Discussion

For this final discussion, I found two very different articles discussing new trends in the mergers & acquisitions market. From Bloomberg there is an article discussing changes in the M&A market as smaller, boutique investment banks are making headway in a market formerly controlled by smaller group of “big name” investment banks (think Goldman Sachs, JP Morgan, etc.). The second article is a summary of a survey of 200 big corporate and private equity M&A decision makers done by KPMG (one of the big four accounting firms). The key findings are interesting, particularly the barriers, strategies, impact of changes in credit markets and tax policies, and the use of generative AI in M&A deals and analysis.

You have a choice on how to go with this week’s discussion. Either take on the topic of boutique vs. “old-line” investment banks, how the M&A market has changed (based on one or more of the topics highlighted in the KPMG summary) or discuss a particular M&A deal that has closed in the last 6 months or is currently in progress.

If you go with either the boutique vs. old-line investment bank or new trends in M&A, you will need to be specific in your discussion and have appropriate supporting facts from a news article, company press release, etc. If you happen to work in an industry this is directly involved, that’s great, but you still need a public outside source to cite in your post.

If you go with a specific M&A deal: What is the company and what type of deal was completed or in the works? Discuss the industry and background on the firm. What changes might have happened to the firm or the deal in the months immediately before or after the deal? What is interesting about the company or the deal? What was (or might be) the synergies/motivation for the acquisition? As with all of the discussions in this course, I am not expecting a quantitative analysis!! If specifics of the deal are available and help support your discussion, go for it.

This is a wide-open discussion, but as always, you need solid supporting evidence from at least one outside article or company press releases.

Post by Ann-Sofie Ericsson
1 day ago
Discussion M6
For this week’s discussion I’ve chosen to focus on Disney’s recent collaboration with Epic
Games that marks a significant venture into the gaming and entertainment universe, with
Disney investing $1.5 billion to acquire an equity stake in Epic Games.
The Walt Disney Company is a multinational entertainment conglomerate known for its
iconic brands and franchises, including Disney, Pixar, Marvel, Star Wars, and Avatar. With a
history spanning nearly a century, Disney has evolved into a global leader in entertainment,
encompassing film, television, theme parks, merchandise, and more. In recent years, Disney
has expanded its presence in the digital realm, leveraging its intellectual properties across
various platforms to engage audiences worldwide. (The Walt Disney Company, n.d.).
Epic Games, founded in 1991, is a leading video game developer and technology company
renowned for its Unreal Engine and popular titles such as Fortnite. Epic Games has
revolutionized the gaming industry with its innovative technologies and commitment to
creating immersive experiences. Fortnite, in particular, has become a cultural phenomenon,
attracting millions of players and generating significant revenue through in-game purchases
and collaborations. (The Walt Disney Company, n.d.).
On February 7, 2024, Disney and Epic Games announced the news about the collaboration
and Disney investing $1.5 billion to acquire an equity stake in Epic Games. This partnership
aims to create an expansive and open world that integrates beloved Disney stories and
experiences into the Fortnite platform, powered by Unreal Engine. The new universe will
allow players to engage with content from Disney, Pixar, Marvel, Star Wars, Avatar, and
more, offering opportunities for gaming, watching, shopping, and content creation. (The
Walt Disney Company, n.d.).
Disney’s move into gaming aligns with the growing digital world, with over 3 billion video
game players worldwide. Previously, Disney shifted its games business model to licensing,
achieving success through partnerships with developers and publishers. The collaboration
with Epic Games further strengthens Disney’s presence in the gaming industry and positions
it for continued growth. (Digiday, n.d)
What’s intriguing about this deal is Disney’s strategic step into the metaverse, despite not
explicitly using the term. By investing in Epic Games, Disney aims to populate the emerging
metaverse with its iconic characters and intellectual properties. This approach mirrors
Disney’s success in licensing its characters to third-party titles, such as Kingdom Hearts,
instead of developing in-house games. Through Epic Games’ established platform, Disney
can tap into a large user base and offer immersive experiences within the metaverse. (Craig,
2024)
Epic Games’ vision for an immersive virtual world aligns with Disney’s goal to extend its
storytelling into new digital realms. By partnering with Epic Games, Disney can leverage the
platform’s technology and user engagement to create synergies between its diverse
portfolio of brands and franchises. This partnership not only expands Disney’s reach but also
enhances the gaming experience for players by integrating familiar Disney content into
Fortnite.(Digiday, n.d)
Moreover, the collaboration with Epic Games presents opportunities for both companies to
navigate challenges within the gaming industry. For Epic Games, deepening ties with Disney
could help mitigate issues such as the dispute with Apple over Fortnite’s iOS app. By
aligning with Disney, Epic Games may explore avenues to publish games under Disney’s
developer account or reconcile with Apple. (Digiday, n.d)
In the months following the deal, we may see further integration of Disney IP into Epic
Games’ platforms, enhancing the gaming experience for players and solidifying Disney’s
presence in the metaverse. As the partnership evolves, Disney’s investment in Epic Games
could lead to innovative gaming experiences, increased user engagement, and new revenue
streams for both companies. Overall, this collaboration signifies a transformative step for
Disney into the world of gaming and the metaverse, with vast potential for growth and
synergy between the two entities. (Craig, 2024)
References:
Craig, M. (2024, February 11). Why Disney’s $1.5 Billion Stake In Epic Games Is A Smart Play.
Forbes. Retrieved from https://www.forbes.com/sites/mattcraig/2024/02/11/why-disneys15-billion-stake-in-epic-games-is-a-smart-play/?sh=6faa679c2f7c
Digiday. (n.d.). Why Disney’s $1.5 billion stake in Epic Games has implications far beyond
gaming. Retrieved from https://digiday.com/marketing/why-disneys-1-5-billion-stake-inepic-games-has-implications-far-beyond-gaming/
The Walt Disney Company. (n.d.). Disney and Epic Games to Create Expansive and Open
Games and Entertainment Universe Connected to Fortnite. Retrieved
from https://thewaltdisneycompany.com/disney-and-epic-games-fortnite/
Post by Jacob Carpenter
1 day ago
Re: Trends in the M&A Market
Mergers and Acquisitions are a topic that I know of, but the reading this week has made me realize how
complicated these decisions can be. Of course, if company A makes a product that company B needs, it
may make sense for them to merge to enjoy an economy of scale. I’m sure hostile takeovers were
something that I was aware of, but it never really crossed my mind that this would be an intentional
choice.
I found the boutique Vs. old line bank article interesting. Like I mentioned above, one would assume
there is an economy of scale to being one of the largest banks. You have the “power” to get your way.
When legislative decisions are being made, these larger players have the power to influence these
decisions. In the 2008 market crash, the us government invested nearly $200 Billion dollars into banks to
prevent a financial collapse. The total cost to the US government was near $700 Billion dollars (Bennett,
2023).
So why today, are some of the largest banks, not leading the market? One thing has to do with the
amount of free capital that is tied up at what is now lower earning rates than the market. From an
economist point of view, the idea is that businesses in the monopolistic competition category will
ultimately break even. We are currently seeing this in the market, but need to look historically. The larger
banks had the economy of scale to support operations when rates dropped as the world struggled to
adapt to the pandemic. This gave them more business, but also tied up their capital. This puts them at a
disadvantage today as they are getting less on some loans in interest than they are paying for things like
savings accounts.
I looked at a high yield savings account that I have recently and the savings interest rate on that account
is more than twice what my mortgage interest rate is. A trend seen across the banking industry (Miller,
2024). This makes the larger banks cost of capital higher than banks who don’t have capital tied up in
lower return investments. Having a lower cost of capital, there is an ability for smaller banks to overtake
the larger players in a merger.
Considering that the bank will earn most of its money through fees, they have only a small portion of
capital and time invested into a merger, with the returns being seen quickly. This results in more capital
freed up quickly to facilitate another merger transaction. If we switch to our economist point of view, it is
likely that we will see more banks entering this market as there is money being made. However, as we
see more banks enter, we will see profit from fees begin to drop and a new equilibrium will be reached.
Some of these smaller banks will likely see large profits for a short run, then may see profits that don’t
bring enough return (possibly even losses). If we look at a profit loss graph, from a distance, I would
expect to see a fairly smooth, hopefully upward trending line. Up close however, it will have many peaks
and valleys for these boutique banks. The larger banks are more protected from these peak and valley
episodes with a more diverse business portfolio.
References:
Bennett, K. (2023, May 1). What is a bank bailout?. Bankrate. https://www.bankrate.com/banking/whatis-a-bankbailout/#:~:text=This%20led%20to%20the%20Great,and%20other%20companies%20in%20operation.
Miller, P. (2024, February 9). Mortgage rates chart: Historical and current rate trends. Mortgage Rates,
Mortgage News and Strategy : The Mortgage Reports. https://themortgagereports.com/61853/30-yearmortgage-rates-chart