Mergers & Acquisitions

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Mergers & Acquisitions – An Overview

Organic and Inorganic Growth:

¾ A business can expand through:
9 Organic growth
9 Inorganic growth

¾ A business grows organically when it decides to expand through its own operations or by
setting up new operations (if needed).

¾ Inorganic growth, on the other hand, is the decision of ‘acquiring’ or ‘merging’ with an
existing business / company / brand.

Types of transactions under M&As:

¾ Merger: Two companies are said to be merged, when both of them become one company
and one of them ceases to exist. Also their financial statements are combined under this
transaction.

¾ Acquisition: Under this, two companies combine such that shareholders of one company sell
their shares to shareholder of other company. Both companies continue to exist in this case.

¾ Asset sale: When a company buys certain assets of a particular company and rest
everything remains intact it is termed as asset sale.

¾ Demerger: A demerger is the opposite of a merger, involving the splitting up of one entity
into two or more entities.

M&A Deal Drivers:

¾ Geographic expansion: When a company sees growth and incremental business in a new
geography, it can move relatively quickly, by means of an acquisition. This is termed as
geographic expansion.

¾ Product expansion: A company may see incremental value in another product / service
category and decide to venture into the same. Once it decides to enter the said category, it
may choose to do so through an acquisition. This is termed as product expansion.

¾ Value chain expansion: A company may want to acquire one of its suppliers / customers to
derive greater value from consolidation in the value chain. This is termed as value chain
expansion.

©Finitiatives Learning India Pvt. Ltd. (FLIP), 2010. Proprietary content. Please do not misuse!
 Mergers & Acqu
uisitions
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¾ Capaability enhancement: A company

c maay wish to ad dd certain ca
apabilities (service lines /
uction techniques / new technology)) to derive grreater value from existin
produ ng business. It
may do
d so by acq quiring a targ
get which offfers that cap
pability.

¾ Indusstry consolid
dation/Distresss: There arre often situa
ations in indu ustries when
n, either due
e to
excesssive compe etition or unffavorable business marg gins, the shaareholders off a companyy
may decide
d to ex
xit the busineess, therebyy triggering M&A
M activity..

¾ Cost efficiencies//Outsourcing
g: In some situations, co
ompanies ma ay realize that they stand to
derive
e greater va
alue by divessting from ce
ertain processses / parts of
o their valuee chain.

¾ Restrructuring/ Ree-prioritizatio
on: Other tha an reasons stated
s abovee, M&A mayy also be
trigge
ered by certaain re-prioritization of lines of busine ny decides to
ess wherebyy the compan
exit frrom a non-c
core line of business.
b

Role off an Investment Bank

B in an
n M&A Tra
ansaction
n
¾ Identtification of Target:
T It invo
olves undersstanding clie
ent’s businesss, objective
es and
shorttlisting potenntial targets.

¾ Due Diligence
D an
nd Valuation: It involves identifying and
a analyzin ng relevant innformation
regarrding the targ
get companyy and arrivinng at a valuaation on the basis
b of it.

¾ Struccturing and Closure:

C It involves finalizing executiion mechaniism, transacction structurre,
prepaaring definitive agreeme ent, managinng issues tha
at may be ‘deeal breakerss’ etc.

¾ Efficie
ent Process Manageme ent: Finally, the investmeent bank mu ust also, on behalf
b of the
e
potenntial buyer, manage
m the entire transaaction proce
ess efficientlyy.

Differe
ence betw
ween sell--side and buy-side
e advisor’’s role

Across th he entire tran

nsaction cyccle, all other steps and sub-steps
s are
e performed
d on behalf of
o the
seller, insstead of the buyer as illu
ustrated aboove.

©Finitiative
es Learning
g India Pvt. Ltd.
L (FLIP), 2010. Proprrietary conte
tent. Please do
d not misu
use!