PE-VC Society
presents
Mergers & Acquisitions 101
August, 2022
What is M&A?
Where do I fit in the process?
WHAT IS MERGER & ACQUISITIONS?
A merger and acquisition transaction comprises of the traditional corporate mergers, acquisitions and divestitures as
well as debt and equity financing. The various activities performed during the process of an M&A are as mentioned
below –
KEY TYPES OF DUE DILIGENCE
WHAT ARE CARVE OUTS AND DIVESTITURES?
A carve-out is the partial divestiture of a
A divestiture is the disposition or sale of an asset
business unit in which a parent company sells
by a company. As companies grow, they may find
minority interest of a child company to outside
they are trying to focus on too many lines of
investors.
business, and they must close some operational
units to focus on more profitable lines. A company undertaking a carve-out is not selling
a business unit outright but, instead, is selling an
Companies may also sell off business lines if they
equity stake in that business or spinning the
are under financial duress. Divested business units
business off on its own while retaining an equity
may be spun off into their own companies rather
stake. A carve-out allows a company to capitalize
than closed in bankruptcy or a similar outcome.
on a business segment that may not be part of
By divesting some of its assets, a company may be its core operations.
able to cut down on its costs, repay its outstanding
In a carve-out, the new organization has its own
debt, reinvest, and focus on its core business(es)
board of directors and financial statements.
and streamline its operations. This, in turn, can
However, the parent company usually retains a
enhance shareholder value. This is especially
controlling interest in the new company and
important when there is volatility in the markets or
offers strategic support and resources to help
if the company experiences unstable conditions.
the business succeed.
BUY AND SELL SIDE
This is the major focus of Investment Bankers in the M&A space. Sell-side firms are firms looking to pitch and sell assets or
opportunities while Buy-side firms are firms with capital, looking to buy assets or opportunities. Investment bankers can be
advisors on either of these sides and their roles change accordingly.
Key tasks performed by a sell side investment banker
Key tasks performed by a buy side investment banker
The M&A scenario in India
MAJOR M&A DEALS IN INDIA FINANCIAL VS STRATEGIC BUYER
Amount • PE, VC and Sovereign Wealth Funds have invested in
Target Acquirer Year
(USD bn)
financial services, renewable energy, real estate and
Flipkart Walmart 16.00 2019 infrastructure, retail and healthcare businesses.
Hutch Sri Lanka Vodafone India 13.10 2007
• Financial investors in India increasingly look for a
control stake in private companies, driven by larger
Rosneft, Trafigura and fund sizes, desire to control strategy and exit timing
Nayara Energy (Essar Oil) 12.90 2016
UCP Investment Group
and inability of promoters to raise funds due to
Cairn India Vedanta Resources 8.67 2010 stressed financial sector.
ArcelorMittal, Nippon • Strategic M&A activity, be it inbound or domestic, has
Essar Steel 5.93 2019
Steel been driven by increasing consolidation and
HPCL ONGC 5.77 2018 deleveraging in stressed sectors.
• Major sector witnessing strategic acquisitions are steel,
Bhushan Steel & Strips Tata Steel 5.19 2018 telecom, real estate and financial services.
Tower Infrastructure Trust • In-bound acquisitions have been primarily from the
(part of the Reliance Brookfield 3.40 2020 United States, Japan and Singapore.
group)
Ranbaxy Laboratories Sun Pharma 3.20 2014
PFC REC 1.80 2018
Source: Tracxn
M&A deals to know
MAJOR DEALS THAT MADE NEWS IN 2022
Investor/
Amount
Target Acquirer/ Sector Overview More Details
($ million)
Merger
As cinema chains continue to face challenges in investing in
new properties, it is far easier to tie up with rivals. The INOX-
Inox PVR 2,700 Entertainment PVR merger is being hailed by analysts as the need of the hour
Link
to mitigate cash crunch issues.
Bharti Airtel had said it has signed an agreement to buy
Vodafone's 4.7% stake in Indus Towers on the condition that
Vodafone Indus Tower 300 Telecom the proceeds will be used for investment in Vodafone Idea and
Link
clearing its dues towards the mobile tower company.
Acquisition propels Adani into the cement business, and will
Ambuja establish its new materials, metal and mining vertical.
Adani 10,500 Cement Link
Cements, ACC With this, Adani is now India’s second largest cement
manufacturer (capacity ~70 MTPA)
Energy giant Shell Plc agreed to buy Actis Llp’s Indian
Renewable renewable energy platform Sprng Energy at an enterprise value
Sprng Shell 1,550 Link
Energy of $1.55 billion, expanding its footprint in the country that is
navigating a massive energy transition.
Zomato enters quick commerce with the acquisition of Blinkit.
Blinkit Zomato 560 FMCG Quick commerce opens up a new market for Zomato as grocery Link
market is much larger than the food delivery market.
Moving towards a major market consolidation within the
Pickrr Shiprocket 200 3PL logistics industry, 3PL startup Shiprocket has picked an 80% Link
stake in rival Pickrr in a $200 Mn deal.
MAJOR DEALS THAT MADE NEWS IN 2022/2021
Investor
Amount
Target Acquirer Sector Overview More Details
($ million)
Merger
The two subsidiaries of Larsen & Toubro had last month announced a
mega-merger to create an efficient and scaled-up IT services
Mindtree L&T Infotech 3,300 IT Services provider, exceeding USD 3.5 billion in combined revenue. It is likely to
Link
be completed by December.
Mortgage lender HDFC proposed to merge with HDFC Bank to create
a financial services behemoth of Rs 13 lakh crore, as a series of
HDFC Limited HDFC Bank 40,000 Healthcare regulatory tightening measures had over the years nullified HDFC’s
Link
advantages of remaining a Non-Banking Financial Company (NBFC).
Wipro announced the acquisition of London-headquartered Capco,
which provides digital, consulting and technology services in BFSI
Capco Wipro 1,450 IT services sector for $1.45 billion, analysts saw this as a positive provided the
Link
integration went on well
Byju’s on Monday said that it has acquired Singapore-headquartered
Great Learning, a leading global player in the professional and higher
Great Leaning Byju 600 Technology education segment in a transaction valued at $600 million comprising
Link
cash, stock and earnout
In 2021, Piramal Group completed the acquisition of Dewan Housing
DHFL Piramal Group 4,700 Financial Services and Finance Limited (DHFL) for US$4.7 billion, which includes a cash Link
component and non-convertible debentures.
The acquisition of Indian payments giant BillDesk by PayU was the Link
Billdesk PayU 4,700 Fintech largest M&A deal in Indian fintech industry.
How to evaluate M&A deals
• Purpose of the deal
Ø Usually M&As take place for the following reasons:
§ Acquisition of brands, resources or capabilities (eg - most acquisitions by IT companies)
§ Entry into a new geography, overcoming entry barriers (eg – Walmart acquired Flipkart to enter the Indian
market)
§ Increased market power (eg – Reliance-Future; Zomato-Uber Eats; Ola-TaxiForSure
Ø M&As taking place for the following reasons should be looked at unfavorably:
§ Larger size of the company, leading to higher management compensation
§ Frequent M&As to increase revenues when the main business has stagnated
§ M&As between related parties, structured in a complex manner (usually are for the enrichment of
promoters, have unfavorable terms for minority shareholders)
Ø Evaluate the rationale behind the deal, look at the situation currently and assess whether the rationale offered
by the management fits in with the current situation of the company/industry. Think about any ulterior
motives that might be at work.
• Valuation
Ø Intrinsic valuation
Ø Relative valuation
Ø Pay special attention to equity options, contingent consideration, etc.
Contributors:
THANK YOU! Chetan Bagdi
Krishna Wadhwa
Adarsh Chamariya
