A wrap-up of 2007 mergers and acquisitions (M&A) activity discovers that the M&A volume reached new records throughout the year but rapidly declined after the subprime-lending crisis made credit markets tighter. During the next years, Investment Banks expect less mega-deals with the participation of financial sponsors. The share of financial investors in the total M&A volume has sunk from 36% in May to 14% in October 2007 (Köhler, 2007). The same holds true for private equity companies that are struggling to raise new debt capital for their investments (“Vergleich mit J.C. Flowers,” 2008). Nevertheless, suggestions that the M&A boom has reached its climax and is about to come down may be premature. Especially for Germany, financial analysts expect a special economic cycle, as the M&A activity of public banks is expected to remain on the move. In general, the future trend is ambiguous; on the one hand, the credit crunch that already affected vast parts of global markets could also damage M&A activity. On the other hand, due to this crisis, new opportunities for large mergers and acquisitions may arise. According to Thomson Financial, the M&A volume for 2007 amounted to €3.0 bn due to record investments in the first half of 2007, compared to €2.5 bn in 2006 and €1.9 bn in 2005 (Köhler, 2007). Even more significant is the astonishing amount of high priced energy deals. Companies in the energy sector, having stable cash flows, will remain attractive targets. The energy sector, being one of the largest concerns of the global economy, is facing several simultaneous developments: with oil prices soaring, unrest in the Middle East and Russia exerting political pressure with its natural gas resources, the importance of M&A among energy companies is likely to increase in 2008. Especially government sponsored privatisation and market liberalisation programmes have provided the opportunity for investments in what were once state-owned monopolies (Deloitte, 2006)...
Table of Contents
1 Introduction
1.1 Problem Definition and Objective
1.2 Course of Investigation
2 M&A and Bidder Competitions– Foundations
2.1 Theoretical Course of M&A Transactions
2.2 A Game-Theoretical and Economic Approach to Bidder Competitions
2.2.1 Bidder Competitions Viewed as an Auction
2.2.2 The Winner’s Curse
2.2.3 The Free-Rider Problem
2.2.4 Defensive Actions
2.2.5 Economics of Takeover Regulation
2.3 M&A in the Energy Sector – A Market Overview
3 Company Profiles
3.1 Techem and its Business Model
3.1.1 German Strategy and Outlook
3.1.2 Worldwide Strategy and Outlook
3.2 Macquarie and MEIF II Energie Beteiligungen GmbH & Co.KG
3.3 BC Partners and Heat Beteiligungs III GmbH
4 Transaction and Business Environment
4.1 The Bidder Competition
4.1.1 The First Phase – First Bid
4.1.2 The Second Phase – Competitive and Common Bid
4.1.3 The Third Phase – Shareholder Structure Problems
4.1.4 The Fourth Phase – Last Bid by Macquarie
4.2 Strategic Considerations of the Bidders
4.2.1 Macquarie
4.2.2 BC Partners
5 Financial Analysis
5.1 Empirical Analysis of Share Price Performance
5.1.1 Reaction of Share Price on Different Bids
5.1.2 Benchmark Analysis
5.2 Envisaged Financing Structure and its Feasibility
5.2.1 Macquarie
5.2.2 BC Partners
5.3 Independent Valuation
5.3.1 Trading Multiple Analysis
5.3.2 DCF Valuation
6 Critical Analysis and Interpretation
6.1 The Distinctiveness of the Techem Case
6.2 Bidders’ Strategies
6.3 Evaluation of Different Bids
6.3.1 Share Price Reactions
6.3.2 Bid Adequacy According to Own Valuation
6.4 Management Behaviour during the Bidder Competition
7 Outlook and Conclusion
Objectives and Topics
This thesis examines the 16-month bidder competition for the German company Techem AG, focusing on the strategic and financial implications of its acquisition by a Macquarie-managed European Infrastructure Fund. The research investigates bidding strategies, shareholder dynamics, and the impact of the transaction on the target company's business model and leadership.
- Theoretical foundations of M&A and bidder competition
- Strategic analysis of the involved bidders (Macquarie and BC Partners)
- Empirical analysis of Techem’s share price performance
- Financial valuation and feasibility of the acquisition
- Impact of hedge fund involvement and takeover legislation
Excerpt from the Book
2.2.1 Bidder Competitions Viewed as an Auction
Competition among bidders can be illustrated in a so called open absolute English Auction. An English auction is called absolute when the auctioneer (here: the seller) does not begin the auction with a reserve price (lowest acceptable price), but permits the participants to bid openly against each other until an offer is not outbid. Then, the item (here: the target) is sold to this bidder. The underlying assumptions of an open English auction according to Khanna (1997, p. 326) are listed below:
1. All bids are publicly announced.
2. Bidders get to observe other bids before tendering their own.
3. A bidder who wishes to raise an existing bid is permitted to do so.
4. A bidder can bid any number of times.
5. The highest bidder wins and pays the value of the bid.
All of these assumptions except for 3 and 4, which are subject to legal restrictions apply to tender offers. Nevertheless, one has to add that each type of bidder has different private information about the object on sale and thus a different kind of valuation.
Summary of Chapters
1 Introduction: Introduces the research problem of the M&A boom and the significance of the energy sector, outlining the thesis objectives and scope.
2 M&A and Bidder Competitions– Foundations: Provides a theoretical framework covering auction models, the Winner's Curse, free-rider problems, and takeover regulations.
3 Company Profiles: Details the business models and strategies of the target, Techem, and the primary bidders, Macquarie and BC Partners.
4 Transaction and Business Environment: Chronicles the chronological four-phase bidder competition and discusses the strategic positioning of each bidder.
5 Financial Analysis: Conducts an empirical study of share price performance and evaluates the financing structures and valuations of the acquisition.
6 Critical Analysis and Interpretation: Analyzes the distinct nature of the Techem case, assesses bidding strategies, and reflects on management behavior.
7 Outlook and Conclusion: Summarizes the study’s findings and presents a forward-looking perspective on the acquisition's long-term implications.
Keywords
Techem AG, Macquarie, BC Partners, Bidder Competition, Mergers and Acquisitions, M&A, Takeover, Shareholder Activism, Hedge Funds, Discounted Cash Flow, Trading Multiple, Winner’s Curse, Free-Rider Problem, Energy Sector, Corporate Governance
Frequently Asked Questions
What is the primary subject of this thesis?
The thesis analyzes the 16-month competitive bidding process for Techem AG, an international provider of energy and water billing services, culminating in its acquisition by Macquarie.
What are the key thematic areas addressed?
The research explores theoretical M&A foundations, the role of financial sponsors vs. strategic investors, the impact of takeover legislation in Germany, and specific valuation methodologies used in complex transactions.
What is the core research goal?
The aim is to provide a comprehensive judgment on the adequacy, fairness, and future implications of the Techem acquisition, specifically addressing whether the final price reflected the company's true value.
Which scientific methods are employed?
The study utilizes empirical event studies for share price analysis, benchmark comparisons (DAX/MDAX), trading multiple analysis, and discounted cash flow (DCF) valuation models.
What does the main body cover?
It provides detailed company profiles, a chronological breakdown of the four transaction stages, an analysis of bidding strategies, and a financial assessment of the financing structures and final bid price.
Which keywords define this work?
The work is defined by terms such as Techem AG, Macquarie, M&A, Bidder Competition, Takeover, Hedge Funds, and Financial Valuation.
How did hedge funds influence the outcome of the bid?
Hedge funds acted as "free-riders" by refusing to tender their shares at lower prices, which eventually forced the bidders to increase their offers and contributed to the initial failure of the common bid.
Did the author conclude that Macquarie overpaid?
Yes, based on the DCF valuation and the share price performance analysis, the author suggests that the final offer of €1.5 billion exceeded the target's intrinsic valuation, implying potential overpayment.
- Quote paper
- Ekaterina Bozoukova (Author), 2008, The Bidder Competition for Techem, Munich, GRIN Verlag, https://www.grin.com/document/91510
