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. To know more about Welingkar School’s Distance Learning Program and courses offered, visit: http://www.welingkaronline.org/distance-learning/online-mba.html

1. Chapter 12 Page 245
MERGERS AND ACQUISITIONS
IN INDIA
THE LIBERALISATION USHERED IN 1991 VERY
SIGNIFICANTLY CHANGED THE SCENE. FOLLOWING
THE LIBERALISATION OF THE REGULATIONS ON
GROWTH AND M & A, THE M & A MANIA HAS BITTEN
CORPORATE INDIA MAKING THE 1990S A DECADE OF
STRUCTURAL TRANSFORMATION OF THE INDUSTRIAL
SECTOR

2. Chapter 12 Page 247
M & A AND GROWTH GAP FILLING
M & A FILLS THE GAP BETWEEN THE
COMPANY’S SALES POTENTAIL AND ITS
CURRENT ACTUAL PERFORMANCE

3. Chapter 12 Page 247
IMPORTANT COMPONENTS OF GROWTH GAP
PRODUCT LINE GAP
DISTRIBUTION GAP
USAGE GAP
COMPETITIVE GAP

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. Chapter 12 Page 248
PURE DIVERSIFICAION THEORY
TO PROTECT THE INTERESTS OF MANAGERS AND EMPLOYEES
FIRM – SPECIFIC HUMAN CAPITAL INVESTMENTS, WHICH
MAKE THEIR EMPLOYEES MORE VALUABLE AND
PRODUCTIVE, AND TO INCREASE THE PROBABILITY
THAT THE ORGANISATION AND REPUTATION CAPITAL
OF THE FIRM WILL BE PRESERVED BY TRANSFER TO
ANOTHER LINE OF BUSINESS IN THE EVENT ITS INITIAL
INDUSTRY DECLINES

6. Chapter 12 Page 250
MANAGEMENT OF M & A
IMPORTANT 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. Chapter 12 Page 250
DETERMINATION 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. Chapter 12 Page 251
FIT WITH MISSION AND STRATEGY
IMPORTANT CONSIDERATION
IN M & A
HOW WELL THE FIRM CONSIDERED FOR MERGER /
ACQUISITION FITS WITH MISSION AND STRATEGY

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. 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. 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. Chapter 12 Page 254
M&A
ESTABLISHMENT OF NEW UNIT
IN MANY CASES THE CAPITAL COST OF SETTING UP A UNIT
IS HIGHER THAN THE PRICE AT WHICH AN EXISTING UNIT
MAY BE TAKEN OVER

13. Chapter 12 Page 255
M&A
TAX SHEILD ( TAX SAVINGS ) :
1. MERGER OF A PROFITABLE COMPANY INTO A
LOSS MAKING GROUP COMPANY
2. HIGHER CAPITAL EXPENDITURE AND
DEPRECIATION MADE POSSIBLE BY MERGER
3. SAVINGS IN SALES TAX AND EXCISE DUTY,
BENEFITS ACCURE WHEN TWO COMPANIES IN
SUCCESSIVE POINTS IN THE VALUE CHAIN
MERGE TOGETHER

14. Chapter 12 Page 256
(M&A)
SCREENING , EVALUATION AND CHOICE :
1. EARNINGS POTENTIAL :NET INCOME / ROI
2. VALUE OF COMPANY : ASSETS & LIABILITIES /
PROJECTED EARNINGS
3. MARKET POSITION : BRAND EQUITY / MARKET
SHARE,PRODUCTS MIX
4. CAPITAL REQUIREMENT : MAINTANANCE /
REPLACEMENT /
RENOVATION
CONT…….

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. Chapter 12 Page 260
MANAGERIAL AND SOCIO-CULTURAL INTEGRATION
MOST 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. Chapter 12 Page 261
(M&A)
PITFALLS :
1. OVER PRICING
2. MEANS OF FINANCING
3. HIDDEN LIABILITIES

18. Chapter 12 Page 263
REGULATION OF TAKEOVERS
IN 1992, THE SEBI ACT EMPOWERED THE SEBI TO
REGULATE TAKEOVERS.THE SEBI REGULATION,
1994 WERE FORMULATED WITH A VIEW TO MAKING
THE TAKEOVER PROCESS TRANSPARENT AND
ALSO PROTECTING THE INTERESTS OF MINORITY
SHAREHOLDERS

19. Chapter 12 Page 264
REGULATION OF TAKEOVERS
IMPORTANT FEATURE IS THE REQUIREMENT TO
DEPOSIT SPECIFIED AMOUNT IN AN ESCROW
ACCOUNT. NON FULFILMENT OF OBLIGATION BY
THE BUYER,THE ENTIRE AMOUNT WILL BE
FORFEITED FOR REDISTRIBUTION AMONGST
TARGET COMPANY, STOCK EXCHANGES
(COMPANY’S SCRIP + SHAREHOLDERS )

20. Chapter 12 Page 265
CROSS BORDER M & A
DEVELOPED COUNTRIES ACCOUNT FOR THE
LIONS SHARE OF THE CROSS BORDER M & As,
AND THEIR FIRMS HAVE BEEN USING M & A AS A
MARKET ENTRY OR GROWTH STRATEGY IN
DEVELOPING COUNTRIES

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