MERGERS AND ACQUISITIONS

By Mohammed Aftab

Mohammed Aftab

IN CONTEXT OF MERGERS AND ACQUISATIONS

“to sustain and to grow one has to either win the competition or kill the competition”

-Mohammed Aftab

Mohammed Aftab

MEANING OF MERGER

Voluntary amalgamation of two firms on roughly equal terms into one new legal entity.

If the merged entities were competitors, the merger is called horizontal integration, if they were supplier or customer of one another, it is called vertical integration.

Mohammed Aftab

MEANING OF ACQUISITION• The purchase of one corporation by another, through

either the purchase of its shares, or the purchase of its assets .

There's only one real way to achieve massive growth literally overnight, and that's by buying somebody else's company

Mohammed Aftab

WHAT INTEGRATES?

Mohammed Aftab

FACTORS TO CONSIDER BEFORE MERGING OR ACQUIRING

• Self-business must be healthy.• Your debt equity ratio must be lower than the average ratio in the industry.• There must be strategic benefit from the mergers and acquisitions• Partner must be willing to merge.• Sharing same interest and sometimes same goals.

Mohammed Aftab

APPROACHES TO THE MERGERS AND ACQUISITIONS

• 1. Passive Approach : remains passive and wait for someone to come to you- bit less expensive - also least effective.

• 2. Aggressive Approach: business itself seeks and looks out for the opportunities that exist- customers, suppliers, competitors or firms- information could be accessed from

Trade shows, websites, comparing product lines, target markets, supply chains and the market environment,3. Outsource approach: the process of merger and acquisition is handed over to the third party who is an expert .

Mohammed Aftab

ANALYSIS AND VALUATION OF THE TARGET COMPANY

• Asset valuation•Discounted cash flow• Comparable market analysis •Make or buy• S.W.O.T analysis.

Mohammed Aftab

VARIETIES OF MERGERS• Horizontal merger - Two companies that are in direct

competition and share the same product lines and markets. (Pepsi and coke)• Vertical merger - A customer and company or a supplier

and company. (cone supplier merging with an ice cream maker.) • Market-extension merger - Two companies that sell the

same products in different markets. (Indian and foreign company)• Product-extension merger - Two companies selling

different but related products in the same market. • Conglomeration - Two companies that have no common

business areas. Ex ( Walt Disney company with American broadcasting company)

Mohammed Aftab

ADVANTAGES OF MERGER AND ACQUISITION

• synergy that offers a surplus power that enables enhanced performance and cost efficiency.• Cost efficiency is another beneficial aspect of merger and acquisition.• With a merger it is easy to maintain the competitive edge.• enhances and strengthens the business network by improving market

reach. This offers new sales opportunities.• increases the market power of the company which in turn limits the

severity of the tough market competition,• advantage of hi-tech technological advancement against

obsolescence and price wars.

Mohammed Aftab

CASE• Adidas and Reebok – Two mega brands, with great strengthsIn August 2005, German adidas-Salomon AG announced plans to acquire Reebok at an estimated value of € 3.1 billion ($3.78 billion). At the time, Adidas had a market capitalization of about $8.4 billion, and reported net income of $423 million a year earlier on sales of $8.1 billion. Reebok reported net income of $209 million on sales of about $4 billion. While analysts opined that the merger made sense, the purpose of the merger was very clear. Both companies competed for No. 2 and No. 3 positions following Nike (NKE).

Mohammed Aftab