mergers & acquisition

Mergers & Acquisitions

ITM – SMBA Batch 1

Presenters:

1.) Omkar Khalap 2.) Ganesh Murthy 3.) Ashish Dhargalkar

Institute of Technology & Management 2

Agenda

Overview 1

Objectives 2

Background 3

Generic Process of M&A 4

Generic Process of M&A 5

M&A Regulatory Environment – Indian Market 6


Overview

A merger is a combination of two or more businesses into one business. It is a merger of one or more companies with another or the merger of two or more companies to form a new company, in such

a way that all assets and liabilities of the amalgamating companies become assets and liabilities of the amalgamated company and shareholders not less than nine-tenths in value of the shares in the amalgamating company or companies become shareholders of the amalgamated company.

An acquisition may be defined as an act of acquiring effective control by one company over assets or management of another company without any combination of companies. Thus, in an acquisition two or more companies may remain independent, separate legal entities, but there may be a change in control of the companies.

When an acquisition is 'forced' or 'unwilling', it is called a takeover.

M&A

Horizontal Merger Vertical Merger Conglomerate Merger Acquisitions Takeovers

Classification of M&A


Objectives

Economy of scale

Largely refers to ideology that combined companies can reduce their operating costs and operate at better profit margins.

Economy of scope

Refers to efficiencies associated with demand-side changes, e.g. increasing or decreasing the scope of marketing and distribution for different products.

Increased revenue or market

share

This assumes that the buyer will be absorbing a major competitor and thus increase its market power (by capturing increased market share) to set prices.

Cross-sellingA manufacturer can acquire and sell complementary products to increase sales volume.

SynergyGain better bargain power in buying products from suppliers and selling products to consumer.

Taxation

Resource transfer

Vertical integration

Hiring

Absorption of similar

businesses

A profitable company can buy a loss maker to use the target's loss as their advantage by reducing their tax liability..

Resources can create value through either overcoming information asymmetry or by combining scarce resources.

Double marginalization occurs when both the upstream and downstream firms have monopoly power.

Some companies use acquisitions as an alternative to the normal hiring process. This is largely in start-up phase.

This could be for eliminating market competition and gain price leadership.


Background

Horizontal mergers

M&A Failure due to 1903 and 1904 slowdown

Companies – road and rail

Vertical mergers Industries

involved were primary industries – metals, oil and gas, etc

Ended with stock market crash in 1929

Conglomerate mergers

Inspired by stock prices, interest rates and strict enforcement of antitrust laws

Ended introduction of new policy to split conglomerates

Hostile takeovers High value

takeovers Involved foreign

takeovers Sectors involved

– pharma, banking. Oil and gas, airline

Cross-border mergers

Inspired by globalization, stock market boom and deregulation

The M&As were largely equity financed rather than debt finance

The mergers were driven long term rather than short term profit motives.

Shareholder Activism, Private Equity, LBO

Mixed strategies for M&A

First Wave

Second Wave

Third Wave

Fourth Wave

Fifth Wave

Sixth Wave

1897–1904 1916–1929 1965–1969 1981–1989 1992–2000 2003–2008


Generic Process of M&A

Pre-Merger Planning

Planning for M&A

Execution

Deliver on Targets

Unlocking Value

1 2


Generic Process of M&A1 2

Pre-merger Planning Planning for M&A Execution Deliver on Targets Unlocking Value

Undertake Due diligence and Assessment of integration effort

Finalize the Insurance portfolio for re-alignment

based on the list from ‘Target Assessment’ Phase

Identify possible change in company rating and anticipate the rating agency reaction

Structure the deal to best monetize the assets

Plan for Day One and conduct internal dry runs

Pair IT and business across merged entity to form cross functional teams to develop detailed area wise integration plan & prepare for joint IT governance

Conduct joint dry runs and perfect execution plans

Enable communication to all stakeholders

Provide BAU services (Helpdesks, Production support, System availability, Scalability, etc)

Enable fulfillment of regulatory and legal requirements

Enable cross-selling and up-selling

Common Vision and Strategy Workshops

Experiential Learning Workshops

Creating effective governance groups

New culture supporting new enterprise strategy

Implement the new organization design & IT governance plans

Implement business processes that match customer, cost, quality and employee satisfaction goals

Implement the post ‘Execution phase’ plans

Enable automatic consolidation of Book of

Business based on Straight-Through-

Processing Comprehensively

implement IT Governance plans

Integrate to unlock the true potential of the assets through the synergistic combinations identified from the ‘target assessment’ phase

Unlock value based on optimal levels of application and infrastructure rationalization (inline with business model)

Achieve strategic business agility based on plug and play IT and Business com7ponents

Stress test the strong foundation developed for future M&A and strengthen as necessary


M&A Regulatory Environment – Indian Market

The Companies Act, 1956

The Income Tax Act, 1961

MRTPA, 1967FEMA, 1999

Competition Act, 2002

The Acts mentioned above are the broad headers. There were several amendments made to this act periodically by the governing bodies. Hence, these acts follow a continual process of modifications as per requirement from a larger perspective.

Thank You