Mergers & Acquisitions

Rajendra Mishra School of Engineering

Entrepreneurship
References:

Mergers and Acquisitions Business Strategies

for Accountants by William Gole and Joseph Morris,
Willey India Pvt. Ltd.
Mergers, Acquisitions And Corporate Restructuring by
Rabi Narayan Kar, Willey India Pvt. Ltd.

Mergers and Acquisitions

Mergers and acquisitions have become highly
prevalent in todays corporate world
The aggregate value of such deals in a country
is now referred to as an economic indicator
May unlock value for shareholders
Helps acquirer to avoid the pain of starting up
a production line or a new product and find
synergy
For such company, one plus one makes more
than two.
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Concept
Merger involves combining two
independent companies into one new
company.
Mahindra Satyam Ltd. was merged with Tech
Mahindra Ltd.

Acquisition is the purchase of one

company by another in which no new
company is formed.
Tech Mahindra took over or acquired Satyam
Computers Services Ltd.

Some Direct Advantages of Merger

Each becomes a business unit of merged
entity - one registered office, one set of
board of directors, and one set of financial
statements.
It facilitates centralized decision making.
It reduces administrative overhead.
Trims down requirement of regulatory
compliances.
Integrates logistics.
The single company works for focused
growth.
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Advantages of acquisition are

transaction specific.

Scope of Transactions under the Broader

Areas of Mergers and Acquisitions

Purchase a company that is available

for sale.
Purchase one or more of the business
units of a company (referred to as
slump sale).
Merge another company with itself.
The reverse is true from the
perspective of the company on sale.
Corporate restructuring.

Special Circumstances
Forced Merger
The government has made a draft
order to merge National Spot
Exchange Ltd (NSEL) with its parent
firm Financial Technologies (India) Ltd
(FTIL) in 'public interest'.
The cases of Satyam Computer
Services and Multi-Commodity
Exchange also resulted out of
Government interventions.

Steps in Mergers and

Acquisitions
Strategic planning and decision making
Identification of the target company
Due diligence
Valuation and negotiation
Financial closure
Approval of shareholders and legal
clearance
Contract, payment, and Close
Integration
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Strategy Planning
Need discovery / strategic objectives
Analyze build versus acquire decisions
Preparedness of the management
Own financial position
Discussion with banks and financial
institutions
Assess other sources of fund
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Need Discovery /Strategic

Objectives
Investment of surplus fund for inorganic
growth
Increase market share pricing power
Get larger market access
Acquire technologies
Acquire skills

(Design lab by Mahindra)

Acquire distribution network

(Ranbaxy by SUN)

To avoid the pain in starting a new company

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Need Discovery /Strategic

Objectives contd.
To gain tax advantage (Ispat by JSW)
To get access to raw-materials or market
(JSW and Gujarat NRE)

Global reach (Tata Jaguar Land Rover)

Forward and backward integration

(RIL and

RPL)

Acquire brand
Leverage on unique knowledge and
expertise
Asset stripping
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Identification of Target
Company

Create core acquisition team

Search for potential target
Preliminary screening
Establish contact with the target
company

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Due Diligence
Understand unique strength of the company
and synergy with the acquirer company.
Assessment of real prospect of meeting the
desired outcome of the acquisition.
Make a realistic assessment of the financial
health of the company and potential growth
after integration with the acquirer.
Analyze remaining useful life of plant and
machinery. This is more important in industry
segments where technology life is short.
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Due Diligence

contd

Analyze intangible assets (patents,

trademark, brand, copyright), their
protection status, any infringement
on others assets.
Understand quality of human capital.
Identify hidden liabilities and assets.

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Due Diligence

contd

Understand possibility of synergy in

terms of technology, market,
knowledge, finance, distribution,
culture and broader mission.
Understand the reality as regards
strategic assets owned by the
company coal block.
Understand implication of present and
future legal disputes.
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Due Diligence

contd

Assess quality of investment in its

books.
Understand key issues in favor and
against post-acquisition integration.
Quality of debtors.

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Composition of Due Diligence

Team

Finance and Accounting

Outside accountant
Business development
Legal
Human resource
Information technology
Sales and marketing
Product marketing
Production and operation
R&D
Taxation expert
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Development of the Due

Diligence Program
Management presentation highlighting the value
proposition
Interviews with key members of the target company
to elicit their views on the prospect of the company
Data review to make meaningful assessment of the
present status
Follow-up discussion
Tour of the facility
Conduct unscheduled meetings so as to get a
realistic picture
Make enquiries with regulatory authorities
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External Data Source

Annual reports
Analyst reports
Disclosures made in the stock
markets where the equity of the
company is listed
Trade and business periodicals

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External Data Source

contd.

Industry market research report

Credit rating of the debt issued by
the company
Online news media
Company website
Reports on industrial outlook in the
market to be catered

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Valuation, negotiation, and

structuring the deal
Approaches of valuation
Income approach
Cost approach
Market approach

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Valuation
Methods of valuation
Capitalization of earnings
Discounted earnings method
Method of multiple
Price to earnings ratio
Price to book value ratio
Dividend discounting method
Method of Net Asset
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Structuring the Deal

All cash deal and takeover of debt or
no debt
All stock deal and takeover of debt or
no debt
Mix of stock and cash and/or debt
Mergers usually involve share swap

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