Motives for M&A and theoretical prospects of merger and Aquisition

1. MERGERS &
ACQUISITIONS
An instrument of
growth

2. Motives for M&A: theoretical
perspective
 What has really prompted the participants to
consider a merger at this particular time?
 What motives or personal interests, if any,
have led them to take the high entrepreneurial
risk?
 Why M&A matters to involved companies?

3. M&A: theoretical perspective
 The efficiency theory
 Financial synergies
 Operating synergies
 Management synergies

4. M&A: theoretical perspective
 The monopoly theory
 Cross-subsidization of acquired business lines
 Restriction of competition in market where a
company becomes a participant through
acquisitions
 Implementation or augmentation of entry barriers
in specific markets

5.  The valuation theory
 The empire building theory
 The process theory
 The disturbance theory
M&A: theoretical perspective

6. Stakeholder expectations in
M&A
 The significance of stakeholders
M&A: Ray, 2013

7. Forms of M & A
 A + B = A
 A is the acquiring and B is the target or acquired
company
 Known as absorption (B is absorbed by A)
 100% or ‘complete takeover’
 A + B = C
 New entity C is formed, A & B ceases to exist
 Generally called as ‘amalgamation’
 The amalgam C is formed by A and B

8. L&T takeover
With 60% stake, L&T completes its hostile takeover of Mindtree (livemint.com)

9. Forms of M & A
 (A – a) + (B – b) = A+B+C
 A > a, B > b & C = a + b
 Small business divested from A and from B
 To divested business a & b combined together to
form a new entity C
 Generally called as spin-off

10. Shriram group
Shriram Group to merge all fin biz, spin off insurance - Times of India (indiatimes.com)

11. Forms of M & A
 A + B = A1 + B
 Both A and B combine in such a way that no one
loses entity
 A controls the affairs of B and changes its status to A1
 A1 becomes the holding company of B by purchasing
the controlling shares in B
 Generally termed as equity alliance
 A + B = A + B
 A and B combine to form some strategic alliance
 To deal with some specific issues or some cartel, pool
 There is no balance sheet impact on the two
companies

12. Hypotheses for M & A
 Improving the efficiency and effectiveness of
the combined institutions through economies
of scale and cost saving
 Increasing their market power, expanding
operations and territory, leadership in selling
prices and services fee, revenue improvement,
and the like
 Increasing their access to the safety net

13. Reasons for buying a business
 Pursuing a growth strategy
 Defensive reasons
 Financial opportunities

14. Reasons for selling a business
 To raise money, perhaps to pay off debts or to
raise cash for future acquisitions
 An attractive offer price
 The desire to sell off unprofitable part of the
business

15. Reasons for selling a business
 A wish to sell off non-core activities that do not fit
commercially or strategically with rest of the
sellers business
 Opportunity for realizing a greater value to
stockholders if the company is sold rather than
retained
 Lack of funds to invest in developing the
businesses, and a consequent willingness to sell
to a buyer who wishes to invest funds for the
business needs

16. Thank You