Current Trends in Management
Presentation on:
Mergers and Acquisitions
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MERGER AND ACQUISITION
WHAT IS MERGER?
A merger is a combination of two or more companies where one
corporation is completely absorbed by another corporation.
WHAT IS ACQUISITION?
Acquisition essentially means ‘to acquire’ or ‘to takeover’. Here a bigger
company will take over the shares and assets of the smaller company.
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MERGER AND ACQUISITION PROCESS
Preliminary Assessment or Business Valuation- In
this process of assessment not only the current
financial performance of the company is examined but Preliminary
Assessment
also the estimated future market value is considered or Business
Valuation
Phase of Proposal- After complete analysis and
review of the target firm's market performance, in the Phase of
Stage of
second step, the proposal for merger or acquisition is Integration Proposal
given.
Exit Plan- When a company decides to buy out the
target
firm and the target firm agrees, then the latter involves
in Exit Planning. Structured Exit Plan
Marketing
Structured Marketing- After finalizing the Exit Plan,
the target firm involves in the marketing process and
tries to achieve highest selling price.
Stage of Integration- In this final stage, the two firms
are integrated through Merger or Acquisition. 3
Different Types of Mergers
A horizontal merger - This kind of merger exists between
two companies who compete in the same industry
segment.
A vertical merger - Vertical merger is a kind in which two
or more companies in the same industry but in different
fields combine together in business.
Co-generic mergers - Co-generic merger is a kind in
which two or more companies in association are some
way or the other related to the production processes,
business markets, or basic required technologies.
Conglomerate Mergers - Conglomerate merger is a kind
of venture in which two or more companies belonging to
different industrial sectors combine their operations.
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Different Types of acquisitions
Friendly acquisition - Both the companies approve of
the acquisition under friendly terms.
Reverse acquisition - A private company takes over a
public company.
Back flip acquisition- A very rare case of acquisition in
which, the purchasing company becomes a subsidiary of
the purchased company.
Hostile acquisition - Here, as the name suggests, the
entire process is done by force.
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DIFFERENCE BETWEEN MERGER AND
ACQUISITION:
MERGER ACQUISITION
i. Merging of two organization in i. Buying one organization by
to one. another.
ii. It is the mutual decision. ii. It can be friendly takeover or
hostile takeover.
iii. Merger is expensive than iii. Acquisition is less expensive
acquisition(higher legal cost). than merger.
iv. Through merger shareholders iv. Buyers cannot raise their
can increase their net worth. enough capital.
v. It is time consuming and the v. It is faster and easier
company has to maintain so transaction.
much legal issues. vi. The acquirer does not
vi. Dilution of ownership occurs in experience the dilution of
merger. ownership.
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MERGER:WHY & WHY NOT
WHY IS IMPORTANT PROBLEM WITH MERGER
i. Increase Market Share. i. Clash of corporate cultures
ii. Economies of scale ii. Increased business complexity
iii. Profit for Research and iii. Employees may be resistant to
development. change
iv. Benefits on account of tax
shields like carried forward
losses or unclaimed
depreciation.
v. Reduction of competition.
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ACQUISITION:WHY & WHY NOT
WHY IS IMPORTANT PROBLEM WITH ACUIQISITION
i. Increased market share. i. Inadequate valuation of
ii. Increased speed to market target.
iii. Lower risk comparing to ii. Inability to achieve
develop new products. synergy.
iv. Increased diversification iii. Finance by taking huge
v. Avoid excessive debt.
competition
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Motives for Mergers &acquisitions
Economies of large scale business
large-scale business organization enjoys
both internal and external economies. Economies of
Elimination of
large scale
competition
business
Elimination of competition
It eliminates severe, intense and wasteful
expenditure by different competing organizations. Adoption of
Desire to enjoy
modern
Desire to enjoy monopoly power monopoly power
technology
M&A leads to monopolistic control in the market.
Adoption of modern technology Lack of technical
corporate organization requires large resources and managerial
talent
Lack of technical and managerial talent
Industrialization, scarcity of entrepreneurial,
managerial and technical talent
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Benefits of Mergers and Acquisitions
Greater Value Generation.
Mergers and acquisitions generally succeed in generating cost efficiency through the
implementation of economies of scale. It is expected that the shareholder value of a firm after
mergers or acquisitions.
Gaining Cost Efficiency.
When two companies come together by merger or acquisition, the joint company benefits
in terms of cost efficiency. As the two firms form a new and bigger company, the production is
done on a much larger scale.
Increase in market share - An increase in market share is one of the plausible benefits of
mergers and acquisitions.
Gain higher competitiveness - The new firm is usually
more cost-efficient and competitive as compared to its
financially weak parent organization.
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Problems of Merger and Acquisitions
Integration difficulties
Large or extraordinary debt
Managers overly focused on acquisitions
Overly Diversified
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Impact of Mergers and Acquisitions
Employees:
Mergers and acquisitions impact the employees or the workers the most. It is a well known fact that
whenever there is a merger or an acquisition, there are bound to be lay offs.
Impact of mergers and acquisitions on top level management
Impact of mergers and acquisitions on top level management may actually involve a "clash of the
egos". There might be variations in the cultures of the two organizations.
Shareholders of the acquired firm:
The shareholders of the acquired company benefit the most. The reason being, it is seen in majority of
the cases that the acquiring company usually pays a little excess than it what should. Unless a man
lives in a house he has recently bought, he will not be able to know its drawbacks.
Shareholders of the acquiring firm: hey are most affected. If we measure the benefits enjoyed by the
shareholders of the acquired company in degrees, the degree to which they were benefited, by the
same degree, these shareholders are harmed
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Strategies of Merger and Acquisition
Then there is an important need to assess the market by deciding
the growth factors through future market opportunities, recent
trends, and customer's feedback.
The integration process should be taken in line with consent of the
management from both the companies venturing into the merger.
Restructuring plans and future parameters should be decided with
exchange of information and knowledge from both ends.
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PROCESS OF MERGER & ACQUISITION:
The process of merger and acquisition has the following steps:
i. Approval of Board of Directors
ii. Information to the stock exchange
iii. Application in the High Court
iv. Shareholders and Creditors meetings
v. Sanction by the High Court
vi. Filing of the court order
vii. Transfer of assets or liabilities
viii. Payment by cash and securities
Maximum Waiting period:210 days from the filing of
notice(or the order of the commission - whichever earlier).
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Why Mergers and Acquisitions Fail?
Cultural Difference
Flawed Intention
No guiding principles
No ground rules
No detailed investigating
Poor stake holder outreach
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How to Prevent the Failure
Continuous communication – employees, stakeholders,
customers, suppliers and government leaders.
Transparency in managers operations
Capacity to meet new culture higher management
professionals must be ready to greet a new or modified culture.
Talent management by the management
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Reasons for Failure
The merger coincided with a flurry of increased domestic and international
competition.
Weak management and organization structure.
More attention to non-core issues such as long term fleet acquisitions and
establishing subsidiaries for ground handling and maintenance, than to
addressing the state of the flying business.
Bloated workforce
Unproductive work practices
Political impediments to shedding staff
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Conclusion
Learn from mistakes of others
Define your objectives clearly
Complete strategy to achieve goal.
SWOT analysis for the merged business - a must
Conservative attitude necessary at evaluation deskstrong arguments to support
project
Pick holes in strategy to get the best
Will merged units be able to work at efficient / ideal level?
Acquire expertise to interpret changes
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Thank you for your
patience…
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