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Finance Assignment Question

Reuters announced that the European Private Equity, Permira, had agreed to buy investment manager, Tilney, from Deutsche Bank.

You are required to research the above deal from its initial inception to completion. You should pay particular attention to the following:
(i) Synergies and expected gains from the acquisition;
(ii) The potential motives of, and the investment strategy of, the providers of private equity,
Permira, in this acquisition.

Finance Assignment Solution on Mergers and Acquisitions and Private Equity

Introduction

Before we can get into the depth of the Permira Tilney deal it is important to understand the meaning of the terms Merger and Acquisition. A merger is when two companies which are usually of the same size mutually decide to come together and form one single entity. The individual company stocks are all surrendered and the new entity's stocks are issued thereafter. Acquisition on the other hand is when one company actually takes over another company. After this the company that has been acquired ceases to individually exist. Over the years we have witnessed that deals worth millions and billions dictate the fortune of companies. We seldom know what led to the inception of such deals. On February 2014, Reuters announced that Permira the European Private Equity fund manager was all set to acquire Deutsche Banks' Investment Manger Tilney…

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Expected Gains  (Joshua Rosenbaum, Joshua Pearl, 2009) (Matt H. Evans, 2000)

Any acquisition process comprises of five main stages. These are Pre Acquisition review, Searching and Screening of targets, Valuation of Targets, Acquiring through negotiation and final integration. In the Pre-Acquisition review phase, the main question for Permira was whether an acquisition was absolutely necessary. The prime motive of this phase is the assessment of the firm’s capabilities to determine whether the short term as well as long term goals can be achieved with the resources in hand at the present moment.  It is only if the firm realizes that its long term goals of wealth maximization is not solely possible by its own resources that it moves on to consult its M&A team so that they create a rough plan of what they could achieve if they get into a merger/acquisition. While selecting Tilney as a potential company to acquire, it is certain that Permira had all their valuations and expected gains clearly jotted down. At the stage of acquiring through negotiation also, there wasn't much of the resistance from Deutsche mainly because Deutsche was aware that Tilney's performance as a part of Deutsche wasn't as great as they had expected when they acquired the firm…

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Synergies (Borhme, Dr. Rodney, 2012)

Synergies or total value of the gain of a firm that is acquiring another firm is given by subtracting the sum of values of the two companies individually from the total value after the acquisition. If this value of synergy turns out to be positive it can be said that the new firm is more valuable than the sum of the two firms. Synergies come into place to improve cost effectiveness of any company. Synergies will involve various details such as the Staffing changes. There is sometimes a need for new technology in acquisitions in order to build upon competitiveness and skills. Synergies in an acquisition comprise of another major factor and that is to improve visibility and expand industrial reach beyond the existing limits.

Here we also talk about the financial synergy which is basically lowering of the cost of capital. By this deal, Bestinvest was targeting a cost synergy accounting up to at least 6 million pounds. The average client size for both the firms post the acquisition was more than 1 million. They intended to make use of the combined scale of the firms to be able to negotiate better with the providers. Despite a financial crisis in Europe could not be completely ignored it is believed that Europe has many wealthy people and that stock markets' recovery will surely boost fees that wealth managers generate. Post the acquisition, the new firm named Tinley Bestinvest immediately followed up with recruitment drives to hire the best wealth managers for its regional offices…

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Question 2:

Investment Strategy of Permira  (Donald De Pamphillis, 2011) (Prof. Alexander Roberts, Dr. William Wallace, Dr. Peter Moles, 2010)

Permira believes in a highly distinctive investment strategy. They have exhibited strong performances over the years. They focus on leading businesses that have potential for more and more growth. These are mostly businesses that need some or the other improvements in terms of strategy and operation. Permira relies on businesses that are less prone to a macroeconomic environment at large.

The firm has very proactive insight of sectors and it raises its funds from pension funds. They make only long term investments and focus on sustainable growth. With over 200 Private equity investments since the year 1985 and a committed capital of 22 billion pounds, Permira is definitely on the right track. As we can see, the firm is building a strong portfolio of varied businesses with a range of exit options too. The motive here is providing high cash returns to its investors…

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Potential Motives (Guy Fraser-Sampson, 2010) (Matt H. Evans, 2000)

An acquisition is not a one day story at all. The main thought in the minds of the one acquiring is that will this purchase be beneficial to the company at the end of the day. Valuation of companies plays a very crucial role here. There is extensive research and in depth analysis of the target company takes place. This assessment can be done through the various ratios of a company such as the Price to Earnings Ratio (P/E ratio), Value to Sales Ratio etc. A company's discounted cash flow is also a key tool to evaluate the target company. The Discounted Cash flows method can enable experts to figure out the present worth of the firm taking into consideration its future cash flows.

The senior management of any firm is definitely affected by the potential success or even failure of any acquisition. Companies that are generally into acquisitions with mergers and acquisitions comprising of a large portion of their strategy for long term growth are more often faced with this dilemma. Since the ultimate aim of any business is maximization of shareholders' wealth, companies like Permira cannot afford to take a wrong step when it comes to Acquisitions. Researchers have quoted that any such deal can have substantial ramifications with regards to corporate governance and sometimes what is found to be good for personal growth may not prove that beneficial in terms of Shareholders' gains. Deutsche had bought Tilney for 300 million pounds. With the Bestinvest Tilney deal, the benefit targeted was to offload a loss making business as per Deutsche…

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