Mergers & Acquisitions (M&A)

Common rationales: revenue synergies (cross-sell, new geographies), cost synergies (eliminate duplicate overhead, consolidate plants), vertical integration, defensive (block a competitor), acqui-hire, tax (inversion).

Synergies are almost always overstated. Realized cost synergies typically hit ~70% of pitched numbers; revenue synergies are notoriously fragile.

An all-stock deal is accretive to the acquirer's EPS if the target's P/E (inverse = earnings yield) is lower than the acquirer's, after synergies.

Quick rule: if you pay with stock at P/E = 20 (5% earnings yield) for a target at P/E = 15 (6.7% earnings yield), the deal is accretive before synergies. Cash deals are accretive if after-tax cost of cash < target earnings yield.

Stock purchase: buyer acquires shares, inherits all assets and liabilities including unknown ones. Asset purchase: buyer picks which assets/liabilities to take — cleaner but creates tax issues for the seller.

Cash deals close certainty; stock deals share risk/upside and may qualify as tax-free reorgs.