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Mergers & acquisition:

A mergers and Acquisition may be defined as a transaction in which a buyer acquires all
or part of the assets, business, stock, or other securities of the selling company, thereby
gaining operational control of a part or the entire acquired firm

Why Global M&A

■ The need for faster growth which arises out of increasing competition.
■ Access to large capital funds and brand equity.
■ Gaining complementary strengths.
■ Expanding Customer Base.
■ The need to enhance technological skill sets.
■ Expand into new areas to foster growth.
■ Widen the portfolio of addressable markets.
■ Opportunity for Growth: Given domestic limitations and challenges
companies worldwide have undertaken global M&A activities to grow in size
by adding manpower, access resources unavailable in domestic regions and
facilitate overall expansion.

Reasons for Increasing Global M&A Activity


• Much of the increased cross-border M&A activity this year has involved
companies from the US and Europe who are in a major consolidation
process.
• Such deals are also becoming more common in developing countries,
which are beginning to liberalize their trade and investment markets.
• A pick-up in the global economy is the main reason for this year's rebound
in cross-border M&A.
• One factor that is contributing to increased M&A activity is the increasing
importance of private equity deals.
• The current wave of cross-border M&A deals is not only being driven
predominantly by transatlantic activity, as were the two previous periods
of frenzied buying in the late 1980s and 1990s. This increase is more
geographically distributed and includes China, India and Latin America
• The growing proportion of M&A deals that are settled in cash makes it
easier to buy outside of a region.
• Companies around the world have fixed their balance sheets and are
generating excess cash. Flush with cash, they are more eager to consider
acquisitions.
• As globalization continues, and multinational companies seek to increase
market share, eliminate competitors, or gain control of suppliers the stage
is set for a third wave of rising cross-border M&A.
Phases of a Global M&A Process

Formulation of the Vision


GROWTH - The vision for an organization defines its purpose, where it is heading, and
what it intends to do once it gets there. The vision includes a well-defined set of core
values and beliefs that define a company’s culture and purpose. COMPETITION - The
vision should identify the distinct set of competencies that will enable the organization to
deliver the unique value required to remain competitive as it moves forward. It should
describe clearly the expectations for what the company will look like and how it will
operate over time. Targets should be identified and evaluated in a manner consistent with
the company’s vision
Pre-Merger planning: - A coherent pre-merger planning process should target
companies with the desired capabilities, get the deal done, and lay the groundwork for a
successful integration through rigorous planning and building of trust among the players.
Post-Merger Process: - The post-merger process should be focused on cultural
integration, retention of key people, and capturing well defined sources of value as
quickly and efficiently as possible.

Indian Scenario - Major Deal


• Corporate India has gone on an acquisition spree, powered by the urge to go
global, strong market fundamentals and the drive to dish out cost-competitive
products. Acquisitions were not limited to the domestic market, but spread out in
the global arena also.
Though India's public sector took the lead in investing abroad, especially looking for
oil assets, the private sector is now going full speed ahead, driving overseas
investments e.g.
• Arcelor acquired by Mr. Lakshmi Mittal.
• Mahindra & Mahindra's takeover of 90 percent stake in Schoneweiss, a
family-owned German company.
• Tata's takeover of Corus & Tetley Tea Co.
• Hutchison Whampoa of Hong Kong sold their controlling stake in
Hutchison - Essar to Vodafone for a whopping $11.1 billion.
• Swiss cement major, Holcim, which acquired a 67 per cent stake in
Ambuja Cement India Ltd (ACIL).
• Videocon Group's acquisition of Thomson's colour picture tube business
in China, Poland, Mexico, and Italy for a total of $290 million.
• Birla-Hindalco Indian business conglomerate Aditya Birla group-owned
flagship company Hindalco Industries Ltd. Took over Atlanta-based
aluminum giant Novelis Inc. for US$ 6.4
Trans-Atlantic M&A Trends
 U.S. acquisitions of European targets more than doubled in 2003 to $75 billion
 G.E.’s $9 billion purchase of Amersham PLC (U.K.)
 P&G’s $5 billion purchase of Wella AG (Germany)
 United Technologies’ $1 billion purchase of Chubb PLC (U.K.)
M&A Market – The Challenges
 Due diligence rigor is excruciating
 Enhanced regulatory scrutiny
 Boards and management teams are nervous given recent scandals and their more
visible corporate responsibilities
 Financing can still be somewhat challenging for companies < $30 million
EBITDA
 Time to close has been extended and certainty has been reduced

Why Global M&A’s Fail!!


Some of the reasons identified are:
 Corporate Culture Clash
 Lack of Communication
 Loss of Key people and talent
 HR issues
 Lack of proper training
 Clashes between management
 Loss of customers due to apprehensions
 Failure to adhere to plans
 Communications strategy can make the difference between success and failure of
a Global M&A transaction.
 Slick press releases and conference calls can't save a bad deal, but a poorly
conceived communications strategy can - and usually will - kill one that may
make good strategic sense.
 Over the last several years, many of the biggest unsuccessful deals, as measured
by post-announcement return to shareholders, have performed poorly in large part
because the acquirers didn't tell their story adequately
 If the deal is dilutive in the short term, but makes "strategic" sense long-term,
there should be a compelling economics for profitable growth.
 For the transaction to be successful, Constituencies - particularly investors and
employees - must be convinced that the company is capable of delivering on its
promises and that they will be better off if the deal is completed.
 Failure of Cultural Integration can have adverse impacts on the M&A
transaction:
• Clash between the two Managements and clash between Management &
Employees.
• Creates differences among employees which can result in operational
inefficiencies.
• Negatively affects the value creation process after the transaction is
complete
• Loss of Key employees
• Negatively affects the strategic communication process.

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