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0:00
Hello, my name is
Michael McDonald.
Today, we're gonna be talking
about assessing synergies,
and a case study
of Zillow and Trulia.
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Let's start by
talking for a minute
about mergers and acquisitions.
'Mergers and acquisitions'
is a term
that's used to
describe the process
by which one company
acquires another company.
Generally this term is applied
to publicly traded companies
although it doesn't have to be.
Now a merger occurs
when two companies
of roughly equal
size join together
and form a new company
and this results in canceling
the outstanding stock
in both existing entities.
So a merger essentially expunges
the existing two companies
and forms one
completely new company
that's formed from both
of the existing companies.
In contrast,
an acquisition occurs
when one company
purchases another company,
usually for a combination
of cash and stock,
but sometimes for either
all cash or all stock.
In an acquisition,
if Company A buys Company B,
then all of Company A's stock
will remain outstanding
and all of Company B's
stock will disappear,
it will be removed and replaced
with either more stock
from Company A
or with cash from Company A.
The company that's looking
to acquire another company
is called the suitor firm,
while the company
that's being acquired
is called the target firm.
So in my last example there,
Company A was buying Company B.
Company A will
be the suitor firm,
Company B will
be the target firm.
Now suitor firms look
for good target companies
that are going to be a good fit
with the suitor's business,
and they're gonna provide value
for the suitor's shareholders.
Remember,
suitor firms don't care
about the shareholders
in the target firm,
they're only interested
in their own shareholders.
That's very important,
because it leads to the idea
of what's called synergies.
One of the biggest things
the suitor firm
is gonna look for
in a target is strong synergies
between the two companies.
A company, of course,
cares about the share price
but as we're gonna
see in a minute,
the price that you
buy the company for
can be materially higher
if you expect strong
synergies from the deal.
