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Symbiont -A Newsletter on Mergers & Acquisitions by Christ University- June 2010

Symbiont -A Newsletter on Mergers & Acquisitions by Christ University- June 2010

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10/25/2012

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Companies are entities that have a life period. If not companies per se, may bethe brands which they own, have a lifecycle, in which their valuation takes acorrection with every move. Brands (or 
firms)’ valuation is done on the basis
of the market value it commands. This becomes indispensable when these en-tities enter into dealings with them.The correct pricing and future valua-tion in current prices gives a fair pic-ture to the two companies to decide ona standard price which should essen-tially qualify as a win-win situation.Pricing of a deal is based on two con-cepts: Time of valuation and goodwillof the brand. The major factor is timeof valuation. And this is where mostcompanies slip the path by either pull-ing the trigger too soon or too late.Valuation before Time: Currently re-ferring to brands, companies some-times hasten the equation of brandsunder them by concurrently either de-veloping a better one or leaving thedomain. This generally happens in thecase of overnight successful brands.The initial investment is recovered in arecord time with the brand gathering asufficient goodwill. Moreover, gener-ally for such brands there are queues of  bigger corporate houses to have a sliceof profits. The win-win situation is bestexplained here when a company tendsto sell off its asset (the brand) to moveaway and the other company fuels ingrowth and expansion plans. The profitstanding is rich and high for both.Valuation too late
: It isn’t a typical
win-win situation but it can be therichest of all for the acquirer if the ta- bles can turn around. Generally redun-dant, defunct or initially over valued brands fall here. This is a neutralsituation for the seller because of tworeasons (i) The brand can offer nomore profits or is either a recurringcost instead of revenue and (ii) The brand is generally valued at the bareminimum value to the benefit of theacquirer.This explains the criticality of under-standing just exactly when to separateor adopt a brand or company. Gener-ally when the entities are companies,the purpose of merger is to share corecompetency and acquisition is to re-duce sunk cost of acquiring an assetrather than creating an asset. Compa-nies pose bigger challenges becausethe acquirer companies need to cater to two important issues (i) Is the crea-tion of my customer value independ-ent or dependant on the capabilities of the company being acquired and (ii)Will the revenue period be extendedor the aim is to grow faster or shortterm big profits.Whether a company merges or ac-quires a brand or another company,the criticality of time cannot be ruledout. As we saw in the recessionary period , the spur of M&As needed areality check. After all, the only thinga company looks at is profitability.
 
INSIDE THISISSUE:
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SYMBIONT
VOLUME IIISSUE 8
M&A: Do we smell the rat too soon?
 By Akash Sablok 
28TH JUNE2010
(Click on thearticle title)
 
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PAGE 3
Blue Star proposes an acquisition of DSGupta Construction
with long standing relationships andimpressive credentials in segmentssuch as hotels, hospitals, educationaletc. It has also executed projects for several green buildings.The plumbing and fire fighting con-tracting skills were being developed in-house. However, the Companythought it prudent to acquire these ca- pabilities inorganically through a stra-tegic acquisition, in order to leveragethe growth opportunities available.With this acquisition, not only will theCompany be in a position to aggres-sively pursue integrated MEP busi-ness, but will also bid for stand alonecontracting projects by cross-sellingits services to its existing air condi-tioning and electrical contracting cus-tomers. In fact, in several of the stand-alone air conditioning jobs that BlueStar has executed in the past, D SGupta Construction has been the plumbing and fire fighting contractor.This is Blue Stars effort to accommo-date Backward integration in their functioning.
 
Central air conditioning and commer-cial refrigeration major, Blue Star Limited intends to strengthen itsElectro Mechanical Projects businessthrough the strategic acquisition of the businesses of D S Gupta Con-struction Pvt Ltd, the largest inde- pendent plumbing and fire fightingcontracting company in India, as agoing concern. This move will fortify
an important pillar in Blue Star’s in-
tegrated Mechanical, Electrical,Plumbing & Fire fighting (MEP)contracting offering for its commer-cial and residential real estate cus-tomers. The promoters of D S GuptaConstruction will continue to managethe business for the foreseeable fu-ture.About D S Gupta ConstructionD S Gupta Construction Pvt Ltd isheadquartered in Mumbai with aturnover of Rs 130 crore in FY10.Established over two decades ago, ithas pan India operations and is re- puted for its quality of work andtimely execution. It has a large pool of skilled manpower coupled
The promoters of D S Gupta Construction will continue to manage the business even after the acquisition.
 
 By Chinnu and Praveen
 
DATE
 
July 15
th
, 2010 (Proposed)
 
ACQUIRER 
 
Blue Star Ltd.
 
ACQUIREE
 
D S Gupta Construction Pvt Ltd
 
DEAL VALUE
 
Undisclosed
 
DEAL NATURE
 
Acquisition
 
PURPOSE
 
To strengthen the company businesscommitments for customers looking for integrated suppliers.
 
“Money in an organization always faces a unique paradox: You want to earn more alwayswithout actually spending it”
-
Earl Wilson
Q UO T E- U NQ UO T E 
he  pro po se acq ui-
 sition  will  f orti f  y an im portant  pillar in the 
com pan y s inte grate 
mechanical, electrical,  pl umbin g & f ire f i ghtin g  E P ) contractin g o f -
 f erin g s,  sai a  senior 
com pan y o f  f icial 
TRIVIADS Gupta has someleading names as itsclients like The TajGroup, The OberoiGroup, The HolidayInns, The Marriott &The Le
 – 
Meridian,The Kamat Group of Hotels, PrestigeGroup, Microsoft,Leela Hotel, IndianSchool of Business.
 

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