Procedure in structuring an M&A Transaction

(1)Developing the business plan

Himanshu Puri Assistant Professor IILM CMS

A business plan communicates a mission and vision for the firm and a strategy for achieving the same. Merger and Acquisition strategy should fit to company’s strategic goals Evaluating business environment

(2) Building the Acquisition Plan

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(3) The search process

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Based on the Business plan Key management objectives for the takeover, How to achieve, when to follow, using which resources? Resource assessment (What we have and what we require) Time table (Structuring as per time) Proper guidance to those responsible for successfully completing the transaction. Risk Involved

Involves search for the right candidate for acquisition. Primary criteria – industry, size of the transaction, geographic location, etc. Developing the search strategy – through computerized database and directory services.


Due diligence is of vital importance to prevent "unpleasant surprises" after completing the acquisition. Refining valuation and plan Structuring the deal (needs of both parties are met Financing plan Due diligence Total consideration = cash + PV of stock issued + PV of new debt issued Total purchase price/Enterprise Value = Total consideration + PV of assumed debt of the target Net purchase price = Enterprise value – PV of sale of discretionary or redundant assets 2 . present and the predictable future of a business to be purchased. fee payment. expiration date etc.  Reduction of initial list of potential candidates Firms profitability.Preliminary legal documents:  Confidentiality agreement for non disclosure of data provided by buyer and seller to each other  Letter of intent: parties’ preliminary agreement to agree covering major terms and conditions.Alternative approach strategies: directly or thru an intermediary or thru a letter expressing interest in a joint venture/market alliance .   Actual purchase consideration is identified. weighted average of all .12/24/2012  (4) The screening process    (5) First Contact: meet the acquisition candidate and put forward the acquisition proposal: . The due diligence should be thorough and extensive. respective responsibilities. Both the parties to the transaction should conduct their own due diligence to get the accurate assessment of potential risks and rewards. More sorting out and coming on to final prospect  (6) Negotiation    DUE DILIGENCE The basic function of due diligence is to assess the benefits and the costs of a proposed acquisition by inquiring into all relevant aspects of the past. degree of leverage and the market share are also used in the screening process.Discussing Value: based on various valuation methods.

integration is unlikely to provide the synergies anticipated by. customers to be identified and plan made to retain these : very critical to ensure success of acquisition deal. communication issues (10) Post Closing Evaluation: to determine if acquisition is meeting expectations. vendors.12/24/2012   Due Diligence – assess the benefits and the costs of a proposed acquisition by relevant aspects of the past. why and how the deal succeeded or failed  Participants in M&A process 3 .       Verification of assets and liabilities Identification and quantification of risks Protection needed against such risks Identification of synergy benefits Post-acquisition benefits Buyers and sellers due diligence (7) Developing the Integration Plan: to absorb the resources and systems of seller company into the merged entity. price. cultural. human. critical factors like key managers. and within the time provided in the acquisition plan. helps outline lessons for future actions. allocation of price for tax purposes. payment mechanism. present and the predictable future of a business to be purchased. covenants. takes care of all aspects of business: operational. assumption of liabilities. (8) Closing: is the final legal procedure where the company changes hands  all necessary shareholders’. evaluate actual performance after merger against anticipated performance as per plan. at the cost included in. very crucial to success of merger plan. conditions for closing   (9) Post Closing Integration: of acquired company in the combined entity. regulatory and third party consents taken  closing document prepared containing various clauses on purpose of acquisition. Without adequate planning. to determine corrective actions.

As target company’s stock price at a small discount to the actual bid 4 . advise. negotiation. valuation. include banks. VC firms. FIs.  Two corporate entities  In the process of merging and acquiring  Arbitrageurs  They buy the stock and make profit on the difference between the bid price & current stock price. integration The investment bakers provide the following services:       Many of the legal formalities are to be dealt with So legal advisor (an expert) helps in the process  Accountant  Identifying the areas for restructuring Buyer/seller identification Structuring and valuation Negotiation Legal compliance  Optimal tax structure advice. mutual funds etc. financial structuring and on performing financial due diligence.12/24/2012  Investment bankers    Lawyers     Fee based advisory and financing Gives consultancy services on strategy for hostile takeovers Forefront player in the actual process Do search. Also perform the role of auditors  Valuation Experts  To determine the value of the target firm  Institutional Investors  to finance the deal.

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