Definition from InvestorWords.com
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What is an Asset?
Any item of economic value owned by an individual or corporation, especially that which could be converted to cash. Examples are cash, securities, accounts receivable, inventory, office equipment, real estate, a car, and other property. On a balance sheet, assets are equal to the sum of liabilities, common stock, preferred stock, and retained earnings. From an accounting perspective, assets are divided into the following categories: current assets (cash and other liquid items), long-term assets (real estate, plant, equipment), prepaid and deferred assets (expenditures for future costs such as insurance, rent, interest), and intangible assets (trademarks, patents, copyrights, goodwill).
Definition from InvestorWords.com
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What is a Liability?
A liability is an obligation that legally binds an individual or company to settle a debt. When one is liable for a debt, they are responsible for paying the debt or settling a wrongful act they may have committed. In the case of a company, a liability is recorded on the balance sheet and can include accounts payable, taxes, wages, accrued expenses, and deferred revenues. Current liabilities are debts payable within one year, while long-term liabilities are debts payable over a longer period.
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What does the actuary do for a merger and/or acquisition?
The actuary will model the cash flows of the insurer to be purchased and estimate the net present value of those cash flows (for buyer and seller). The actuary will also do a statistical comparison of the insurer with industry norms to assess the impact on the value of the target. The actuary can assess the synergies between the buyer's business plan and the business operations of the target and can assist in valuing the transaction. The actuary can also review the target's accounting procedures to evaluate the intrinsic value imbedded in the target as well as quantify the hidden value of intangible assets. Another study the actuary may undertake is to evaluate the adequacy of loss reserves to understand the unrecognized value of future investment income.
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