Mergers & Acquisition

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In this presentation, we will discuss about the concept of mergers and acquisition and important components of growth gap. We will also talk about the determination of strategic purpose, important consideration, portfolio strategy, scale economic synergy, establishment of new units and various other aspects.
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Mergers & Acquisition

  1. 1. Chapter 12 Page 245 MERGERS AND ACQUISITIONS IN INDIATHE LIBERALISATION USHERED IN 1991 VERYSIGNIFICANTLY CHANGED THE SCENE. FOLLOWINGTHE LIBERALISATION OF THE REGULATIONS ONGROWTH AND M & A, THE M & A MANIA HAS BITTENCORPORATE INDIA MAKING THE 1990S A DECADE OFSTRUCTURAL TRANSFORMATION OF THE INDUSTRIALSECTOR
  2. 2. Chapter 12 Page 247 M & A AND GROWTH GAP FILLINGM & A FILLS THE GAP BETWEEN THECOMPANY’S SALES POTENTAIL AND ITSCURRENT ACTUAL PERFORMANCE
  3. 3. Chapter 12 Page 247IMPORTANT COMPONENTS OF GROWTH GAPPRODUCT LINE GAPDISTRIBUTION GAPUSAGE GAPCOMPETITIVE GAP
  4. 4. Chapter 12 Page 247 MERGERS AND ACQUISITIONS (M & A)ADVANTAGES : FACILITATES TO FILL THE PRODUCT LINE GAP. FICILITATES IN INCREASING SALES BY REMOVING INADEQUACY OF DISTRIBUTION INFRASTRUCTURE. CONSOLIDATION OF STRENGTH BY M&A MAY ENABLE TO IMPROVE THE PRODUCT PROMOTION,THEREBY CONVERTING NON USERS INTO USERS,RESULTING IN INCREASING SALES. M & A HAS THE IMMEDIATE EFFECT OF INCREASING MARKET SHARE, AS WELL AS HELPS MAKING INROADS INTO THE MARKET SHARE OF COMPETITORS.
  5. 5. Chapter 12 Page 248 PURE DIVERSIFICAION THEORYTO PROTECT THE INTERESTS OF MANAGERS AND EMPLOYEESFIRM – SPECIFIC HUMAN CAPITAL INVESTMENTS, WHICHMAKE THEIR EMPLOYEES MORE VALUABLE ANDPRODUCTIVE, AND TO INCREASE THE PROBABILITYTHAT THE ORGANISATION AND REPUTATION CAPITALOF THE FIRM WILL BE PRESERVED BY TRANSFER TOANOTHER LINE OF BUSINESS IN THE EVENT ITS INITIALINDUSTRY DECLINES
  6. 6. Chapter 12 Page 250 MANAGEMENT OF M & AIMPORTANT PHASES : DETERMINATION OF THE STRATEGIC PURPOSE OF M & A SCREENING, EVALUATION AND CHOICE OF CANDIDATES FOR M & A DETERMINATION OF ACQUISITION STRATEGY POST – ACQUISITION INTEGRATION
  7. 7. Chapter 12 Page 250DETERMINATION OF STRATEGIC PURPOSE ( M & A) IS IT TO GAIN AN ENTRY INTO THE MARKET ? IS IT TO STRENGTHEN THE COMPETITIVE POSITION OR TO GET MARKET LEADERSIP ? IS IT TO ACQUIRE TECHNOLOGY ? IS IT TO ACHIEVE ECONOMIES OF SCALE OR ADVANTAGES OF SYNERGY ? IS IT TO DEEPEN / OR WIDEN PRODUCT MIX ? IS IT TO STRENGTHEN THE DISTRIBUTION ? IS IT TO IMPROVE THE INBOUND OR OUTBOUND LOGISTICS ?
  8. 8. Chapter 12 Page 251 FIT WITH MISSION AND STRATEGY IMPORTANT CONSIDERATIONIN M & A HOW WELL THE FIRM CONSIDERED FOR MERGER / ACQUISITION FITS WITH MISSION AND STRATEGY
  9. 9. Chapter 12 Page 251 FIT WITH PORTFOLIO STRATEGY (M&A)CONSIDERATIONS : WHAT WILL BE THE CONTRIBUTION OF MERGER OR ACQUISITION ? DOES IT PROVIDE A STRATEGIC LEVERAGE TO EXPAND THE PORTFOLIO ? HOW WILL IT HELP THE GROWTH OF THE CURRENT PORTFOLIO ?
  10. 10. Chapter 12 Page 252“ WHEN MARKET SHARES OF THE MAJOR PLAYERS ARE NOT SIGNIFICANTLY DIFFERENT , TAKENOVER CAN BE A FACTOR DETERMINING MARKET LEADERSHIP OR POSITION ”
  11. 11. Chapter 12 Page 253 SCALE ECONOMICS AND SYNERGY (M&A)CONSIDERATION : REDUCTION IN OVERHEADS EFFECTIVE UTILISATION OF FACILITIES ABILITY TO RAISE FUNDS AT A LOWER COST DEPLOYMENT OF SURPLUS CASH FOR EXPANDING BUSINESS RESULT -------------------------- IMPROVES PROFITABILITY
  12. 12. Chapter 12 Page 254 M&A ESTABLISHMENT OF NEW UNITIN MANY CASES THE CAPITAL COST OF SETTING UP A UNITIS HIGHER THAN THE PRICE AT WHICH AN EXISTING UNIT MAY BE TAKEN OVER
  13. 13. Chapter 12 Page 255 M&ATAX SHEILD ( TAX SAVINGS ) :1. MERGER OF A PROFITABLE COMPANY INTO A LOSS MAKING GROUP COMPANY2. HIGHER CAPITAL EXPENDITURE AND DEPRECIATION MADE POSSIBLE BY MERGER3. SAVINGS IN SALES TAX AND EXCISE DUTY, BENEFITS ACCURE WHEN TWO COMPANIES IN SUCCESSIVE POINTS IN THE VALUE CHAIN MERGE TOGETHER
  14. 14. Chapter 12 Page 256 (M&A)SCREENING , EVALUATION AND CHOICE :1. EARNINGS POTENTIAL :NET INCOME / ROI2. VALUE OF COMPANY : ASSETS & LIABILITIES / PROJECTED EARNINGS3. MARKET POSITION : BRAND EQUITY / MARKET SHARE,PRODUCTS MIX4. CAPITAL REQUIREMENT : MAINTANANCE / REPLACEMENT / RENOVATION CONT…….
  15. 15. Chapter 12 Page 256 (M&A)SCREENING , EVALUATION AND CHOICE : PLANT AND MACHINERY : CONDITION / QUALITY OF TECHNOLOGY, FACILITIES FOR EXPANSION. MANAGEMENT TEAM : QUALITY OF THE MANAGEMENT TEAM HUMAN RESOURCES : QUALITY OF WORKERS AND INDUSTRIAL RELATION
  16. 16. Chapter 12 Page 260 MANAGERIAL AND SOCIO-CULTURAL INTEGRATIONMOST DIFFICULT ISSUES SELECTION OR TRANSFER OF MANAGERS CHANGES IN ORGANISATIONAL STRUCTURE DEVELOPMENT OF A CONSISTENT CORPORATE CULTURE COMMITMENT AND MOTIVATION OF PERSONNEL ESTABLISHMENT OF NEW LEADERSHIP
  17. 17. Chapter 12 Page 261 (M&A) PITFALLS :1. OVER PRICING2. MEANS OF FINANCING3. HIDDEN LIABILITIES
  18. 18. Chapter 12 Page 263 REGULATION OF TAKEOVERSIN 1992, THE SEBI ACT EMPOWERED THE SEBI TOREGULATE TAKEOVERS.THE SEBI REGULATION,1994 WERE FORMULATED WITH A VIEW TO MAKINGTHE TAKEOVER PROCESS TRANSPARENT ANDALSO PROTECTING THE INTERESTS OF MINORITYSHAREHOLDERS
  19. 19. Chapter 12 Page 264 REGULATION OF TAKEOVERSIMPORTANT FEATURE IS THE REQUIREMENT TODEPOSIT SPECIFIED AMOUNT IN AN ESCROWACCOUNT. NON FULFILMENT OF OBLIGATION BYTHE BUYER,THE ENTIRE AMOUNT WILL BEFORFEITED FOR REDISTRIBUTION AMONGSTTARGET COMPANY, STOCK EXCHANGES(COMPANY’S SCRIP + SHAREHOLDERS )
  20. 20. Chapter 12 Page 265 CROSS BORDER M & ADEVELOPED COUNTRIES ACCOUNT FOR THELIONS SHARE OF THE CROSS BORDER M & As,AND THEIR FIRMS HAVE BEEN USING M & A AS AMARKET ENTRY OR GROWTH STRATEGY INDEVELOPING COUNTRIES
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