MERGERS &

ACQUISITION

An aspect of corporate strategy, corporate finance and strategic management.

Deals with buying, selling, combining of different companies that can

Aid

Finance

Help

A growing company in a given industry grow rapidly without having to create a new business
entity.

TYPES OF ACQUISITIONS

Depending upon

Acquire or merging is or isnt listed in public markets.

How the communication is done and received by the target.

CONFIDENTIALITY BUBBLE

Quite normal for M&A deal communication to take place in a so called confidentiality
bubble.

Here information flows are restricted due to confidentiality agreements.

FRIENDLY ACQUISITIONS

Companies cooperate in negotiations.

Synonymous to merger of equals.

HOSTILE ACQUISITIONS

Takeover target unwilling to be purchased.

It can also be if the acquire company has no prior knowledge of offer.

Hostile takeovers do turn friendly in the end. Most of the times.

For the above thing to happen, offer is usually improved.

REVERSE TAKEOVERS

Acquisition usually refers to purchase of smaller firm by larger firm.

Sometimes, smaller firm acquire management control of a larger / longer established

company.

Keep its name for combined entity.

Known as reverse takeover.

SOME STATISTICS

Achieving acquisition successfully has proven to be tough.

Various studies show 50% of them are unsuccessful.

Process very complex, many dimensions influence its outcome.

Variety of structures used in securing asset control.

Different tax and regulatory implications

THE ACQUISITION PROCESS

Buyer buys shares of Target Company

Ownership control conveys effective control over assets, but since company is going
concern, liabilities come as well.

Buyer buys assets of Target Company.

Cash target receives from sell-off is paid back to its shareholders by

Dividend

Through liquidation

If buyer buys out entire assets, then target company = empty shell.

Buyer often cherry picks his assets

SOME OTHER TERMS

There are some other terms used as well like:

Demergers

Spin-off

Spin-out

Sometimes used to indicate a situation where one company splits into two, generating a
2nd company separately listed on a stock exchange.

DIFFERENTIATING MERGERS AND ACQUISITIONS

Both terms are often used synonymously.

They mean slightly different things in reality.

ACQUISITIONS FIRST

When one company takes over another, clearly establishes as its new owner.

Legal View: target ceases to exist.

Buyer swallows target

Buyers stock continues to be traded.

MERGERS NEXT

Happens when two firms agree to go forward as a single new company rather than remain
separate.

Often precisely termed as merger of equals.

Firms are often of same size.

Both companies stock surrendered

New company stock put into place instead.

Example: 1999 merger of Glaxo Welcome and SmithKline Beecham, both firms ceased
to exist and a new firm GlaxoSmithKline was created.
METHODS OF PROJECT APPRAISAL

Equity Approach

Flow to Equity Approach

Entity Approach

Adjusted Present Value Approach

CONCLUSION

M & A according to some studies destroy leadership continuity in target companies.

Target companies lose 21% of their executives each year following an acquisition.