Mergers &

Acquisitions

By Zil Shah

• M&A are complex, involving many parties.

• Mergers and acquisitions involve many issues, including

Corporate governance.Form of payment.Legal issues.Contractual issues.Regulatory approval.• M&A analysis requires the application of valuation tools to evaluate the M&A decision.

INTRODUCTION

WHAT IS MERGER & ACQUISITION ?

A merger is a combination of two or more firms in which only one firm would survive and the other would cease to exist, its assets / liabilities being taken over by the surviving firm.

Example : In the 1999 merger of GlaxoWellcome and SmithKline Beecham, both firms ceased to exist when they merged, and a new company, GlaxoSmithKline, was created

MERGER

A company + B company = C company

In 1998 Chrysler merged with Daimler-Benz to form Daimler Chrysler AG.

Acquisition is the process through which one company takes over the controlling interest of another company”. It also known as a takeover or a buyout. It is the buying of one company by another. Example : Vodafone group Acquires Control Of Hutchison Essar Limited in 2007

ACQUISITION

A company + B company = A company

Statutory MergerThe acquirer company acquires all of the target’s asset and liabilities. As a result, the target company ceases to exist as a separate entity. Usually the target company is smaller than the purchaser, but this is not always the case.Example : Kraft’s 2009 acquisition of Cadbury

Forms of Integration

Electronic Arts (EA) Bought PopCap Games in 2011

Subsidiary MergerThe target company becomes a subsidiary of the purchaser. Most subsidiary mergers typically occur when the target has a well-known brand that the acquirer wants to retain (e.g. Proctor and Gamble buying Gillette)Example : Textron’s acquisition of Cessna Aircraft Company in 1989

Jaguar Land Rover PLC is a British premium automaker headquartered in Whitley, Coventry, United Kingdom, and has been a wholly owned subsidiary of Tata Motors since June 2008, when

it was acquired from Ford Motor Company.

Consolidation Both companies cease to exist in their prior form, and they come together to form a completely new company. Consolidations are common in mergers when both companies are of similar size. Example : Hero Honda started in 1984 as a joint venture between Hero Cycles of India and Honda of Japan.

TYPES OF MERGER

TYPES OF MERGER

HORIZONTAL VERTICAL CONGLOMERATE

Horizontal mergers are those mergers where the companies manufacturing similar kinds of commodities or running similar type of businesses merge with each other. This type of merger occurs frequently as a result of larger companies attempting to create more effective economies of scale.Examples : Bengaluru based online cab aggregator Ola Cabs acquires Taxi for Sure.

Horizontal Merger

New Delhi based online marketplace Snapdeal acquires Exclusively.com in 2015

A merger between two companies producing different goods or services. The merger of the firm that have actual or potential buyer-seller relationship.Example : Google acquired Motorola Mobility Holdings in June 2012

VERTICAL MERGER

Disney and Pixar merger in 2006

A merger between firms that are involved in totally unrelated business activities.Example :Berkshire Hathaway acquires Lubrizol (2011).

CONGOLOMERATE MERGER

Walt Disney Company and the American Broadcasting

Company merger

Synergies Achieving more rapid growth Increased market power Gaining access to unique capabilities Diversification Bootstrapping EPS Personal benefits for managers Tax benefits Unlocking hidden value Achieving international business goals

Motivations for Synergy

Synergy The concept that the value and performance of two

companies combined will be greater than the sum of the separate individual parts. Synergy is a term that is most commonly used in the context of mergers and acquisitions. Synergy, or the potential financial benefit achieved through the combining of companies, is often a driving force behind a merger. Shareholders will benefit if a company's post-merger share price increases due to the synergistic effect of the deal. The expected synergy achieved through the merger can be attributed to various factors, such as increased revenues, combined talent and technology, or cost reduction.

Synergy MergeMergers and acquisitions are made with the goal of improving the company's financial performance for the shareholders. Two businesses can merge to form one company that is capable of producing more revenue than either could have been able to independently, or to create one company that is able to eliminate or streamline redundant processes, resulting in significant cost reduction. Because of this principle, the potential synergy is examined during the merger and acquisition process. If two companies can merge to create greater efficiency or scale, the result is what is sometimes referred to as a synergy merge.

Drivers of Synergy

Types of synergy

Operational synergy

Revenue Enhanceme

ntsCost

Reduction

Financial Synergy

Thank You