Insight: How to cover a merger or acquisition

The seasons are not the only things changing. Headlines everywhere are flooded with recent mergers and acquisitions.

From last month’s questionable Burger King-Tim Horton’s deal to the weakening talks between DreamWorks Animation and SoftBank, M&A stories are increasing with more regularity. According to Mergermarket, the value of deals in the first quarter of 2014 was nearly $600 billion, up 33 percent from the first three months of 2013. The start to 2014 was the most active for M&A since 2011.

Richard Collings is a senior writer covering consumer products and retail for The Deal. Collings said the first step to writing any M&A story is all about confirming the rumor and fleshing out the backgrounds of the two companies.

“I start calling up sources to verify the information, and if I get confirmation, I then contact the companies said to be involved to obtain comment, to give them an opportunity to respond,” Collings said. “I also look up the history of the companies said to be involved, to find out what kind of deals, if any, they have previously transacted, and to see how this deal fits into these companies’ overall dealmaking.”

Collings (right) also said the two biggest numbers to look for are the EBITDA, or earnings before interest, taxes, debt and amortization, and the enterprise value. He said the EBITDA gives an idea of the company’s financial health, while the enterprise value gives the real valuation of the company.

“I like to calculate enterprise value as a multiple of EBITDA to see if deals are becoming cheaper or more expensive, and also to evaluate whether or not financing for a deal could be difficult to obtain, because debt financing follows certain rules-of-thumb,” Collings said.

Collings said another big piece of information he always tries to include is the firms advising on the deal.

Like Collings, David Ranii spends a good chunk of his time with The News & Observer in Raleigh, N.C., covering mergers and acquisitions.

Ranii also begins his writing process doing what he calls “quick and dirty research.” He said these research techniques vary from simple web searches to finding out “what the heck the company even does.”

The acquisition price is key to Ranii, and if he can get his hands on it, the number will almost always appear in his lede.

Unlike Collings, Ranii’s audience is more local, so he tries to blend in the local aspect to his writing.

“For my readers I am always looking for the most important angle, which is the local angle,” Ranii said. “How will employees and management be affected? Will the brand still exist or is the XYZ brand going away all together? With a merger, you just don’t need two CEOs or CFOs.”

Ranii said the best advice he could give to someone covering a merger or acquisition would be to keep your eyes peeled for the aftershocks of the merger, especially if the company is publicly traded because it will have to release certain information about the discussions leading up to the announcement.

Collings said even though most journalists start out covering a variety of general topics, it is important to find an industry you find attractive because that allows you to build contacts and specific industry knowledge.

He also said he is optimistic about the future of M&A writing, especially with the inevitable convergence of different industries.

“Sometimes the worlds clash, creating tension, but it is also fascinating in cases where the people leading a company are able to navigate both the art and science so that the two spheres complement and drive the other — that can have surprising, inspiring results,” Collings said.

“In another life, I might be tempted to take on health care because I think the advances we are going to see in health care over the coming years and decades is going to be mind-boggling, such as building organs with 3-D printers using stem cells, just to give an example, which isn’t far-fetched at all, and have real implications for M&A.”