WHAT IS MERGER?A merger is a combination of two or more companies where onecorporation is completely absorbed by another corporation.WHAT IS ACQUISITION?Acquisition essentially means ‘to acquire’ or ‘to takeover’. Here abigger company will take over the shares and assets of the smallercompany.
• The concept of merger and acquisition in India was not popular until the year 1988.• The key factor contributing to fewer companies involved in the merger is the regulatory and prohibitory provisions of MRTP Act, 1969. (Monopolies and Restrictive Trade Practices Act,1969)• The year 1988 witnessed one of the oldest business acquisitions or company mergers in India.• As for now the scenario has completely changed with increasing competition and globalization of business. It is believed that at present India has now emerged as one of the top countries entering into merger and acquisitions.
• Preliminary Assessment or Business Valuation- In this process of assessment not only the current financial performance of the company is examined but also the estimated future market value is considered Preliminary• Phase of Proposal- After complete analysis and review of the Assessment or Business target firms market performance, in the second step, the Valuation proposal for merger or acquisition is given. Stage of Phase of Proposal• Exit Plan- When a company decides to buy out the target Integration firm and the target firm agrees, then the latter involves in Exit Planning.• Structured Marketing- After finalizing the Exit Plan, the target Structured Exit Plan Marketing firm involves in the marketing process and tries to achieve highest selling price.• Stage of Integration- In this final stage, the two firms are integrated through Merger or Acquisition.
Different Types of Mergers• A horizontal merger - This kind of merger exists between two companies who compete in the same industry segment.• A vertical merger - Vertical merger is a kind in which two or more companies in the same industry but in different fields combine together in business.• Co-generic mergers - Co-generic merger is a kind in which two or more companies in association are some way or the other related to the production processes, business markets, or basic required technologies.• Conglomerate Mergers - Conglomerate merger is a kind of venture in which two or more companies belonging to different industrial sectors combine their operations.
Different Types of acquisitions• Friendly acquisition - Both the companies approve of the acquisition under friendly terms.• Reverse acquisition - A private company takes over a public company.• Back flip acquisition- A very rare case of acquisition in which, the purchasing company becomes a subsidiary of the purchased company.• Hostile acquisition - Here, as the name suggests, the entire process is done by force.
Difference between Mergers and AcquisitionsMergers AcquisitionsMeaning MeaningDeal DealEffect EffectExample Example
Motives for Mergers &acquisitions Economies of large scale business large-scale business organization enjoys both internal and externaleconomies. Elimination of competition It eliminates severe, intense and wasteful expenditure by differentcompeting organizations. Economies of Elimination of large scale Desire to enjoy monopoly power business competition M&A leads to monopolistic control in the market. Desire to enjoy Adoption of monopoly modern Adoption of modern technology power technology corporate organization requires large resources Lack of technical and managerial talent Lack of technical and managerial talent Industrialization, scarcity of entrepreneurial, managerial andtechnical talent
Benefits of Mergers and Acquisitions• Greater Value Generation. Mergers and acquisitions generally succeed in generating cost efficiencythrough the implementation of economies of scale. It is expected that theshareholder value of a firm after mergers or acquisitions.• Gaining Cost Efficiency. When two companies come together by merger or acquisition, the jointcompany benefits in terms of cost efficiency. As the two firms form a new andbigger company, the production is done on a much larger scale.• Increase in market share - An increase in market share is one of the plausiblebenefits of mergers and acquisitions.• Gain higher competitiveness - The new firm is usuallymore cost-efficient and competitive as compared to itsfinancially weak parent organization.
Problems of Merger and Acquisitions• Integration difficulties• Large or extraordinary debt• Managers overly focused on acquisitions• Overly Diversified
Impact of Mergers and Acquisitions• Employees: Mergers and acquisitions impact the employees or the workers the most. It is a well known fact that whenever there is a merger or an acquisition, there are bound to be lay offs.• Impact of mergers and acquisitions on top level management Impact of mergers and acquisitions on top level management may actually involve a "clash of the egos". There might be variations in the cultures of the two organizations.• Shareholders:• Shareholders of the acquired firm: The shareholders of the acquired company benefit the most. The reason being, it is seen in majority of the cases that the acquiring company usually pays a little excess than it what should. Unless a man lives in a house he has recently bought, he will not be able to know its drawbacks.• Shareholders of the acquiring firm: hey are most affected. If we measure the benefits enjoyed by the shareholders of the acquired company in degrees, the degree to which they were benefited, by the same degree, these shareholders are harmed•
Strategies of Merger and Acquisition• Then there is an important need to assess the market by deciding the growth factors through future market opportunities, recent trends, and customers feedback.• The integration process should be taken in line with consent of the management from both the companies venturing into the merger.• Restructuring plans and future parameters should be decided with exchange of information and knowledge from both ends.
Laws and Regulation relating to Merger and Acquisition
Indian Mergers and Acquisitions: The changing face of Indian Business
Merger & Acquisition:Integration Key to Success• RTTRE
NEED FOR MERGER AND ACQUISITIONIN BANKING SECTOR•
Reverse merger and Reverse acquisition• A reverse acquisition occurs when the entity that issues securities (the legal acquirer) is identified as the acquiree for accounting.• The entity whose equity interests are acquired (the legal acquiree) must be the acquirer for accounting purposes for the transaction to be considered a reverse acquisition.• reverse acquisition• Definition• One way for a company to become publicly traded, by acquiring a public company and then installing its own management team and renaming the acquired company.• A reverse merger refers to an arrangement where private company acquires a public company, usually a shell company, in order to acquire the status of a public company. Also known as a reverse takeover, it is an alternative to the traditional initial public offering (IPO) method of floating a public company. It is an easier way that allows private companies to change their type while avoiding the complex regulations and formalities associated with an IPO. Also, the degree of ownership and control of the private stakeholders increases in the public company. It also leads to combining of resources thereby giving greater liquidity to the private company. To ensure a smooth reverse merger, the public company should be a shell company, that is, the one which simply has an organization structure but negligible business activity. It is only an organizational entity on paper with no significant existence in the market. Reverse merger is a speedy and cheaper way of becoming a public company within a maximum period of 30 days. Alternatively, the IPO route takes almost a year. Moreover, public companies normally have greater valuation due to the greater investor confidence enjoyed by them. Hence acquiring one will push the private company up the growth ladder. However, it faces stability risk because the owners of the shell company might sell their stakes once the new company decides to raise the market price of its shares. This may lead to a complete operational chaos because the management of private companies have negligible experience of running a public company.
Top 5 Indian Mergers andAcquisitions• The Reliance – BP deal• Essay exits Vodafone• GVK Power acquires Hancock Coal• Adyta Birla Group to acquire Columbian Chemicals• The Vedanta – Cairn acquisition
M & A sectors Case study • The Vedanta – Cairn acquisition December 2011 finally saw the completion of the much talked about Vedanta – Cairn deal that was in the pipeline for more than 16 months. Touted to be the biggest deal for Indian energy sector, Vedanta acquired Cairn India for a neat 8.6 billion dollars. Although the Home Ministry cleared the deal, it has highlighted areas of concern with 64 legal proceedings against Vedanta.
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