M&A Deal Structuring Case

This fictional case introduces an M&A deal structuring exercise. Two strategy consulting companies, East Coast Strategy Consultants Inc. (EAST) and West Coast Strategic Management Advisory Corp. (WEST), are contemplating acquiring a company in the accounting and advisory services sector, either Ocean & Whistle Accounting (OW) or LeDosh (LD). Students, either individually or in groups, play one of the four companies (i.e., one of the acquirers or one of the sellers/targets). Students are presented with basic financials on each of the companies and other key considerations including potential synergies, valuation multiples, and financing options. As part of the exercise, they must decide which company to acquire (or to sell to) and at what price, identify the key risks involved, and develop a deal structure to mitigate these risks. Students negotiate with the two other respective parties and reach agreement on the terms of the acquisition.

The case serves to teach and apply various dimensions of M&A deal structuring, including methods of payment (stock vs. cash), contingent payments (e.g., earnouts, bonus payment, holdback allowances), the sequential approach (e.g., alliance before acquisition or minority investment before full acquisition), closing conditions, the acquisition process and timing, and post-closing board and management composition. Students practice M&A valuation based on acquisition multiples and think about the strategic rationale for an acquisition. The exercise underlines that value creation does not equate to value capture for the acquirer, and that appropriate acquisition pricing and deal structuring tools are essential components of acquisition success. The case also enables students to understand the risks involved in acquisitions and how they can undermine its success, and to practice and refine their negotiation skills in an acquisition context. The deal structuring exercise can be played both in person or virtually.