Session 25 (Val MBAs): Acquisitions (Completed) and Value Enhancements!

In this class, we continued to make a case against acquisition practices, with transaction multiples, accretion and defensive deals all under fire, before looking at the narrow pathways to generating value from acquisitions (go small, buy private, focus on cost synergies). We then started our discussion of value enhancement, by drawing a contrast between price and value enhancement. With value enhancement, we broke down value change into its component parts: changing cash flows from existing assets, changing growth rates by either reinvesting more or better, lengthening your growth period by creating or augmenting competitive advantages and lowering your cost of capital. In the next and last session for this class, we will use this framework to compute an expected value of control as a the product of the probability of changing the way a company is run and the value increase from that change (optimal - status quo value).

Post class test:

[M.-vg]

Hey professor, have you ever heard of the game Fortune Street? Alot of finance principles are used in it to win the game.

With divesting, selling option A would be the best option unless greater value can be gained from it later. It really depends on the strategic position of all option choices within the firm.