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M&A From shareholder reactions and activist attacks to inversion opportunities and other strategic options, Bank of America Merrill Lynch (BofAML) senior bankers address commonly asked questions surrounding various M&A scenarios: KEY M&A QUESTIONS TO CONSIDER C-suite executives and board members face critical capital allocation decisions in today’s active M&A market. Given this environment, many corporate leaders are preparing for or considering a merger or acquisition. How are shareholders reacting to acquisitions? Shareholders are optimistic about acquisitions, according to Gregg Nabhan, vice chairman, Global Equity Capital Markets, BofAML. “Most of the institutional investors we transact with globally on our trading floors believe we are in a low-growth, low-return environment,” says Nabhan. He points to the past nine consecutive years in which the US gross domestic product has remained below 3% and interest rates have stayed at levels not seen since the Great Depression. Says Nabhan, “Investors want growth and are telling us they are prepared to buy and hold a company’s stock if they see the potential for growth.” Would our shareholders prefer we return capital versus spending it on an acquisition? Citing a proprietary survey of 200 long-only fund managers, Nabhan says shareholders around the world favor companies pursuing growth opportunities versus companies returning capital in the form of stock repurchases and dividends, although they continue to value strong, well-capitalized balance sheets. “Our expectation is that the return expectation in growth-oriented companies’ stocks will rise on announcement,” says Nabhan, “and we base that on investor optimism for acquisitive growth that drives long-term shareholder value.” How do we analyze whether a share repurchase is sensible at current prices, and how does that compare to an acquisition? “Earnings growth and accretion are important metrics when you think about how to use that extra dollar,” says Souren Ouzounian, head of Americas Corporate Finance, BofAML. While it’s reasonable to compare share repurchases using cash, preferred stock, or some hybrid security to the accretion value of an acquisition, it’s also important to factor in the overall 36 CO R P O R AT E B OA R D M E M B E R S E CO N D Q UA RT E R 2 0 1 6