Mergers & Acquisitions Nand Kumar Aradhye Ganesh Naik Raj Kumar Ranjan Varma
Corporate Strategies in M&A <ul><li>Why?  </li></ul><ul><ul><ul><li>Gain market share </li></ul></ul></ul><ul><ul><ul><li>...
Why not? <ul><li>Grasping for a company simply because it’s on the market, or because a competitor wants to buy it . </li>...
Corporate Strategies in M&A <ul><li>Exploit market power, economies of scale & scope,  </li></ul><ul><li>and market ineffi...
Mechanics of a Merger <ul><li>Legal Procedure </li></ul><ul><ul><ul><li>The MOA to be scrutinised </li></ul></ul></ul><ul>...
Mechanics of Merger (Cont’d) <ul><li>Tax Aspects </li></ul><ul><ul><ul><li>Section 2(a) of the Income Tax Act defines amal...
Costs & Benefits <ul><li>When firm A acquires firm B, A is making a capital investment while B is making capital divestmen...
Screening Potential Deals <ul><li>Never stop looking </li></ul><ul><li>Constantly scanning marketplace </li></ul><ul><li>B...
Due Diligence <ul><li>Look for the devil in the details </li></ul><ul><li>A 360 approach –  </li></ul><ul><ul><ul><li>exte...
Look for the devils in the details! <ul><li>Industry / Markets </li></ul><ul><li>Customers / Partners </li></ul><ul><li>Co...
Look for the devils in the details! <ul><li>Contingent Liabilities </li></ul><ul><li>Corporate Controls </li></ul><ul><li>...
Valuation <ul><li>No magic formula </li></ul><ul><ul><ul><li>Future cash flow </li></ul></ul></ul><ul><ul><ul><li>Earnings...
Making the Deal Happen <ul><li>Identify the details critical to the deal’s success </li></ul><ul><li>Use early negotiation...
Making the Deal Good <ul><li>Negotiate on several fronts simultaneously </li></ul><ul><li>Make sure you have alternatives ...
Making the Deal Good <ul><li>PR:  External & internal  </li></ul><ul><li>Integration – Realizing the synergy dream </li></...
Are You the Strongest Acquirer? <ul><li>Ability to realize synergies </li></ul><ul><li>Financing capacity </li></ul><ul><l...
Jargons to understand <ul><li>Net Present Value </li></ul><ul><li>Exchange Ratio </li></ul><ul><li>Price per share </li></...
SEBI Guidelines <ul><li>Notification </li></ul><ul><li>Trigger point for public offer </li></ul><ul><li>Offer price </li><...
HOT DEALS  <ul><li>Mittal- Arcelor </li></ul><ul><li>SBI- GE </li></ul><ul><li>ICICI- Sangli Bank </li></ul><ul><li>United...
Air Sahara in Jet Air Fold <ul><li>Deal for Rs 1450 crore, 40% less than the deal in Jan’ 2006. </li></ul><ul><li>NPV of P...
छपतेछपते  <ul><li>M & A Valuations to come under lens </li></ul><ul><ul><ul><li>Institute of Independent Valuers to be set...
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Mergers & Acquisitions

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An overview of the M&A process with an Indian perspective

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Mergers & Acquisitions

  1. 1. Mergers & Acquisitions Nand Kumar Aradhye Ganesh Naik Raj Kumar Ranjan Varma
  2. 2. Corporate Strategies in M&A <ul><li>Why? </li></ul><ul><ul><ul><li>Gain market share </li></ul></ul></ul><ul><ul><ul><li>Economies of scale </li></ul></ul></ul><ul><ul><ul><li>Enter new markets </li></ul></ul></ul><ul><ul><ul><li>Acquire technologies </li></ul></ul></ul><ul><ul><ul><li>Strategic Benefit </li></ul></ul></ul><ul><ul><ul><li>Complementary resource </li></ul></ul></ul><ul><ul><ul><li>Tax shields </li></ul></ul></ul><ul><ul><ul><li>Utilisation of surplus funds </li></ul></ul></ul><ul><ul><ul><li>Managerial Effectiveness </li></ul></ul></ul><ul><ul><ul><li>Integrate vertically </li></ul></ul></ul>
  3. 3. Why not? <ul><li>Grasping for a company simply because it’s on the market, or because a competitor wants to buy it . </li></ul><ul><li>Overpayment or misguided purchase </li></ul><ul><li>Reduce cost of debt. </li></ul><ul><li>Diverse Business; Unmanageable </li></ul><ul><li>Leaping without looking at the value; Win-Win or no deal </li></ul><ul><li>Inability to integrate well. </li></ul>
  4. 4. Corporate Strategies in M&A <ul><li>Exploit market power, economies of scale & scope, </li></ul><ul><li>and market inefficiencies </li></ul><ul><li>Same industry/ </li></ul><ul><li>Same market </li></ul><ul><li>Consolidation </li></ul><ul><li>Related industries </li></ul><ul><li>Horizontal </li></ul><ul><li>Jet-Sahara </li></ul><ul><li>Same industry/ </li></ul><ul><li>Different market </li></ul><ul><li>(Conglomerate) </li></ul><ul><li>LIC-UTI Bank </li></ul><ul><li>Suppliers </li></ul><ul><li>Vertical </li></ul><ul><li>ITC </li></ul>
  5. 5. Mechanics of a Merger <ul><li>Legal Procedure </li></ul><ul><ul><ul><li>The MOA to be scrutinised </li></ul></ul></ul><ul><ul><ul><li>Intimation to Stock Exchanges </li></ul></ul></ul><ul><ul><ul><li>Approval of draft amalgamation proposal </li></ul></ul></ul><ul><ul><ul><li>Application to the Court </li></ul></ul></ul><ul><ul><ul><li>Notice to shareholders and creditors </li></ul></ul></ul><ul><ul><ul><li>Filing the order </li></ul></ul></ul><ul><ul><ul><li>Transfer of assets and liabilities </li></ul></ul></ul><ul><ul><ul><li>Issue of shares and debentures </li></ul></ul></ul>
  6. 6. Mechanics of Merger (Cont’d) <ul><li>Tax Aspects </li></ul><ul><ul><ul><li>Section 2(a) of the Income Tax Act defines amalgamation </li></ul></ul></ul><ul><ul><ul><li>Depreciation for tax purposes </li></ul></ul></ul><ul><ul><ul><li>Accumulated losses </li></ul></ul></ul><ul><ul><ul><li>Unabsorbed Depreciation </li></ul></ul></ul><ul><ul><ul><li>Capital Gains Tax </li></ul></ul></ul><ul><ul><ul><li>Accounting for Amalgamation is done according to Accounting Standard 14 (AS-14) issued by the Institute of Chartered Accountants of India </li></ul></ul></ul>
  7. 7. Costs & Benefits <ul><li>When firm A acquires firm B, A is making a capital investment while B is making capital divestment based on NPV method </li></ul><ul><li>Benefit = PV(AB) – {PV(A) + PV(B)} </li></ul><ul><li>Cost = Cash – PV(B) </li></ul><ul><li>NPV to A= Benefit – Cost </li></ul><ul><li>NPV to B= Cash – PV(B) </li></ul>
  8. 8. Screening Potential Deals <ul><li>Never stop looking </li></ul><ul><li>Constantly scanning marketplace </li></ul><ul><li>Be diligent and disciplined </li></ul><ul><ul><li>Do not simply react whenever IBanks contact you </li></ul></ul><ul><li>Look at various potentials in the market, not just the deal at hand </li></ul><ul><li>Don’t cast strategy aside in the face of an exciting opportunity </li></ul><ul><li>Can’t make a good stew unless you have good ingredients </li></ul><ul><ul><ul><li>shop around to find the best ingredients </li></ul></ul></ul>
  9. 9. Due Diligence <ul><li>Look for the devil in the details </li></ul><ul><li>A 360 approach – </li></ul><ul><ul><ul><li>external-internal ………. peel the onion! </li></ul></ul></ul><ul><ul><ul><li>past-present-future </li></ul></ul></ul><ul><ul><ul><li>scenario modeling on synergy assumptions </li></ul></ul></ul><ul><li>Link due diligence with business planning </li></ul>
  10. 10. Look for the devils in the details! <ul><li>Industry / Markets </li></ul><ul><li>Customers / Partners </li></ul><ul><li>Competition </li></ul><ul><li>People </li></ul><ul><li>Suppliers </li></ul><ul><li>Customer & Vendor Contracts </li></ul><ul><li>Operations & Support </li></ul><ul><li>Pricing and discounts </li></ul><ul><li>Finance, Accounting & Taxes </li></ul>
  11. 11. Look for the devils in the details! <ul><li>Contingent Liabilities </li></ul><ul><li>Corporate Controls </li></ul><ul><li>Intellectual Properties </li></ul><ul><li>Human Resources </li></ul><ul><li>Legal </li></ul><ul><li>IT – infrastructure & applications </li></ul><ul><li>Insurance </li></ul><ul><li>Synergy – Assumption Testing!! </li></ul>
  12. 12. Valuation <ul><li>No magic formula </li></ul><ul><ul><ul><li>Future cash flow </li></ul></ul></ul><ul><ul><ul><li>Earnings estimates </li></ul></ul></ul><ul><ul><ul><li>Assumption modeling </li></ul></ul></ul><ul><ul><ul><li>Due diligence findings </li></ul></ul></ul><ul><ul><ul><li>Synergy </li></ul></ul></ul><ul><li>Set limits and stick to financial discipline </li></ul><ul><li>Maintain reasonable and realistic expectations </li></ul><ul><li>X Rationalization: “This deal is strategic – don’t worry, it’s all going to work out in the end no matter what price we pay.” </li></ul><ul><li> Wisdom: “If you stumble across too many red flags while evaluating a business, walk away!” </li></ul>
  13. 13. Making the Deal Happen <ul><li>Identify the details critical to the deal’s success </li></ul><ul><li>Use early negotiations to foster a sense of trust with the target’s top executives </li></ul><ul><li>Know who have influence on the deal – target company and your company </li></ul><ul><li>Don’t focus on the price yet </li></ul><ul><li>Keeping a foot on the brakes </li></ul>
  14. 14. Making the Deal Good <ul><li>Negotiate on several fronts simultaneously </li></ul><ul><li>Make sure you have alternatives to this deal </li></ul><ul><li>Anticipate the competition </li></ul><ul><li>Close quickly after setting final terms </li></ul>
  15. 15. Making the Deal Good <ul><li>PR: External & internal </li></ul><ul><li>Integration – Realizing the synergy dream </li></ul><ul><ul><ul><li>Talent </li></ul></ul></ul><ul><ul><ul><li>Culture </li></ul></ul></ul><ul><ul><ul><li>Structure </li></ul></ul></ul><ul><ul><ul><li>Technology </li></ul></ul></ul><ul><ul><ul><li>Discovering and leveraging the unknown and unexpected treasures </li></ul></ul></ul>
  16. 16. Are You the Strongest Acquirer? <ul><li>Ability to realize synergies </li></ul><ul><li>Financing capacity </li></ul><ul><li>Ability to make quick decisions </li></ul><ul><li>Attractiveness of currency </li></ul><ul><li>Reputation </li></ul><ul><ul><li>Negotiations </li></ul></ul><ul><ul><li>People treatment </li></ul></ul><ul><ul><li>Integration </li></ul></ul><ul><li>Post-acquisition performance record </li></ul>
  17. 17. Jargons to understand <ul><li>Net Present Value </li></ul><ul><li>Exchange Ratio </li></ul><ul><li>Price per share </li></ul><ul><li>Price Earning multiple </li></ul><ul><li>Earnings </li></ul><ul><li>Number of Shares/ Debentures </li></ul><ul><li>Free Cash Flow </li></ul><ul><li>Market price to Book Value ratio </li></ul>
  18. 18. SEBI Guidelines <ul><li>Notification </li></ul><ul><li>Trigger point for public offer </li></ul><ul><li>Offer price </li></ul><ul><li>Contents of Public announcement </li></ul><ul><li>To ensure transparency, greater disclosures and protect the interests of small shareholders . </li></ul>
  19. 19. HOT DEALS <ul><li>Mittal- Arcelor </li></ul><ul><li>SBI- GE </li></ul><ul><li>ICICI- Sangli Bank </li></ul><ul><li>United Breweries- Shaw Wallace </li></ul><ul><li>Tata- Corus </li></ul><ul><li>Jet- Sahara </li></ul><ul><li>LIC may buy UTI Bank ( FE, 13.04.2007) </li></ul>
  20. 20. Air Sahara in Jet Air Fold <ul><li>Deal for Rs 1450 crore, 40% less than the deal in Jan’ 2006. </li></ul><ul><li>NPV of Price is Rs 1200 crore. </li></ul><ul><li>Rs 200 crore debt of Air Sahara will increase the acquisition cost. </li></ul><ul><li>The merged entity will have a market share of 42% (largest domestic private ) </li></ul><ul><li>Buyout helps Jet Air to go International. </li></ul>Source: Financial Dailies
  21. 21. छपतेछपते <ul><li>M & A Valuations to come under lens </li></ul><ul><ul><ul><li>Institute of Independent Valuers to be set up to standardize techniques and procedures. </li></ul></ul></ul>Thank You! Sources: Financial Express, dated 16.04.2007 Financial Management by Prasanna Chandra
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