Question 1

Confidentiality agreements are usually signed before any information is exchanged to protect the buyer and the seller from loss of competitive information.

Accepted Answer

Confidentiality agreements are signed to protect the confidentiality of sensitive or proprietary information exchanged between parties. This is particularly important in business transactions where the parties involved may be competitors or in the same industry, and sharing such information could give one party a competitive advantage or hurt the other party's business. Therefore, it is common practice to sign confidentiality agreements before any information is shared to protect the interests of both parties.

Question 2

Rumors of impending acquisition can have a substantial deleterious impact on the target firm.

Accepted Answer

Rumors of an impending acquisition can create uncertainty and instability within the target firm, which can lead to a decrease in stock price, loss of key employees, and decreased motivation of current employees. This can ultimately have a negative impact on the performance and value of the target firm.

Question 3

Only acquiring firms perform due diligence.

Accepted Answer

Both acquiring and target firms typically perform due diligence during a merger or acquisition process. The acquiring firm wants to ensure that the target company's financial, legal, and operational aspects are sound, while the target firm wants to verify that the terms of the deal are favorable and that the acquiring firm is capable of following through on the agreement.

Question 4

In contacting large,publicly traded firms,it is usually preferable to make initial contact through an intermediary and at the highest level of the company possible.

Accepted Answer

When contacting large, publicly traded firms, it is often more efficient and effective to use an intermediary in order to ensure that the communication is reaching the right people. Additionally, it is important to try to establish contact at the highest level possible in order to achieve the best outcomes.

Question 5

Banks are commonly used to provide bridge or temporary financing to pay all or a portion of the purchase price and meet possible working capital requirements until permanent financing can be found.

Accepted Answer

This statement is true, as banks often provide bridge financing to facilitate the purchase of an asset or company while awaiting permanent financing.

Question 6

Confidentiality agreements usually also cover publicly available information on the potential acquirer and target firms.

Accepted Answer

Confidentiality agreements typically cover non-public, proprietary, or sensitive information about the parties involved and do not extend to information that is already publicly available.

Question 7

The letter of intent often specifies the type of information to be exchanged as well as the scope and duration of the potential buyer's due diligence.

Accepted Answer

This statement is true. The letter of intent serves as a preliminary agreement between the buyer and seller, and often outlines the types of information that the buyer will need to review during the due diligence process, as well as the expected timeline and scope of the due diligence.

Question 8

"No shop" provisions are seldom found in letters of intent.

Accepted Answer

"No shop" provisions, which prohibit the seller from seeking or entering into negotiations with other potential buyers during the period of exclusive negotiations with the initial buyer, are commonly included in letters of intent.

Question 9

So-called permanent financing for an acquisition usually consists of long-term unsecured debt.

Accepted Answer

The answer of So-called permanent financing for an acquisition usually...

Question 10

Letters of intent are usually legally binding on the potential buyer but rarely on the target firm.

Accepted Answer

Letters of intent are not usually legally binding on either party until a formal agreement is reached and signed. While it may outline some terms and conditions of a potential acquisition, it is not a final agreement and does not obligate either party to follow through with the transaction.

Question 11

The appropriate approach for initiating contact with a target firm is essentially the same for large or small,public or private companies.

Accepted Answer

The approach for initiating contact can vary significantly depending on the size and type of the company, as large public companies may have formal procedures and specific points of contact, while small private firms might have more informal or direct communication channels.

Question 12

The number of selection criteria should be as extensive as possible to ensure that all factors relevant to the firm's decision-making process are considered.

Accepted Answer

Having too many selection criteria can lead to complexity and inefficiency. It's important to focus on the most relevant factors to make effective decisions.

Question 13

Confidentiality agreements often cover both the buyer and the seller,since both are likely to be exchanging confidential information,although for different reasons.

Accepted Answer

Confidentiality agreements are often used to protect both parties from the disclosure of confidential information during a business transaction, such as a sale. Both the buyer and seller may need to share sensitive information in order to facilitate the transaction, and a confidentiality agreement can help ensure that this information is kept confidential.

Question 14

The targeted industry and the maximum size of the potential transaction are often the most important selection criteria used in the search process.

Accepted Answer

The targeted industry and maximum transaction size are key factors in determining whether a potential acquisition is a good fit for the acquiring company's portfolio and financial capacity. Other factors, such as geographical location, strategic fit, management team, and cultural compatibility, may also be considered during the selection process.

Question 15

The signing of a letter of intent usually precludes the target firm from suing the potential acquiring company if the acquirer eventually withdraws its initial offer.

Accepted Answer

A letter of intent is generally non-binding regarding the acquisition itself, meaning it does not legally prevent the target firm from suing the potential acquiring company if the deal falls through, depending on the specific terms and conditions outlined in the letter and applicable laws.

Question 16

The first step in establishing a search plan for potential acquisition or merger targets is to identify the primary screening or selection criteria.

Accepted Answer

Identifying primary screening or selection criteria is indeed the first step in establishing a search plan for potential acquisition or merger targets.

Question 17

A letter of intent formally stipulates the reason for the agreement,major terms and conditions,the responsibilities of both parties while the agreement is in force,a reasonable expiration date,and how all fees associated with the transaction will be paid.

Accepted Answer

This statement is correct and accurately describes the purpose and key elements of a letter of intent.

Question 18

The actual price paid for a target firm is unaffected by the buyer's due diligence.

Accepted Answer

The actual price paid for a target firm can be affected by the buyer's due diligence. During the due diligence process, the buyer may uncover issues or concerns about the target firm that can impact the negotiations and ultimately the purchase price. For example, if the buyer discovers that the target firm has significant legal or financial liabilities, they may negotiate a lower purchase price or even walk away from the deal.

Question 19

Advertising in the business or trade press is generally a very efficient way to locate attractive acquisition target candidates.

Accepted Answer

Advertising in the business or trade press is not generally considered the most efficient way to locate attractive acquisition target candidates because it lacks the directness and confidentiality often required in the initial stages of identifying and approaching potential targets. Networking, direct outreach, and using intermediaries like investment banks or brokers are more common and effective methods.

Question 20

An excessively long list of screening criteria used to develop a list of potential acquisition targets can severely limit the number of potential candidates.

Accepted Answer

An excessively long list of screening criteria can create very strict and narrow requirements for potential acquisition targets, leading to a smaller pool of possible candidates. This can result in missed opportunities or a longer and more challenging search process.

Quiz 5: Implementation: Search Through Closing: Phases 3 to 10 of the Acquisition Process