UNIT 2 and UNIT 3

M AND A PROCESS
DUE DILIGENCE
 HIGHLIGHTS
• Identification of target
• Negotiation
• Closing the deal
• Due diligence
• M&A integration
• Organizational and human aspects
• Managerial challenges of M&A
 UNIT 3
• Doctrine of due diligence – Introduction
• ethical policies
• Buyers due diligence
• Sellers due diligence
• Corporate governance issues in M&A and M&A
integration
• M&A and shareholder value
• How M&A can lead to governance failure
 IDENTIFICATION OF TARGET
The Top Management should establish specific
criteria based on the objectives that have
determined and on a strategy of growth through
acquisition.
 IMPORTANT FACTORS TO BE IDENTIFIED IN
IDEAL TARGET FIRM
• TYPE OF COST STRUCTURE OF THE TARGET COMPANY
• MARKET CHANNEL OF THE TARGET
• ORGANISATIONAL COMPETENCE AND CAPABILITIES TO
MINIMISE THE LEVERAGE AND TO ATTAIN THE GREATEST
NUMBER OF SYNERGIES
• STRATEGIC CUSTOMER ACCOUNTS AND MARKET
SEGMENTS ACCESSED BY THE TARGET
• CAPITAL STRUCTURE
• SOURCES OF NEW ACQUISITIONS
• TYPE OF GOVERNANCE PROCESS TO BE FOLLOWED
 NEGOTIATION
• ALIGNMENT OF MERGERS
• DEAL TEAMS ALONG WITH SENIORS
• FORMULATE FINAL NEGOTIATION STRATEGY
• CONSIDERATIONS INCLUDE
PRICE,PERFORMANCE,PEOPLE, LEGAL
PROTECTION AND GOVERNANCE
 PILLARS IN A MERGER NEGOTIATION
• Working Group and terms of reference
• Budget/division of cost
• Legal structure of the merger
• Board Structure of the new entity
• Management structure of the new entity
• In principle agreements regarding HR transitions
• Locations sites head office
• Name change
M and A integration
 Factors Most Important to Deal Success /
Closing the Deal
• Correct Valuation / Deal Price
• Effective Due Diligence
• Cultural Considerations
• Regulatory Environment
• Well-Planned and Well-Executed Integration
Plan
• Positive Economic Conditions
 ORGANIZATIONAL AND HUMAN ASPECTS

• Technological obstacles
• Systems Integration
• Communicating change
• The Learning Curve
 DIFFERENCE ASPECTS IN M AND A
1. THE ECONOMIC ASPECTS
2. THE FINANCIAL ASPECTS
3. THE CONTRACTUAL ASPECTS
4. THE HUMAN ASPECTS
 1. ECONOMICS ASPECTS
• SYNERGIES
• VERTICAL INTEGRATION
• CUSTOMER DEMANDS
• KNOW HOW
• RE-FASHIONING
• INCREASING MARKET SHARE
• DIVERSIFICATION
 2. FINANCIAL ASPECTS

• POOL RESOURCES
• SECURE REQUIRED CREDIT
• CUT DOWN COST OF PRODUCTION
• REINFORCE THE UNITED R AND D
• IMPROVE PRODUCTIVITY AND PROFITABILITY
• CONCENTRATE ON CORE COMPETENCIES OF THE
MERGED COMPANY
• CONSOLIDATE RESOURCE BASE AND IMPROVE ON
GENERATE AND MOBILISING ALL RESOURCES
 3. CONTRACTUAL ASPECTS
• CONDITION PRECEDENT
• MANAGEMENT AND CONTROL
• IPR
• NON-COMPETITION/CONFLICT OF INTEREST
• CONFIDENTIAL INFORMATION
• SURVIVAL CLAUSE
 HUMAN ASPECTS IN M AND A
• THREE STAGE MODEL
1. PRE-COMBINATION
2. COMBINATION-INTEGRATION OF THE PARTNERS
3. SOLIDIFICATION AND ADVANCEMENT OF NEW
ENTITY
DUE DILIGENCE
 TWO VIEWS OF DUE DILIGENCE
• ACQUIRERS POINT OF VIEW
• SELLERS POINT OF VIEW
 DEFINITION
• “DUE DILIGENCE IS AN INVESTIGATION OR
AUDIT OF A POTENTION INVESTMENT. IT
SERVES TO CONFIRM ALL MATERIAL FACTS IN
REGARDS TO A SALE”
 COMMON ASPECTS EXAMINED IN DUE
DILIGENCE
ACQUIRER’S CONSIDERATION
1. LEGAL MATTERS
2. FINANCIAL, ACCOUNTING AND TAX MATTERS
3. CLIENTS, PLACEMENTS, RECOVERIES AND FEES
4. MANAGEMENT AND CULTURAL COMPATIBILITY
5. SYSTEM
6. EXTERNAL FACTORS
 TYPES OF DUE DILIGENCE
1. FINANCIAL DUE DILIGENCE
2. STRATEGIC DUE DILIGENCE
3. OPERATIONAL DUE DILIGENCE
4. IT DUE DILIGENCE
5. HUMAN CAPITAL DUE DILIGENCE
 CHALLENGES
• CONSISTENT APPLICATION OF CRITERIA
• CAPTURING KNOWLEDGE AND EXPERIENCE
• PROACTIVE RESEARCH