Merger & Acquisition Concept
Merger
A merger is a combination of two companies into one large company. Merger commonly takes two forms: 1. A + B = A, where company B is merged into company A (absorption) 2. A + B = C, where C is an entirely new company (amalgamation or consolidation)
Types of Merger
Horizontal Merger It takes place when two merging companies produce similar products in the same industry. In other words, a horizontal merger occurs when two competitors combine. Vertical Merger It refers to a firm acquiring a supplier or distributor of one or more of its goods or services. These are combinations of companies that have a buyer-seller relationship.
Congeneric Merger these types of mergers occur when two merging firms are in the same general industry, but have no mutual buyer/customer or supplier relationship. Conglomerate Merger this merger occurs when the companies are in different industry sectors. It involves firms in unrelated business activities. Reverse Merger a private company may go public by merging with an already public company that is often inactive.
Accretive Merger In these merger the acquiring companys earning per share increase. An alternative explanation is that a company with high price to earning ratio (P/E) acquires one with a low P/E. Dilutive Merger here the company with a low P/E will be acquiring one with high P/E.
Process of Merger
Defining the Corporate Strategy Implementing the Corporate Strategy Target Identification Valuation of the Merger Merger Implementation Post-Merger Integration
Acquisition
A process by which a company or an individual or a group of individuals acquires control over another company called target company.
It is also known as takeover, is the buying of one company by another.
Types of Acquisition/Takeover
Friendly takeover
Hostile takeover
Process of Acquisition
Manage the pre-acquisition phase Screen candidates Evaluate the remaining candidate Determine the mode of acquisition Negotiation and consummate the deal Manage the post-acquisition integration
Cross Border M&A
Factors influencing Cross Border M&A : Globalization of products and service The technological advancement Fulfill the financial needs To achieve economies of scale and recover cost Economic liberalization and reforms in developing nations
Problems in M&A Success
Evaluation of Target Huge amount of Debt Lack of synergy benefits Excessive diversification
Due diligence for M&A
Introduction
It is the process through which a potential buyer evaluates a target company or its assets for acquisition. It involves examining financial records, management decisions, competitive challenges, assets, liabilities and any other consideration that makes the acquisition a good or bad decision.
In other words, it is the process of examining all aspects of a company, including Manufacturing Financial Legal Tax IT system Labour issues Regulatory issues IPR Environment etc.
Due diligence Challenges
The process should be able to obtain complete information, ineffective due diligence would result in failure of M&A.
Some companies pay a higher premium due to lack of knowledge about the target firm.
Checklist for Due diligence
Resources for due diligence Asset Appraisal Cultural due diligence Accounting due diligence Intellectual Property due diligence
Obstacles in the due diligence process
Lack of Adequate Information Quality of Information Insufficient disclosure Lack of Corporate Governance
Dilution of Control
Challenges to due diligence in the Indian Exit Limitation market
Currency Hedging
Accounting
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