Acquisition Analysis and Valuation Outline: The proposal must conform to the following conditions: (1) each manager will be representing an acquiring company or investment group whose business growth strategy involves an acquisition and (2) the target firmmust be in the same industry.
The purpose of this Acquisition Simulation is to give students the opportunity to apply the tools they have learned in an increasingly common real world situation, i.e., mergers and acquisitions. In no more than 12 pages plus supporting charts, tables, financial statements and appendices, each proposal must address the following areas:
1. Executive summary [<1 page]
2. Industry/market overview[1 page]
3. Opportunities/threats [1/2 page]
4. Objectives [1 page]
5. Negotiating strategy [1/2 page]
6. Financials and valuation [3-4 pages
7. Financing plan [1/2 page]
8. Integration plan [1/2 page]
9. Conclusion: [<1 page]
This material may consist of step-by-step explanations on how to solve a problem or examples of proper writing, including the use of citations, references, bibliographies, and formatting. This material is made available for the sole purpose of studying and learning - misuse is strictly forbidden.1. Executive Summary
This executive summary and the accompanying management report describe the proposed acquisition of the assets of South State Corporation (the “Company”), a C-Corporation organized under the laws of South Carolina. The Company was founded in 1933 and is the bank holding company for South State Bank, a regional bank that has a network of 127 branches spread across the states of South Carolina, North Carolina and Georgia. The acquiring firm is seeking to grow in the financial services sector, and is particularly focusing on growing its wealth management business through the regional mid-Atlantic banks, while expanding its presence in the retail and commercial banking subsector. The Company was chosen because it has an extensive branch network, and sound financial fundamentals for a bank of its size. The acquisition will allow the acquiring firm to reach a wide customer base in the target states. Additionally, the bank offers a variety of financial services including wealth management services which the acquiring firm can significantly improve as this is its core area of expertise. The initial offer price is $1.6 billion, and this price was arrived at after evaluation of the target’s financial statements and analysis of the target’s current stock price. The enterprise value was calculated by factoring debt and cash into the Company’s market capitalization. The offer per share is lower than the current price per share because of the combined company will be inheriting substantial debt from the target. The recommendation to finance the acquisition party through common stock, cash and debt is to ensure that the profitability of the two companies and their cash flows are not negatively affected due to the acquisition.
2. Industry/Market Overview
The U.S financial services sector is the largest of all global financial markets. It plays a major role in economic growth as it is the key driving force of other economic sectors including aerospace, automotive and agriculture. According to Deloitte (2015), in 2014 finance and insurance accounted for 1.26 trillion which represents about 7.2 of the gross domestic product (GDP). In terms of job contribution, the financial services sector employed around 6 million people at the end of 2014, and this is expected to grow by about 3% annually in the next 4 years (Deloitte, (2015).
Industry subsectors data indicate that banking and asset management remain the strongest subsectors. Earnings within the banking subsector have grown consistently over the last 4 years. Quarterly growth in 2013 was 23%, and the U.S banking system had $14.45 trillion in assets at the end of 2012. In comparison, the asset management subsector had more than $39.6 trillion of long-term assets under management which represents 45% of the global total. In 2014, regional banks had an average market capitalization of $989 million and an average net income of $51 million.
Regional banks offer a variety of retail and commercial banking services. They are also engaged in mortgage lending, consumer finance loans, deposits, trust and investment, lending and credit card services, ATM processing and wealth management among...