Merger and Acquisitions and its valuation Presented by :- Japneet

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Singh

3/11/13

A general term used to refer to the consolidation of companies. A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed. Merger and acquisition is a corporate strategy that can help an enterprise grow rapidly.

Definition of 'Mergers And Acquisitions - M&A

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Horizontal merger - two companies that are in direct competition and share the same product lines and markets. Vertical merger - a customer and company or a supplier and company. Market-extension merger two companies that sell the same products in different markets. Product-extension merger two companies selling different but related products in the same market. Conglomeration - two
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Types of mergers

The main idea for M&A is 1+1=3 Motives for M&A - operating synergy - financial synergy - diversification - economic motives - horizontal integration - vertical integration - tax motives

Synergy

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Book value Liquidation value - the sale of assets at a point in time. Replacement-cost value Market value of traded securities Goodwill Discounted Cash Flow

Business Valuation methods

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Review of Literature

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This paper summarizes information on how corporate business entity can be valued for mergers and acquisitions. It shows what business valuations really is, and how it is used while mergers and acquisitions. Different methods can be used for different companies, however DCF method is the most advanced method and is widely used these days.

Business Valuation in Mergers and Acquisitions by Marek Malucha Uniwersytet Szczeciski Wydzia Nauk Ekonomicznyc hi Zarzdzania
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MERGERS AND ACQUISITIONS AND THEIR IMPACT ON INDIA AFTER GLOBALIZATION by L.S. Patankar and S.R. Chavan SOCIAL GROWTH Vol. II, Issue : II, May 2011 to Oct. 2011

In India, more recently during the year of booming markets 204 to 2010,merger and acquisition activity was as its peak. During the years 2003 to 2007 the amount involved in acquisitions rose from Rs.23, 787 crores in 2003. to Rs.60,282 crores in 2005 and jumped to Rs. 2.04 lakh crores in 2007. Industry wise, the major activity was seen in acquisitions in the IT sector, chemicals, pharmaceuticals, metal, oil, BPO and related activities. 3/11/13

Cultural fit, i.e. compatibility of national and organizational cultures, in M&As and its crucial role regarding M&A success. Some authors consider cultural fit as even more important than strategic fit. Cultural differences cause a lower level of social integration. Cultural diversity can create barriers for achieving socio-cultural integration. Appropriate management of cultural differences

MERGERS AND ACQUISITIONS, INTEGRATION AND CULTURE: by DAUBER, Daniel Vienna, 24th26th of June, 2009

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Company valuation methods, The most common errors in valuation by Pablo Fernandez University of Navara Rev. February , 2007

Most common errors in valuation are:

Wrong risk free rate used for valuation. Wrong beta used for valuation. Wrong calculation of WACC Wrong calculation of cash flows.
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POST MERGER AND ACQUISITION FINANCIAL PERFORMANCE ANALYSIS : A CASE STUDY OF SELECT INDIAN AIRLINE COMPANIES by Mahesh R. & Daddikar Prasad, In this paper the influence of M&A on the financial performance of the surviving company has been tested by considering Pre and Post M&A financial ratios for the entire set of sample firms. Findings

There is insignificant improvement in return on equity, expenses to income, earning per share and dividend per share post-merger. There is no significance difference in the defined financial performance standards between premerger and post-merger
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Comparative analysis of the impact of mergers and acquisitions on financial efficiency of banks in Nigeria by Okpanachi Joshua Nigerian Defence Academy, Kaduna, Nigeria. For this paper, three Nigerian banks were selected using convenience and judgmental sample selection methods.

It was found that the post mergers and acquisitions period was more financially efficient than the pre-mergers and acquisitions period. However, to increase banks financial efficiency, the study recommend that banks should be more aggressive in their profit drive for improved financial position to reap the benefit of post mergers and acquisitions bid.
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MERGERS AND ACQUISITIONS: THE INFLUENCE OF METHODS OF PAYMENT ON BIDDERS SHARE PRICE by R Chatterjee and A Kuenzi University of Cambridge The purpose of this paper has been to examine the acquiring companies short-term abnormal return around the announcement date of a transaction and to determine how these abnormal returns are related to the companies choice of methods of payment. The sample consisted of UK transactions, covering the years 1991, 1995, and 1999. Stock transactions no longer lead to negative abnormal returns over the announcement period, but achieve highly significant positive abnormal 3/11/13 returns.

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