Strategic Perspective-B.V.Raghunandan


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strategic perspective of mergers and acquisitions

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Strategic Perspective-B.V.Raghunandan

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