1. INTRODUCTION
Mergers and acquisitions (abbreviated M&A) is an aspect of corporate strategy, corporate
finance and management dealing with the buying, selling, dividing and combining of
different companies and similar entities that can help an enterprise grow rapidly in its sector or
location of origin, or a new field or new location, without creating a subsidiary, other child entity or
using a joint venture. The distinction between a "merger" and an "acquisition" has become
increasingly blurred in various respects (particularly in terms of the ultimate economic outcome),
although it has not completely disappeared in all situations.
"Acquisition" usually refers to a purchase of a smaller firm by a larger one. Sometimes, however,
a smaller firm will acquire management control of a larger and/or longer-established company
and retain the name of the latter for the post-acquisition combined entity. This is known as
a reverse takeover. Another type of acquisition is the reverse merger, a form of transaction that
enables a private company to be publicly listed in a relatively short time frame. A reverse merger
occurs when a privately held company (often one that has strong prospects and is eager to raise
financing) buys a publicly listed shell company, usually one with no business and limited assets.
The five most common ways to value a business are
• asset valuation,
• historical earnings valuation,
• future maintainable earnings valuation,
• relative valuation (comparable company & comparable transactions),
• discounted cash flow (DCF) valuation
The biggest disadvantage of acquisitions is that they fail because of cultural mismatches. Every
company is shaped over the years by the vision and background of its promoters or
management. This is called 'company culture' - the way they project themselves in the market
place, how they treat customers, employees, suppliers and shareholders, their social
responsibilities, integrity and commitment, innovating capabilities.
No two companies do business the same way, even within the same sector. When one company
acquires another, the cultural differences become very difficult to overcome. This leads to key
personnel of the acquired company quitting and leaving with priceless intellectual property and
customer relationships built up over many years.
Reverse takeovers, when a smaller company acquires a larger one, are even worse. Like Tata
Steel buying Corus or Tata Motors buying Jaguar-Land Rover. In both cases, the the ambition
was to become global companies in quick time. But the prices paid in both cases were too high,
and the timing was wrong. The shares of both companies tanked while they scrambled to raise
money to cover the huge acquisition debt.

2. For shareholders of the company being acquired, an advantage could be a bidding war between
two or more potential acquirers. This is currently happening with Great Offshore (earlier
demerged from Great Eastern Shipping). Without any change in the fundamentals, the share
price is going up as two likely acquirers are bidding up the offer price.
Firms realize M&A also at the aim to increase competitiveness, market power, speed to
market, and to block the moves of a competitor. Through mergers, firms maximize their
ability to offer attractive products or services, increase efficiency, reduce costs and share
the risks in activities that are beyond the capabilities of a singleorganization. In an
international context, firms use acquisitions as a means of entry into foreign markets or a
meansof obtaining a competitive advantage (Shan & Hamilton, 1991). This set of
strategic motivations can be grouped infour categories:
(1) increase market power through the erection of entry barriers or the creation of
monopoly-typeinfluence,
(2) increase political power, or the ability to influence governing bodies domestically or
internationally,
(3) increase efficiency in research, production, marketing, or other functions, and
(4) provide product or service differentiation.