Definition of 'Mergers & Acquisitions - M&A'

A general term used to refer to the consolidation of companies. A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed. The following steps help outline how to best plan, execute and implement a successful merger or acquisition.
1.

Evaluate your goals:

There are many different reasons to merge with or acquire another company. Many companies turn to mergers or acquisitions as a way to answer the constant pressure from stockholders and stakeholders to show marked, continuous growth. But if growing for size is your only criteria, experts warn, your merger or acquisition may be doomed to fail. Mergers for the sake of growth will ultimately hurt your company in the long run unless the transaction also helps achieve one or more strategic business goals and builds on or complements the company's own core competencies. Such goals might include any of the following: Product extension. Identifying a target company that offers a slightly different but related product so you can extend your market presence. Geographic extension. Identifying a target company in the same industry that serves a geographic area that your company does not currently reach. Increased customer base. Finding a target company that could increase or broaden your customer base. Acquiring key management or other personnel. Identifying a target company with strong management talent to help your team succeed. New distribution channels. Finding a target company with sophisticated marketing or supply chain operations in place so you can better or more economically distribute your goods or services.
2.

Locate a target company:

The next step is to find a company that is both attainable and can provide the synergies for your own company. There are many resources to help you do this, including consulting firms, online databases, investment bankers and word of mouth. M&A professionals warn the most common pitfall at this stage of the process is not taking into account a prospective company's culture. A company may have all the criteria you think your company requires to expand and be successful, but if the two companies' cultures are substantially different, melding them into a successful single company may be an unreasonable expectation, or may require additional analysis and planning to ensure a smooth transition.

By: Mr Krutik Shah.

3.

Analyse the structure of the deal

Once you've determined that the target is worth pursuing, the next step is to analyse the deal's structure. Buyers and sellers often have conflicting tax goals. Experienced tax professionals know the ropes and can work to draw the two perspectives together to close the deal. 4. Perform adequate due diligence

Once you've found a company you believe meets your criteria for a merger or acquisition, the next step is for both parties to sign a non-binding letter of intent and proceed with the business of due diligence. While this is the step that yields the most crucial information about the target company, time constraints and market frenzy can sometimes cause the buyers to rush through the process. Make sure you have a qualified team to help you through this crucial step. The team should help you finalize your decision about whether to continue pursuing this company, and give you a clear idea about the company's overall value. During the due-diligence process you'll want to learn the following about the prospective company: o o o o o o o o State of current and historical financials Current liquidity Quality of assets Key risks and weaknesses of the target company's operations and technology Overview of accounting policies Tax structure options HR programs and strategies Litigation risks

"When considering a merger, recapitalization, or a sale which is partially seller financed, it is essential that that you perform extensive due diligence beforehand. Due diligence should occur in all areas, from financial, legal, tax, environmental and operational," says Brian Boyle of RSM EquiCo. "For most owners, it's the most important decision of their lives, so you really need to leave no stone unturned." Make the deal and implement the changes Don't be fooled into thinking that the completion of due diligence and the signing of the final contracts mean the merger or acquisition is complete. On the contrary, there's still a lot of critical work to be done. The task of turning two companies into one is a daunting one, but careful planning and forethought can help ease the transition.

By: Mr Krutik Shah.

How your company deals with merger issues such as communication, employee retention and/or layoffs, customer notification and reassurance, consolidation of staff and integration of systems will play a huge role in determining the overall success or failure of the merger or acquisition. Don't wait until the deal is finalized to think about these issues. Assemble a team of stakeholders and experts to analyse the challenges and risks of integrating the two companies and have an action plan in place long before the official merger date. By following these steps, you will be further along in ensuring a successful merger or acquisition.

New Rules for Takeover.

Trigger at 25% 100% open offer Within 57 business days Depository receipts are also included Sick industrial units are excluded.

Takeover bids may be classified as under: Friendly takeover Hostile takeover Bailout takeover Friendly takeover

A situation in which a target company's management and board of directors agree to a merger or acquisition by another company. In a friendly takeover, a public offer of stock or cash is made by the acquiring firm, and the board of the target firm will publicly approve the buyout terms, which may yet be subject to shareholder or regulatory approval. This stands in contrast to a hostile takeover, where the company being acquired does not approve of the buyout and fights against the acquisition. Example: Sterlite Industries Limited (SIL) Indian Aluminium Company Limited (Indal) HINDALCO. Hostile takeover: The acquisition of one company (called the target company) by another (called the acquirer) that is accomplished not by coming to an agreement with the target company's management, but by going directly to the companys shareholders or fighting to replace management in order to get the acquisition approved. A hostile takeover can be accomplished through either a tender offer or a proxy fight. Example: Hewlett-Packards takeover of Compaq.
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Bailout Takeover: Takeover of a financially sick company by a financially rich company as per the provisions of Sick Industrial Companies (Special Provisions) Act 1985. Example:
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TERMS OF FRIENDLY TAKEOVER.

Bear Hug Making formal acquisition proposal to the board of the target company accompanied through a public announcement of the bidders intention to make a target offer. Open Market Operations Under this method the shares are acquired by acquiring company by purchase of shares directly from stock market. Tender Offer Public offer is made at a fixed price above the current market price to the shareholders of the target company it can be for cash or stock. Two- tiered offer Cash is offered in first tier and non-cash like debentures and securities are offered in second tier. Partial Offer Specifies maximum no. of shares to be accepted. Proxy Fight Contest - It tries to persuade enough shareholders, usually a simple majority, to replace the target companys management with a new i.e. acquiring companys management which will approve the takeover.

Categories of Takeover defense

1) 2)
3)

Pre-Bid Post-Bid. Pre-Bid: Casual Pass. Silence.

Poison Pill: A strategy adopted to increase the likelihood of negative results over positive ones for the company attempting a takeover. A "flip-in" allows existing shareholders (except the acquirer) to buy more shares at a discount. Management offers shares to investors at a discount if an acquirer merely purchases a certain percentage of the company. The discount is not available to the acquirer, and so it becomes extremely expensive for that acquirer to complete the takeover. A flip-over allow stockholders to buy the acquirers shares at a discounted price after the merger. The holders of common stock of a company receive one right for each share held, bearing a set expiration date and no voting power. Poison Put: Is a strategy wherein the bondholders and stockholders are assigned a right whereby they can demand redemption of stock before maturity, at a value in excess of the par value.
4)

Fair Price Protection: It requires the acquirer to pay a fair price to the minority shareholders of the firm. Fair price may be stated in the form of minimum price or in terms of Price Earning multiple at which a tender offer is made.
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Golden Parachute: Distinctive compensation agreements that the company provides to top management. They are used in advance of hostile bids to make the target less desirable.
6)

1)

Post-Bid:

White Knight: Its a situation where a target company faces a hostile takeover attempt from a company and is struggling to avoid the same at the moment another (3rd party) company makes a friendly takeover offer to the target company in order to help the target successfully avoid the hostile takeover bid. Example: Exxon, HCL, Infosys. White Squire: Is similar to a white knight only difference is that a white squire exercises a significant minority stake, as opposed to a majority stake. Does not have any intention of getting involved in the takeover battle, but serves as a figurehead in defense of a hostile takeover due to the special voting rights it holds for its equity stake holds in the company. Example: Reliance Ind, EIH, ITC
2)

Employees Stock Option: It involves offering some ownership stake in company to all or some employees to develop ownership position among the employees. It is good motivator and gets employees more involved.
3)

Recapitalization: Its a strategy used to fend off a hostile acquisition here the target company adopts one of the two possible strategies: Borrow significant additional debt that facilitates repurchase of stocks through a buyback program or distribute a liberal dividend among the current shareholders.
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5) 6) 7)
8)

Restructuring. Buy-back of shares. Going Private.

Crown Jewel (Sale of Asset): It represents the most valuable unit or department of a company. It categorized as crown jewels based on their profitability, value of assets owned, and future growth prospects. Target Company creates anti-takeover clauses, whereby the company gets the right to sell off the crown jewels if a hostile takeover occurs. Litigation: Antitrust concerns, violation of Competition Act, alleged violation of SCRA and SEBI. A temporary ban is required from courts.
9)

10)
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Liquidation. Just Say NO: Whenever offer is made Just Say NO. Example: Kraft and Cadbury.

By: Mr Krutik Shah.