M&A: Thriving during Chaos !

- USERS GUIDE

 Mallya is am from V Gop

So, why is such news always a big deal?!

y It has an impact- visual and real, much beyond its

intended space! y It affects, organisations, individuals- at an emotional and rational level; although its objective is essentially at a rational level y Therefore, it makes headlines..

How can you work for such a company? --anecdote

Whats in the M&A?

y Business Context of M&A y People Context of M&A y Emotional Element of a Merger/ Acquistion y Rational Element of a Merger/ Acquisition y Where the Twain shall meet? y Financial Dimensions  accruals, profitability, market share, segmentation y Softer (or Harder?) Dimensions  - Culture, Designations, Logos, Heritage, History,

Service Industry M&A activity in recent times..

10 Top $Bn Deals

y

y y y y y

y y

y y

Tata Steels mega takeover of European steel major Corus for $12.2 billion. The biggest ever for an Indian company. This is the first big thing which marked the arrival of India Inc on the global stage. Vodafones purchase of 52% stake in Hutch Essar for about $10 billion. Essar group still holds 32% in the Joint venture. Hindalco of Aditya Birla groups acquisition of Novellis for $6 billion. Ranbaxys sale to Japans Daiichi for $4.5 billion. Sing brothers sold the company to Daiichi and since then there is no real good news coming out of Ranbaxy. ONGC acquisition of Russia based Imperial Energy for $2.8 billion. This marked the turn around of Indias hunt for natural reserves to compete with China. NTT DoCoMo- Tata Tele services deal for $2.7 billion. The second biggest telecom deal after the Vodafone. Reliance MTN deal if went through would have been a good addition to the list. HDFC Bank acquisition of Centurion Bank of Punjab for $2.4 billion. Tata Motors acquisition of luxury car maker Jaguar Land Rover for $2.3 billion. This could probably the most ambitious deal after the Ranbaxy one. It certainly landed Tata Motors into lot of trouble. Wind Energy premier Suzlon Energys acquistion of RePower for $1.7 billion. Reliance Industries taking over Reliance Petroleum Limited (RPL) for 8500 crores or $1.6 billion

Known Impact of M&A

y Kingfisher acquired Deccan for International

Route Permits y HP & Compact (& Digital) for consolidation of Services businesses; subseqent merger of EDS (that has acquired Mphasis)- to compete with IBM

Whats beneath the Iceberg?

Life Cycle of a (M/A) case?

y Discussion

 

Stakeholders Life Cycle Stages

M&A Impact

Target Residual Business External Media Buyer Management Buyers Managers Buyers employees

Target Clients Target Vendors/ suppliers Targets Employees Regulatory Agencies Applicants

While the Headline statement talks of synergies, there are a number of under-surface stakeholders to the process

y Strategic Intent & Direction y Due Diligence

  

Merchant Banks (Data Rooms, Seller & Buyer Presentations) NDAs Operational (Audit Visits, Additional Data Room elements, Follow up Calls , Discussions) External, Internal and Stakeholder Communications Announcements, Reharsals, Synergy Role Mappings, Redisgnations, Process Controls Communications Consolidation of Vendors, Contracts (eg: even lease agreements) Tax duties/clawbacks

y Sale Decision & Announcement

 

y Integration
   

Mergers and Acquisitions Laws: the Indian Perspective Indian competition law grants a maximum time period of 210 days for the determination of the combination, which comprises acquisitions, mergers, amalgamations and the like. One needs to take note of the fact that this stated time frame is clearly distinct from the minimum compulsory wait period for applicants. As per the law, the compulsory period of waiting for applicants can either be 210 days starting from the day of notice filing or receipt of the Commission's order, whichever occurs earlier. The threshold limits for firms entering business combinations are substantially high under the Indian law. The threshold limits are set either in terms of the asset value or or in terms the firm's turnover. Indian threshold limits are greater than those for the EU. They are twice as high when compared with UK. The Indian law also provides for the modern day phenomenon of merger and acquisitions, which are cross border in nature. As per the law domestic nexus is a pre-requisite for notification on this type of combinations. It can be noted that Competition Act, 2002 has undergone a recent amendment. This has replaced the the voluntary notification regime with a mandatory regime. Of the total number of 106 countries, which possess competition laws only 9 are thought to be credited with a voluntary notification regime. Voluntary notification regimes are generally associated with business uncertainties. Post-combination, if firms are seen to be involved in anti-competitive practices demerger shows the way out.

Some Norms
y Data Rooms (typically midnight opening for the

bidders) y Top Management Compensation is masked till the final two/three bidders are decided y Management Presentations (extreme example of negotiation skills)- who is the host? (anecdote of the company in an airport hotel for 12 hours. And tipping points in negotiations) y People Process negotiations- flavoured with Finance

Creating the Merger Framework

j Community Initiatives led by employees j Any initiatives that the Unit is now doing but needs to Disengege j Mix, j j j Cost, Skill Sets, BG and Onboarding

Diversity
Fixed Pay with Flexi Plan Structuring Variable Pay linked to Performance (Proportion skill set based) Attractive Benefits

Recruitment & Staffing

j Signature Progreams j Speacial Certifications j Continuing Education

Compensation and Benefits

Learning & Development

j CRM Touch Points j R &R , Leadership Awards

Engagement

Business Training

j Pre process, product and process training j Domain Training across key businesses j Knowledge Management

Career
j Job Mobility IJP Process j Specialist Career paths j X% of top 1,2 rating retained j Synchronise the annual process

Management

Communication
j What are the unique strategies that need to be retained- how much will come from Buyer?

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The People Related Decisions (emotional) will have to be balanced with Realism (rational)
Right Messaging to Stakeholders

Financial Considertions

Output
y Level Mapping/ Designations y Benefit Mapping (Hygiene Factors) y Synchronise Annual Calenders (Training,

Performance Management, Financial Year Closing)all of which have financial and budget impact (Eg: what happens if the Perf Mgt cycle is brought forward by 3 months- (Eg: 150K USD on a 10 Mn salary base with 6% increase!!)

Example of a Transition Document content

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Schedule 1 Services And Charges Schedule 2 Change Control Definition and Interpretation Performance of Services Third Party Suppliers Price and Payment Warranties and Obligations Term and Termination Migration Liability Contract Management Changes Dispute Resolution Intellectual Property Rights Data Protection Confidentiality Force Majeure Sub-Contractors Other Provisions

Managing the Transition

+ve for Employee
y Compensation is same y Slight Change in Benefitsy y y y

Concerns
y Who are my new

gain some; lose some Your designation remains same for 1 year Continuity of service- PF and Gratuity is protected (Not Eligible for long service awards though!) Your manager remains same for 6 months

comparators (Tech Industry Vs Financial Services).. y What happens to my long term benefits.. y I was passed over for promotion last year..will it happen this year too? y My classmate who joined the buyer company is he at the same level as me?

Maslow in M&A?

Copyright: David Tuffley/ Griffith Univ

Nothing really changes.?

Deep Dive Activity

RETENTION BONUS

Retention
y Retention on People (Affects Business Continuity

and Service Delivery) y Retention of Key People (Could Affect ValuationImpacts Morale) y Retention of Customers (Eg: Mahindra Satyam)

Retention Bonuses are typically built around the priorities for the above.

Building Retention Plans

F I N A N C I A L P L A N N I N G L E G A L F R A M E W O R K H R / P E O P L E D I M E N S I O N

Background & Objective

Proposed Action
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Desired Output
Smooth Transition of Project; Prioritise budget for Retention Retention of Key Individual Flexibility for Business; Individual is covered in event of Redundancy

Identify key resources for Leading and Transition of DELTA and where possible create segmentation or Tier-wise listing Put Monetary Attractions for tenure during transition (starting May?) and valid for 12 months thereafter. Build in Critera for early exit (from Business Side) if reorganisation so demands. Decide Amounts Decide / Clarify/ Communicate Stock Option treatment post DELTA

Better understanding of transfer/exit for Individual