Merger and Acquisition Questions and Answers

1. How does an investment banker add value in a merger transaction?

Answer: An investment banker acts as a catalyst throughout the merger process facilitating discussions, setting the client’s strategy, and conducting analyses of valuation. Also, with its personal contacts with senior managements and its knowledge of individual companies’ corporate strategies and acquisition preferences, the investment banker’s professional advice is a unique and valuable resource.

2. Does CFAI offer strategic reviews for Boards of Directors and senior management?

Answer: Yes, CFAI has participated in numerous strategic bank reviews in 1996-1999 involving clients in Washington, Oregon, Idaho, and Montana. The purpose is to provide clients with a merger market/valuation perspective relative to their strategic options.

3. How does CFAI distinguish itself from other financial advisors?

Answer: CFAI has several comparative advantages:

• Mergers and Acquisitions advisory capabilities combined with business valuations. Columbia Financial Advisors, Inc. provides over 125 business appraisals a year to a diverse base of companies. This experience combined with the CFAI investment banking team is unique in the Northwest and enables CFAI to develop realistic value expectations based on market experience.

• Proven Track Record. CFAI’s investment banking professionals have been involved with more than 60 completed transactions, including eight in 1998, and seven in 1997.

• Quantitative Focus. Four of CFAI’s senior principals are Chartered Financial Analysts, and all members of the CFAI team possess educational backgrounds in finance and accounting. CFAI has extensive research capabilities due to proprietary models, comparable change of control databases, and subscriptions to a variety of on-line and off-line databases that give it a distinctive edge in financial advisory services.

• Wall Street Experience. CFAI’s senior investment banking professional has Wall Street experience and brings state of the art investment banking fundamentals and street knowledge.

4. What is the outlook for 2000 merger market conditions?

Answer: The outlook is tied to stock market conditions. With Y2K over, the stock market should see an upswing in the first half of 2000 with more mergers, particularly using pooling accounting if the stock market recovers for the non-tech sectors.

5. What is your firm’s experience in mergers?

Answer: From 1996-1999, CFAI has been involved in 27 merger and acquisitions with a combined deal value of over $450 million. CFAI focuses on middle market companies in a variety of industries. Past clients have been companies involved in the manufacturing, financial services, telecommunications, media/entertainment, travel services, retail/distribution and consulting services industries.

6. What is a fairness opinion?

Answer: A fairness opinion is an analysis and evaluation of a merger proposal by an acquiring company, based on a financial viewpoint using relevant analysis techniques and comparable market data. A fairness opinion is valuable to a Board of Directors, both on the acquirer and acquiree sides.

7. Why are fairness opinions necessary for private companies?

Answer: Since there is uncertainty about the value of privately held company stock, a fairness opinion by a financial advisory expert is necessary. This ensures that shareholders receive a purchase price that is fair and comparable to current market prices. With transaction involving the stock of public companies, the evaluation of future prospects, trading volume, and other factors are important to a Board of Directors.

8. What impact does the pooling accounting ban have on mergers?

Answer: Purchase accounting requires that goodwill be written off over 12 to 15 years. This write-off usually decreases future earnings per share of the acquirer. Pooling accounting treats the combining of companies as if they had always been one, thus abolishing goodwill. On January 1, 2001, the FASB rules requiring purchase accounting for all mergers will take effect.

Return to main page