MERGERS AND ACQUISITIONS : AN

INTRODUCTION
 CONTENT
• MEANING AND DEFINITION OF MERGERS AND ACQUISITIONS
• MOTIVES OF MERGERS AND ACQUISITIONS
• STAKEHOLDERS EXPECTATIONS IN MERGERS AND
ACQUISITIONS
• REASONS OF BUYING A BUSINESS
• REASONS OF SELLING A BUSINESS
 MERGERS AND ACQUISITIONS : CONCEPT
• MERGER AND ACQUISITION MEANS CONSOLIDATION OF
COMPANIES
• MERGER MEANS COMBINATION OF TWO COMPANIES TO
FORM ONE
• ACQUISITION MEANS ONE COMPANY BEING TAKEN OVER BY
OTHER COMPANY . WHEN ONE COMPANY ACQUIRES
CONTROLLING INTEREST IN ANOTHER COMPANY
• THE PRINCIPLE FOR MERGERS AND ACQUISITION IS THAT
TWO COMPANIES TOGETHER CREATE MORE VALUE
COMPARED TO THEIR INDIVIDUAL STAND .
• TWO IMPORTANT CONSIDERATIONS TO BE TAKEN IN
ACCOUNT WHILE MERGING
1. AND MAKE UP CAPITAL INVESTMENT TO BENEFIT FROM
MERGER
2. THE MANAGEMENT MUST BE RESILIENT AND PATIENT
ENOUGH TO ADAPT TO CHANGES RESULTING OUT OF M&A
 WHY COMPANIES MERGE
1)
SHARE HOLDERS GAIN : IN TERMS OF INCREASE IN THE MARKET
VALUE OF THE FIRM DUE TO THE MERGER . THIS CAN RESULT OUT OF
1.1) EFFICIENCY GAINS : ECONOMIES OF SCALE ,ECONOMIES OF
SCOPE(majorly applicable to horizontal deals ,ECONOMIES OF VERTICAL
INTEGRATION (applicable to vertical merger)
1.2) SYNERGY GAINS : DIFFUSION OF KNOW HOW AND R&D
1.3) COST SAVINGS : RATIONALIZATION , PURCHASING POWER AND
CREATING INTERNAL CAPITAL MARKET (saving in financial cost)
1.4) FINANCIAL COST SAVINGS : TAXES , INTEREST RATE ,
DIVERSIFICATION
1.5) ENHANCEMENT OR STRENGTH OF MARKET POWER :
UNILATERAL EFFECT , COORDINATED EFFECT , RAISE ENTRY
BARRIERS , SPREAD PORTFOLIO , OBTAINING OF MULTI MARKET
CONTACT
1.6 ) PRE-EMPTIVE AND DEFENSIVE
1.7) DISCIPLINARY TAKEOVERS: MARKET FOR CORPORATE
CONTROL ,FREE- CASH FLOW
2) MANAGERIAL MOTIVES : MANAGERS HAVE PERSONAL
MOTIVES ATTACHED WITH MERGER AND ACQUISITION .
2.1) EMPIRE BUILDING
2.2) RISK SPREADING OR DIVERSIFICATION

BASICALLY WHAT SHAREHOLDERS LOOK FOR IS THERI FINANCIAL

GAINS LIKE DIVIDENDS, SHARE PRICE RISE, GROWTH, COST
REDUCTION ,ETC

WHAT MANAGERS LOOK FOR IN A DEAL IS THEIR CONTROL,

SALARY , POSITION, AREA OF FOUCS OF NEW COMPANY, BUILDING
AN EMPIRE ETC.
 Motives of Merger Deals
• Synergy through consolidation
• Diversification
• Accelerated growth
• Increase in Market power
• Purchase of assets at bargaining price
• Increase in external financial capability
• Financial(Growth + Synergy+Tax Consideration+EOC+ Geographical (Strategic
realignment+ Industry life cycle+ expansion at global front)+ Operational
Motives(Diversification+ Outsourcing + competitive advantage)
 LIFE CYCLE OF MERGERS
STEP 1 – INCEPTION BY TOP MANAGEMENT. BASICALLY AT THIS STAGE THE MANAGEMENT COMES UP WITH THE IDEA OF DOING
SUCH DEAL. THE PURPOSE COULD BE DIVERSIFICATION, GROWTH , MARKET EXPANSION , COST REDUCTION ETC.
STEP 2-FEASIBILITY CHECK OF PROPOSED M&A DEAL . WHO CAN WE MERGER WITH? WHAT FORM OF MERGER WILL BEST OUR
NEED ? WHAT IS OUR RESOURCE AVAILABILITY TO DO THE DEAL? CHECK OUT ON THE IDEA OF WHAT WILL BE GOOD FOR US AND
WHAT WE WANT TO DO AND WHAT WE CAN DO ?
STEP3 –PRE- MERGER NEGOTIATION TO DETERMINE STRUCTURE AND FORMATION OF NEW ORGANISATION . AT THIS STAGE
BASICALLY AN UNDERSTANDING ABOUT EACH OTHER AND RESPECTIVE EXPECTANCY IS BUILT. ALL THE POSSIBILITIES ARE
DISCUSSED. “HOW WE WOULD LIKE TO SEE THIS GOING”
STEP 4 - NEGOTIATING THE TERMS OF THE DEAL : AT THIS STAGE AN AGREEMENT AND CONCUSS ABOUT ALL THE TERMS OF
DEAL ARE DETERMINED. AT WHAT PRICE WHOLE DEAL WILL BE EXECUTED? WHAT WILL BE ORGANISATIONAL STRUCTURE
AFTER DEAL? WHAT WILL BE EXCHANGE RATIO? ETC.
STEP5 – CONTRACT FORMULATION :BASED ON THE TERMS OF NEGOTIATION AGREEMENT IS SIGNED BETWEEN THE PARTIES
STEP 6- THE DEAL TAKES IN FORM DETAILED MERGER CONTRACT
STEP 7 – IMPLEMENTATION ACTUALLY MAKING MERGER HAPPEN. THE PLAN OF ACTION IS BROUGHT INTO FORCE. PEOPLE ARE
TRAINED. OPERATIONS ARE ACTUALLY STRUCTURED BROUGHT IN LINE WITH TERMS OF THE DEAL
STEP 8- COMMISSIONING BEGINS AFTER IMPLEMENTATION IS COMPLETE. ANALYSING POST MERGER EFFECTS
 REASON OF FAILURE OF Merger Deal
I. LACK OF INVOLVEMENT OF TOP MANAGEMENT : LEADERS TAKE THE DEAL AHEAD, LACK OF THEIR INTEREST
IN THE WHOLE PROCESS DRAGS THE THING DOWN.
II. LACK OF CLARITY IN EXECUTION PROCESS : DOING IS NOT SUFFICIENT GETING IT DONE AND EXECUTED IS
VERRY IMPORTANT.
III. CULTURAL INTEGRATION ISSUES : PEOPLE FROM DIFFERENT CULTURE OF ORGANISATION AND SOCIAL
BACKGROUNDS FIND IT DIFFICULT TO GET ALONG WITH THE NEW WORK ENVIRONMENT AND CULTURE
IV. REQUIRED CAPACITY POTENTIAL VERSES CURRENT AVAILABILITY : GAP BETWEEN WHAT YOU COUD DO AND
WHAT YOU IMAGINED TO DO IS DANGEROUS. CHECK YOUR CAPACITY OF INTAKE BEFORE GOING AHEAD
WITHT THE DEAL
V. HIGH COST OF RECOVERY : CATCHING A BIG FISH OR ACQUIRING A LOSS MAKING COMPANY IN BOTH THE
CASES LOT OF FUND COMMITMENT IS INVOLVED LOT OF COST IS INVOLVED.
VI. NEGOTIATION ERRORS : FAILURE IN NEGOTIATION PHASE COULD TAKE AWAY LOT OF YOUR BENEFITS,POWER
AND IGNORANCE OF CERTAIN IMPORTANT POINTS OF NEGOTIATION CAN BURN DOWN THE WHOEL DEAL TO
ASHES.
VII.DYNAMIC EXTERNAL BUSINESS ENVIRONMENT : EXTERNAL PRESSURE CAUSED DUE TO DYNAMIC
ENVIRONMENT CAN TAKE AWAY WHOLE IDEA AND ESTIMATE OF CALCULATED BENEFIT WHEN YOU ENTERED
 RAISING THE PROBABILITY OF SUCCESS OR
FAILURE
FOR SUCCESS FOR FAILURE
• STRATEGICALLY MOTIVATED DEALS • OPPORTUNISTIC DEALS
• ACQUISITION OF RELATED BUSINESS
• ACQUISITION OF UNRELATED
• ACQUISITION OF PRIVATE FIRMS
DEALS
• LARGE RELATED DEALS
• ACQUISITION OF LISTED FIRMS
• BUYERS OBTAIN CONTROL
• SYNERGIES ARE COST AND CAPITAL
• LARGE TRANSFORMATION
RELATED DEALS
• NEGOTIATED DEALS • MERGER OF EQUALS
• FREQUENT ACQUIRER
• BUY DURING ‘HOT’ M&A
MARKET
 WHAT REDUCES THE CHANCES OF SUCCESS OF
THE DEAL ?
• OPPORTUNISTIC DEALS : JUST BY SEEING IT JUST AS AN OPPORTUNITY WITHOUT ANY SYSTEMATIC ORIENTATION OR PURPOSE DO THE
DEAL IS NOT A GOOD IDEA
• ACQUISITION OF UNRELATED DEALS : GETTING INTO SOMETHING NEW AND TOTALLY DIFFERENT FROM YOUR BUSINESS CAN BE REALLY
RISKY WHICH COULD RAISE THE CHANCES OF FAILURE OF WHOLE DEAL
• ACQUISITION OF LISTED FIRMS : LISTED COMPANIES ARE CONSIDERED TO HAVE AND CARRY INTEREST OF PUBLIC AT LARGE. THEY ARE
BIG FISHES IN THE MARKET BASICALLY. SO IF AN UNLISTED CO. ACQUIRE THEM THEN THE PRESSURE AND SIZE OF COMPANY COULD
ADVERSELY AFFECT THE DEAL.
• LARGE TRANSFORMATION DEALS : A COMPLETE 360 DEGREE CHANGE IN THE WORK CULTURE , CUSTOMERS , OPERATIONS CAN ADD TO
RISK AND BURDEN FACTOR ON ACQUIRER WHICH IN TURN RAISES CHANCES OF FAILURE
• MERGER OF EQUALS : CLASH OF OPENION, FIGHT FOR CONTROL IS HIGH AMONG PARTIES ARE OF EQUAL LEVEL. THEREFORE THEY MAY
FACE GREATER LEVEL OF DIFFICULTY IN MAKING THE DEAL A SUCCESS
• BUY DURING ‘HOT’ M&A MARKET : WHEN PRICE IS EXPENSIVE , IT IS NOT A GOOD IDEA TO BUY THEN WHEN EVERYONE IS CREATING
HUGE DEAMAND. WAIT FOR THE RIGHT TIME.
• SYNERGIES ARE REVENUE RELATED : BUYING JUST FOR THE SAKE OF SYNERGY IN FORM OF REVENUE IS NOT A GOOD IDEA. THIS CAN BE
ACHIEVED LATER IN AGE WITH EXPERIENCE
• INFREQUENT ACQUIRER : EXPERIENCED ACQUIRERS KNOW BEST OF WHAT TO DO? NEW PLAYERS CAN GET TOUGH FALL IN THE WHOLE
PROCESS
• AUCTIONED DEALS : COMPANIES PUT UP FOR AUCTION . BUYING THEM DURING THAT TIME COULD BE AN EXPENSIVE AFFAIR.
 HOW TO RISE CHANCES OF SUCCESS OF
MERGER
• STRATEGICALLY MOTIVATED DEALS : PURPOSE ORIENTED , STRATEGICALLY MOTIVATED DEALS ARE ALWAYS THE BEST, STRATEGY FOR GROWTH,
DOWNSIZING, FINANCIAL COST REDUCTION, EACH CAN CARRY DIFFERENT FORM OF RESTRUCTURING.
• ACQUISITION OF RELATED BUSINESS: YOU KOW WHAT YOU ARE DOING NOW YOU WILL BE DOING AFTER MERGER. YOU UNDERSTAND THE
REQUIREMENT OF THE BUSINESS WHICH MAKES THINGS EASY AND EVENTUALLY RAISES THE CHANCES OF SUCESS OF THE DEAL
• ACQUISITION OF PRIVATE FIRMS : COMPARED TO LISTED PUBLIC COMPANIES, THE CHANCES OF SUCESS OF MERGING AN PRIVATE FIRM IS HIGHER. THAT
DOES NOT ENSURE SUCESS BUT DUE TO LIMITED NO OF SHAREHOLDERS,
• LARGE RELATED DEALS
• BUYERS OBTAIN CONTROL : RATHER THEN KEEPING THE CONTROL AND MANAGEMENT IN THE HANDS OF ACQUIRED CO, IT IS PREFERRED THAT IT
SHALL GO IN HANDS OF ACQUIRER
• SYNERGIES ARE COST AND CAPITAL RELATED : OUT OF DIFFERENT FORMS OF SYNERGIES THESE 2 ARE CONSIDERED OF GREAT SIGNIFICANCE AND
BETTER MEANS OF MOTIVATING A MERGER DEAL.
• NEGOTIATED DEALS : RATHER THEN GOING FOR AN AUCTION DEAL, IT IS PREFERRED THAT BENEFIT OF NEGOTIATION SHOULD BE TAKEN.
NEGOTIATING AND BENDING THE DEAL IN OWN FAVOUR IS VERRY IMPORTANT.
• FREQUENT ACQUIRER : EXPERIENCE TEACHES YOU RIGHT CRITERIA OF SELECTING THE COMPANY, NEGOTIATING THE PRICE, IMPLEMENTING THE DEAL
ETC. IT STRENGTHENS THE KEY PILARS OF MAKING THE DEAL SUCCESSFUL.
FACTORS IN CONSIDERATION TO MAKE THE DEAL
A SUCCESS
• PRE-TRANSACTION FACTORS
1. IDENTIFICATION OF RIGHT PARTNER
2. BUILDING TRUST
3. VIGILANT VALUATION AND DUE DILIGENCE
4. LEARNING AND EXPERIENCE FROM PREVIOUS MERGERS AND
ACQUISITIONS
5. EFFECTIVE COMMUNICATION AND NEGOTIATION
 • POST TRANSACTION FACTORS
1. WORK ON QUALITY OF PLAN
2. EXECUTION HAS SIGNIFICANT ROLE TO PLAY
3. COMMUNICATION DURING IMPLEMENTATION IS IMPORTANT
4. FITNESS TO ACHIEVED AT ORGANISATIONAL , STRATEGIC
AND CULTURAL LEVEL
• OUTSIDE/MACRO SUPPORT FACTORS
1. LEGISLATION SUPPORT
2. STATE OF ECONOMY
 STAKEHOLDERS INTEREST IN M&A DEALS
PUBLIC : EXTENSIVE INFORMATION. THEY
DETERMINE DEMAND OF THE COMPANY
SHAREHOLDERS : WANTS TO KNOW POST DEAL
RESULTS
BOARD OF DIRECTORS : WANTS TO KNOW THEIR
STATE OF CONTROL
STATE INSTITUTIONS : LEGAL CONTROL , TAX
CONTROLS ,FAIR COMPETITION
CUSTOMERS : PRICE AND QUALITY OF OUTPUT
EMPLOYEES : INCOME , JOB
SECURITY ,WORKING CONDITIONS ETC.
INDUSTRY ANALYSTS : THEIR OPINION CREATE
AN IMAGE ABOUT COMPANY .
 REASONS OF BUYING AND SELLING A
BUSINESS
• TO BUY
1. ACCELERATING GROWTH
2. DEFENSIVE APPROACH
3. FINANCIAL OPPORTUNITY
TO SELL
4. ATTRACTIVE PRICE
5. OPPORTUNITY FOR SHAREHOLDERS TO RECEIVE BETTER
PRICE FOR THEIR SHARES
6. UNDESIRABLE / NON-CORE BUSINESS CAN BE SOLD
7. LACK OF FUNDS TO DEVELOP BUSINESS FURTHER
 Article Reads
• https://www.forbes.com/sites/allbusiness/2020/04/17/impact-of-coronavirus-crisis-on-mergers-an
d-acquisitions/?sh=6e60e67b200a
• https://www.pwc.com/us/en/services/deals/ma-in-uncertain-economic-times/preparation.html
• https://economictimes.indiatimes.com/news/economy/indicators/merger-and-acquisitions-jump-ov
er-17-per-cent-to-usd-25-3-billion-in-q1-report/articleshow/82198541.cms
• https://blog.ipleaders.in/critical-ma-deals-india-2020/
• https://economictimes.indiatimes.com/tech/startups/flipkart-acquires-cleartrip-as-part-of-its-divers
ification-drive/articleshow/82082840.cms
• https://blog.ipleaders.in/critical-ma-deals-india-2020/
• https://www.livemint.com/companies/news/india-clocks-80-bn-of-m-a-activity-pe-deals-in-20-
report-11608775915889.html