Extended-form Case Study

Assessing synergies: a case study of Zillow and Trulia

Published on January 31, 2016   27 min

A selection of talks on Finance, Accounting & Economics

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Hello, my name is Michael McDonald. Today, we're gonna be talking about assessing synergies, and a case study of Zillow and Trulia.
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.

Assessing synergies: a case study of Zillow and Trulia

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