Strategic Perspective Of Mergers & Acquisitions-B.V.Raghunandan

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The strategic needs of merger or acquisition

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Strategic Perspective Of Mergers & Acquisitions-B.V.Raghunandan

  1. 1. Strategic Perspective of Mergers & Acquisitions
  2. 2. <ul><li>Major Event </li></ul><ul><li>Better Image </li></ul><ul><li>Easy Funding </li></ul><ul><li>Synergy </li></ul><ul><li>Tax Benefits </li></ul><ul><li>Exploiting Hidden Value </li></ul><ul><li>Quick Expansion & Consolidation </li></ul><ul><li>Licensing </li></ul><ul><li>Quick Acquisition of Resources </li></ul>
  3. 4. <ul><li>Five Stages </li></ul><ul><li>Stage I Corporate Strategy Development </li></ul><ul><li>Stage II Organising for Acquisition </li></ul><ul><li>Stage III Deal Structuring & Negotiation </li></ul><ul><li>Stage IV Post-Acquisition Integration </li></ul><ul><li>Stage V Post-Acquisition Audit & Organisational Learning </li></ul>
  4. 5. <ul><li>M&A is a part of Corporate Strategy </li></ul><ul><li>Enhancing competitive advantage </li></ul><ul><li>Optimising Current portfolio of business </li></ul><ul><li>Gaining Economies of Scale </li></ul><ul><li>Searching for Partners with Matching Resources </li></ul><ul><li>-continued………. </li></ul>
  5. 6. <ul><li>Difficulty of Quantifying competitive advantage of M& A </li></ul><ul><li>High Risk of Integration Failure </li></ul><ul><li>Related Mergers likely to bring in better operating performance, shareholder value and innovation than unrelated mergers </li></ul><ul><li>- contd…………. </li></ul>
  6. 7. <ul><li>Industry Structure Driven view of Competition like gaining market power, cost leadership through vertical integration and product differentiation </li></ul><ul><li>Resource based View of Competition like financial, human, intangibles, physical, organisational and technological gains </li></ul>
  7. 8. <ul><li>M&A may be a separate function or a part of the normal functions </li></ul><ul><li>Acquirer must develop capability and core competence </li></ul><ul><li>Arrange for obtaining additional resources </li></ul><ul><li>Prepare a Road Map for Post Merger Scenario of each department and functions </li></ul><ul><li>Standardise & internalise early warning signals </li></ul>
  8. 9. <ul><li>Major Pitfalls in Deal Structuring & Negotiation </li></ul><ul><li>- Overvaluation of target company (Hubris/Winner’s Curse) </li></ul><ul><li>- Conflict of Interest of Advisors such as Investment Bankers, lawyers, accountants and environmental consultants </li></ul><ul><li>- Obtaining insufficient data </li></ul><ul><li>- Defective due diligence </li></ul><ul><li>- not determining the range of negotiation parameters </li></ul><ul><li>-lack of clear negotiation regarding the positions of the senior managers of both the firms </li></ul><ul><li>- not developing defense strategies regarding regulatory agencies -continued…….. </li></ul>
  9. 10. <ul><li>For avoiding the pitfalls, the corporate should </li></ul><ul><li>- do proper valuation of the target </li></ul><ul><li>- conduct in advance a thorough investigation of conflict of interest of the advisors </li></ul><ul><li>- conduct an elaborate due diligence even by more than one agency </li></ul><ul><li>- negotiate clearly the absorption of the HR and their designations </li></ul>
  10. 11. <ul><li>Change Management </li></ul><ul><li>Project management capabilities </li></ul><ul><li>Communication Plans </li></ul><ul><li>Deadlines for execution of plans </li></ul><ul><li>Performance benchmarks </li></ul><ul><li>Reward for achievements </li></ul><ul><li>Merger of information systems </li></ul><ul><li>- continued……….. </li></ul>
  11. 12. <ul><li>HR Problems </li></ul><ul><li>- detailed meeting and discussion with HR </li></ul><ul><li>- reduce anxiety </li></ul><ul><li>- assuring retention </li></ul><ul><li>- no cultural shock </li></ul><ul><li>- no downgrading of designations </li></ul><ul><li>- no superior-inferior treatment </li></ul>
  12. 13. <ul><li>“ A thorough investigation about the target company and its operations is called due diligence” </li></ul>
  13. 14. <ul><li>[a] Commercial Aspects </li></ul><ul><li>[b] Operational Aspects </li></ul><ul><li>[c] Financial Aspects </li></ul><ul><li>[d] Legal Aspects </li></ul><ul><li>[e] HR Aspects </li></ul><ul><li>[f] Organisational Aspects </li></ul><ul><li>[g] Aspects of Information Systems </li></ul>
  14. 15. <ul><li>Competitive Position </li></ul><ul><li>Customer Relation </li></ul><ul><li>Patents/Copyrights </li></ul><ul><li>Market Share </li></ul><ul><li>Brand Portfolio </li></ul>
  15. 16. <ul><li>Production Processes </li></ul><ul><li>Technology used </li></ul><ul><li>Production Systems </li></ul><ul><li>Channels of Distribution </li></ul><ul><li>Outsourced Operations </li></ul><ul><li>Sub-contracting </li></ul>
  16. 17. <ul><li>Capital Structure </li></ul><ul><li>Lending Agencies </li></ul><ul><li>Accounting Systems </li></ul><ul><li>Audit Systems </li></ul><ul><li>Tax Liability </li></ul>
  17. 18. <ul><li>Contractual Obligations </li></ul><ul><li>Product Liability </li></ul><ul><li>Class Action Suits </li></ul><ul><li>Environmental Liability </li></ul><ul><li>Cases Pending with Regulatory Agencies like RBI, SEBI, and other Government Departments </li></ul>
  18. 19. <ul><li>Competence </li></ul><ul><li>Compensation </li></ul><ul><li>Training </li></ul><ul><li>Employee Relations </li></ul><ul><li>Disputes </li></ul><ul><li>Outstanding Contracts </li></ul>
  19. 20. <ul><li>Structure </li></ul><ul><li>Delegation of Authority </li></ul><ul><li>Leadership </li></ul><ul><li>Bureaucracy </li></ul>
  20. 21. <ul><li>Performance </li></ul><ul><li>Cost </li></ul><ul><li>Complexity </li></ul><ul><li>Compatibility </li></ul>

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