ANSWER.NO. 1: Advantages and disadvantages of mergers and acquisitions
Advantages of mergers and acquisitions
A merger doe...
5. Conglomerate: A merger between firms that are involved in totally unrelated business activities. There are two
types of...
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Due diligence

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Determining negotiation parameter

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Negotiation of senior management positions in the firm

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Deve...
Important Forces Contributing to Merger and Acquisition
1. Improved ASC financial performance. We are seeing more centers ...
prevent an acquisition, to raise capital by selling off components that are no longer part of the business's core product
...
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Mf0011

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Mf0011

  1. 1. ANSWER.NO. 1: Advantages and disadvantages of mergers and acquisitions Advantages of mergers and acquisitions A merger does not require cash. · A merger may be accomplished tax-free for both parties. · A merger lets the target (in effect, the seller) realize the appreciation potential of the merged entity, instead of being limited to sales proceeds. · A merger allows the shareholders of smaller entities to own a smaller piece of a larger pie, increasing their overall net worth. · A merger of a privately held company into a publicly held company allows the target company shareholders to receive a public company's stock, despite the liquidity restrictions of SEC Rule 144a. · A merger allows the acquirer to avoid many of the costly and time-consuming aspects of asset purchases, such as the assignment of leases and bulk-sales notifications. · Of considerable importance when there are minority stockholders is the fact that upon obtaining the required number of votes in support of the merger, the transaction becomes effective and dissenting shareholders are obliged to go along. The disadvantages Diseconomies of scale if of business mergers becomes too large, and which acquisitions leads to higher are: unit costs. Clashes of culture between different types of businesses can occur, reducing the effectiveness of the integration. May need to make some workers redundant, especially at management levels - this may have an effect on motivation. May be a conflict of objectives between different businesses, meaning decisions are more difficult to make and causing disruption in the running of the business. EXPLANATION OF TYPE OF MERGER AND ACQUISITION 1. Vertical: A vertical merger represents the buying of supplier of a business. In the same example as above if a health care system buys the ambulance services from their service suppliers is an example of vertical buying. The vertical buying is aimed at reducing overhead cost of operations and economy of scale. 2. Horizontal: A horizontal merger is usually between two companies in the same business sector. The example of horizontal merger would be if a health care system buys another health care system. This means that synergy can obtained through many forms including such as; increased market share, cost savings and exploring new market opportunities. 3. Concentric: Conglomerate M&A is the third form of M&A process which deals the merger between two irrelevant companies. The example of conglomerate M&A with relevance to above scenario would be if health care system buys a restaurant chain. The objective may be diversification of capital investment 4. Circular Combination: A transaction to combine companies that operate within the same general market but offer a different product mix. A circular merger is one of the three types of mergers, the other two types being vertical and horizontal mergers. A company engages in a circular merger to offer a greater range of products or services within their market.
  2. 2. 5. Conglomerate: A merger between firms that are involved in totally unrelated business activities. There are two types of conglomerate mergers: pure and mixed. Pure conglomerate mergers involve firms with nothing in common, while mixed conglomerate mergers involve firms that are looking for product extensions or market extensions. -------******-------- ANSWER.NO. 2:EXPLANATION ON ACQUISITION FIVE STAGE MODEL OF MERGER AND The five Stages  Corporate strategy development  Organizing for acquisitions  Deal structuring and negotiations  Post acquisition integration  Post acquisition audit and organizational learning 1. Corporate strategy development  M& A is an instrument for achieving corporate strategy  Corporate strategy is concerned with ways of optimizing the portfolios of businesses that a firm currently owns with how this portfolio can be changed to serve the interests of corporate stakeholders. 2. Organizing for acquisitions A pre condition for successful acquisition is that the firm organizes itself for effective acquisition making  Understand beforehand the value creation logic  Leads to successful post integration  Develop a framework for effective organization of M&A activity  Get requisite skills , knowledge and capabilities 3. Deal structuring and negotiations  Valuation of target companies  Choosing advisors  Obtaining and evaluating as much intelligence as possible of target
  3. 3.  Due diligence  Determining negotiation parameter  Negotiation of senior management positions in the firm  Developing bid and defenses strategies 4. Post acquisition integration  Change management programmed of Target firm Acquiring firm Attitude and behavior of both to accommodate co-existence of the two organizations 5. Post acquisition audit and organizational learning  Emphasis on learning  Archiving for future ---------********---------- ANSWER. NO. 3:INTRODUCTION OF CREATING SYNERGY:The concept that the value and performance of two companies combined will be greater than the sum of the separate individual parts. Synergy is a term that is most commonly used in the context of mergers and acquisitions. Synergy, or the potential financial benefit achieved through the combining of companies, is often a driving force behind a merger. Shareholders will benefit if a company's post-merger share price increases due to the synergistic effect of the deal. The expected synergy achieved through the merger can be attributed to various factors, such as increased revenues, combined talent and technology, or cost reduction Pre requisites for the creation of synergy:-
  4. 4. Important Forces Contributing to Merger and Acquisition 1. Improved ASC financial performance. We are seeing more centers that are doing very well, with high revenues, profits and earnings before interest, taxes, depreciation and amortization (EBITDA) margins. It is not unusual now to see physician-managed centers that have EBITDA margins of 40 percent or more. Many centers have added ancillary services to improve their financial performance and have attended seminars, such as those sponsored by the Ambulatory Surgery Center Association and ASC Communications, and have implemented the recommendations discussed. 2. Diversification opportunity. The nation's economic difficulties and the impact this has had on investment assets such as stocks and real estate have increased an awareness of the importance of asset allocation. Many surgeons are overweight in the investments they have in their ASC business and real estate and realize that selling a portion of their interest will help them diversify their assets.. 3. Increased deal flow. With more successful centers and more than 30 companies competing to acquire ASC interests, many centers are being bombarded with opportunities to sell a minority or majority share to a corporate partner. There are many good companies willing to buy minority interests and this makes a sale more attractive to many physicians as it allows them to retain a majority interest. For groups that want to take more money off the table, there is strong competition to buy majority interests as well. 4. Higher prices. Competition for good quality centers with growth potential has driven multiples higher. It is now common to see multiples for multi-specialty ASCs in the 7-8 times EBITDA (less debt, plus cash) range. We are now seeing offers only slightly below this range offered for single-specialty ASCs with significant cash flow and good growth opportunities. Minority interests are being valued in the 5-6 times EBITDA range. 5. Incentives to sell: Capital gains taxes, adverse legislation. We have seen a spike in ASC physician-owners wanting to make a sale now because of an expectation that capital gains taxes will increase in 2009 to pay for wars, Wall Street bailout, etc. This anticipation of an increase in the capital gains tax rate is providing a strong incentive to seek the sale of interests in ASCs prior to the enacting of new tax laws. 6. Real estate sales. Many physicians who own their medical office building (MOB)/ASC real estate are interested in further diversification by selling their real estate as well as their ASC. We have advised and assisted clients to obtain some very attractive sale/leaseback deals offered by medical real estate investment trusts and private equity firms. ANSWER.NO. 4:INRODUCTION OF DEMERGER:A business strategy in which a single business is broken into components, either to operate on their own, to be sold or to be dissolved. A de-merger allows a large company, such as a conglomerate, to split off its various brands to invite or
  5. 5. prevent an acquisition, to raise capital by selling off components that are no longer part of the business's core product line, or to create separate legal entities to handle different operations. CHARACTERISTICS OF DEMERGER:Given below are the key characteristics of demerger:1. Demerger is basically a scheme of arrangement under Section 391 to 394 of The Companies Act which requires: (i)

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