Mergers and Acquisitions

Introduction
• Corporate restructuring is the process of significantly
changing a company's business model, management team or
financial structure to address challenges and increase
shareholder value.
• As a concept, ‘merger’ is a combination of two or more
entities into one; the desired effect being not just the
accumulation of assets and liabilities of the distinct entities,
but organization of such entity into one business.
• The possible objectives of mergers are manifold - economies
of scale, acquisition of technologies, access to varied sectors /
markets etc.
• Generally, in a merger, the merging entities would cease to
exist and would merge into a single surviving entity.
• Corporate Restructuring is concerned with arranging the
business activities of the Corporate as a whole so as to achieve
certain pre-determined objectives at corporate level.
Objectives may include the following:
• To enhance shareholders value.
• Orderly redirection of the firms activities.
• Deploying surplus cash from one business to finance profitable
growth in another.
• Exploiting inter-dependence among present or prospective
businesses.
• Risk reduction.
• Development of core-competencies
• To obtain tax advantages by merging a loss-making company
with a profit-making company
• To have access to better technology
• To become globally competitive
• Corporate Restructuring: ABC Limited has surplus funds
but it is not able to consider any viable projects. Whereas XYZ
Limited has identified viable projects but has no money to
fund the cost of the project. The merger of ABC Limited and
XYZ Limited is a mutually beneficial option and would result
in positive synergies for both the Companies.
 Mergers/Acquisitions And Amalgamation

• Mergers and Acquisitions (M&A) are transactions in which

the ownership of companies, other business organizations or
operating units are transferred or combined.
• As an aspect of strategic management, M&A allow enterprises
to grow, shrink, and change the nature of the business or
competitive position. It refers to the consolidation of two
companies.
• The reasoning behind M&A is that two separate companies
together create more value compared to being on an individual
stand. With the objective of wealth maximization, companies
keep evaluating different opportunities through the route of
merger or acquisition
 Reasons for Mergers & Acquisitions

• Becoming bigger: Many companies use M&A to grow in size

and leapfrog their rivals. While it can take years or decades to
double the size of a company through organic growth, this can
be achieved much more rapidly through mergers or
acquisitions.
• Preempted competition: This is a very powerful motivation
for mergers and acquisitions, and is the primary reason why
M&A activity occurs in distinct cycles.
• Domination: Companies also engage in M&A to dominate
their sector. However, since a combination of two behemoths
would result in a potential monopoly, such a transaction would
have to face regulatory authorities.
• Tax benefits: Companies also use M&A for tax purposes,
although this may be an implicit rather than an explicit motive.
• Economies of scale: Mergers also translate into improved
economies of scale which refers to reduced costs per unit that
arise from increased total output of a product.
• Acquiring new technology: To stay competitive, companies
need to stay on top of technological developments and their
business applications. By buying a smaller company with
unique technologies, a large company can maintain or develop
a competitive edge.
• Improved market reach and industry visibility: Companies
buy other companies to reach new markets and grow revenues
and earnings. A merger may expand two companies' marketing
and distribution, giving them new sales opportunities. A
merger can also improve a company's standing in the
investment community: bigger firms often have an easier time
raising capital than smaller ones.
 Types of Merger

• Horizontal Mergers: Also referred to as a ‘horizontal

integration’, this kind of merger takes place between entities
engaged in competing businesses which are at the same stage of
the industrial process. A horizontal merger takes a company a
step closer towards monopoly by eliminating a competitor and
establishing a stronger presence in the market. The other benefits
of this form of merger are the advantages of economies of scale
and economies of scope.
• Vertical Mergers: Vertical mergers refer to the combination of
two entities at different stages of the industrial or production
process. For example, the merger of a company engaged in
construction business with a company engaged in production of
brick or steel would lead to vertical integration. Companies
stand to gain on account of lower transaction costs and
synchronization of demand and supply
• Conglomerate Merger: Conglomerate merger is a merger
between two companies that have no common business areas.
It refers to the combination of two firms operating in
industries unrelated to each other. The business of the target
company is entirely different from the acquiring company. The
main objective of a conglomerate merger is to achieve big size
e.g., a watch manufacturer acquiring a cement manufacturer, a
steel manufacturer acquiring a software company, etc.
 Acquisition
 Acquisition occurs when one entity takes ownership of another
entity's stock, equity interests or assets.
 It is the purchase by one company of controlling interest in the
share capital of another existing company.
 Even after the takeover, although there is a change in the
management of both the firms, companies retain their separate
legal identity.
 The companies remain independent and separate; there is only
a change in control of the companies. When an acquisition is
‘forced’ or ‘unwilling’, it is called a takeover.
Thanks