The Art of the Deal: Introducing Mergers & Acquisitions

IN the business world, mergers and acquisitions are

Mergers happen when two companies pool their interests to become one company. An acquisition is when one company (the acquirer) takes over another (the target). Acquisitions can be friendly, meaning both companies want the acquisition to occur, or unfriendly, hence the phrase "hostile takeover." Consolidations are slightly different from mergers in that the resulting company is a new entity. M&A activity need not involve entire companies. One company may acquire only a division, subsidiary, regional branches, or some other piece of another company.

Many reasons trigger a company's urge to merge. It can involve a need for cash, the desire to expand its customer base, the advantages of the other company's technology, or bragging rights to being the biggest (which, in some peoples' eyes, still equates to being the best). It can be a combination of factors. Sometimes it's essentially a rescue operation, bailing out a company that is otherwise going to fail and go out of business.

Aside from investors wondering what a proposed deal will do to their stock price and customers pondering whether a new corporate owner will increase or decrease their satisfaction with the product or service, entire professions rely on M&A transaction data. Among them, according to Jan Davis Tudor (Super Searchers on Mergers & Acquisitions: The Online Secrets of Top Corporate Researchers and M&A Pros, CyberAge Books, 2001), are investment bankers, business appraisers, lawyers, business brokers, university students, database producers, and independent consultants.

The authors of the next two articles spend much of their professional time doing M&A research. It seemed logical, therefore, to ask these experts to pool their knowledge about specialized M&A databases. Amy Affelt begins by describing the main databases she uses. Janet Hartmann picks up the story from there with some rigorous testing of the files. She documents how dangerous it can be to rely on only one database, since different databases cough up different answers to the same question.

REGULATORY FILINGS

On the surface, there are multitudinous sources of information on M&A activities. Government agencies that regulate the securities industry are a prime source for publicly traded companies. In the U.S., the SEC (securities and Exchange Commission) requires regulatory filings if a public company is involved. Privately held companies are exempt from filing, making that data much harder to come by. Some relevant filings for M&A research (the full list of all EDGAR filings, not just those pertaining to M&A can be found at www.sec.gov/info/edgar/forms/edg form.pdf) include the following:

* SC 13D: Filed when a person or group of persons acquires more than 5 percent of a public company's voting stock.

* SC 13E-3: Filed when a company goes private, making a class of its voting securities to be no longer registered under the SEC Act of 1934.

* SC 13E-4: Filed when there is a self tender (leveraged buyout) by a company. Amendments are also filed whenever there are events that significantly affect the tender offer or the final outcome of the tender offer.

* SC 13G: Filed when a purchaser of over 5 percent of public company's voting stock intends only passive ownership.

* SC 14D-1: Filed when there is a tender offer to acquire more than 5 percent of a public company's voting stock. Amendments are filed to report changes in the tender offer, to report any events which significantly affect the tender offer, or to report the final outcome of the tender offer.

* SC 14D-9: Filed to show management's response to a tender offer and to report management's recommendations to shareholders as well as any other management action pertaining to the tender offer.

In addition to LIVEDGAR, covered by Affelt and Hartmann, don't forget 10K Wizard [www.10kwizard. com]. You can search for specific forms, such as the SC 13D, and apply filters such as company name, industry group, and date range for filings. Searching is free, but there is a cost to view the full document. Subscriptions-there are five levels-range from $185 a year for basic to $2,000 a year for Premium Pro.

NEWS SOURCES

Mentions of M&A deals in the general press derive data from press releases issued by the companies involved and by regularly perusing the relevant SEC filings. One reason why the information in M&A databases differs is the source (or sources) being used. Some rely solely on regulatory filings, others on news sources. For researchers not as steeped in M&A searching as Affelt and Hartmann, and without access to the niche files they discuss, there are still possibilities.

General business news sources, such as those found in EBSCOhost's Business Source Premier, ProQuest's ABI/INFORM, Dialog, Factiva, and LexisNexis, often contain substantial news reports on companies' merger and acquisitions propensities. Different databases, however, use different terminology to describe the M&A concept. If it's books you're after, the Library of Congress uses "consolidation & merger of corporations" as a subject heading. Business Source Premier adopted the same vocabulary for its article descriptions.

ABI/INFORM reverses the standard order of the phrases, employing "acquisitions & mergers" as its term. Thomson Gale's Trade & Industry database does the same thing and adds the Event Code of 150. Gale's indexers also use the subdivision "mergers, acquisitions and divestments." A general article about M&A will receive the "acquisitions & mergers" descriptor, but one that talks about the US Airways-America West deal is more likely to be described with "US Airways-Mergers, acquisitions and divestments" and "America West-Mergers, acquisitions and divestments." RDS' Business and Industry database, also owned by Thomson Gale, uses "mergers, acquisitions & divestitures."

Drilling down through Factiva's Subject Headings to find the appropriate term, click first on "Corporate/Industrial News," then open up "Ownership Changes." There are two potential subjects of interest under that heading: "Acquisitions/Mergers/Takeovers" and "Divestitures/Asset Sales." LexisNexis thankfully uses the very straight-forward "mergers & acquisitions."

One other database of note, for those searchers lacking access to specialized M&A files but with a Dialog subscription, is TFDS Worldwide Mergers & Acquisitions (file 551 on Dialog or SDCA on Data-Star). This is a complicated file, with 60 separate data items, so it's a good idea to look at the documentation before starting a search, particularly if you're a neophyte M&A searcher. Although not as robust as the Thomson SDC Platinum, which has 700 data fields, TFDS includes U.S. deals from 1981 and international ones from 1985. Since data for this file comes from news reports, errors can be introduced from misinterpretations of the published news, as documented by Amelia Kassel ("Tales of a Searcher's Life: A Comedy of Errors or a Test of Patience?" Searcher, September 2002, pp. 48-52). It's not too far-fetched to assume that some of the anomalies found by Hartmann in her searches can be attributed to similar quality lapses by database producers.