ISSUES IN M&A

BY DEEPAK PANWAR F-166

Background & Motivation: (M&A) and corporate restructuring are a big part of the corporate finance world. Every day, investment bankers arrange M&A transactions, which bring separate companies together to form larger ones. This has been the trend for expansion and global presence of most of the big giants. But any M&A requires comprehensive understanding and analysis of various factors and issues that may affect the goals and functioning of the merger. There are many challenges for strategizing M&A like determining target company valuations using a number of different valuation techniques, conducting due diligence on a target or acquiring company which includes examining the financial results and other business factors that will affect the value of an acquisition negotiating price, terms, and conditions of an acquisition or merger and working with the companys advisory team and the lawyers to structure the deal. Catering these issues determine the future of the M&A deal. Objectives of the study: Objectives of the study include studying various issues involved in M&A deals and how these issues impact the future of the company.

ISSUES IN M&A: CULTURAL DIFFERENCES Culture influences how people behave and how people understand their own actions. Culture is resilient. What does this mean for integrating two companies? If people acted solely on the basis of rational calculations the model of behavior preferred by economists mergers would be effective or not based on the soundness of their economic underpinnings. But participants in mergers are human and driven both by their shared culture and individual personalities. Cultural influences have the potential to be broad and far reaching: Culture Affects Resulting in Decision-making style (for example: Effective integration requires consensus contrasted with top-down) rapid decision-making. Different decision-making styles can lead to slow decision-making, failure to make decisions, or failure to implement decisions. Leadership style (for example: A shift in leadership style can dictatorial or generate turnover among employees consultative, clear or diffuse) who object to the change. This is especially true for top talent, who are usually the most mobile employees. Loss of top talent can quickly undermine value in an integration by draining intellectual capital and market contacts. Ability to change (willingness to risk Unwillingness to implement new new strategies. things, compared with focus on Unwillingness to work through maintaining the inevitable difficulties in creating a current state and meeting current new company. goals) How people work together (for Merged companies will create example: interfaces between functions that based on formal structure and role come from each legacy company, or definitions new functions that integrate or based on informal relationships) people from both legacy companies. If the cultural assumptions of the legacy companies are inconsistent, then processes and handoffs may break down with each company's employees becoming frustrated by their colleagues' failure to understand or even recognize how work

Beliefs regarding personal "success" (for example: organizations that focus on individual "stars," or on teamwork, or where people rise through connections with senior practitioners)

should be done. Again, these differences can lead to breakdowns in getting work done. If people who believe they have to achieve goals as a team integrate with people whose notion of "success" emphasizes individual performance, the resulting situation is often characterized by personal dislike and lack of support for getting the job done

The major risks varies in every integration and need to be identified on a case-by-case basis, but a list of risks that will be encountered in most transactions can be provided as a starting point for specific analysis. These "standard integration risks" include: Establishing a shared approach to decision-making that achieves appropriate speed and decisiveness. Confirming that the most value-affecting interfaces (in the supply chain) between the two legacy companies work effectively. Establishing an internal brand the value to the employee of being part of this newly integrated company expressed in a way that appeals to employees from both companies. This will vary strongly depending on whether the integration is a "merger of equals" or a joint venture on one hand, or the integration of one company into another. In an unequal situation, the acquirer's culture and brand should be expected to dominate and should be presented to acquired employees in a way they will value. This is especially true when the acquiring company in a hostile takeover wants to retain acquired employees. In a merger of equals, the most realistic approach is to look to the emergence of a new culture. Understanding the compensation programs in each legacy company and presenting any steps to integrate them in a way that employees see as beneficial to their interests. Mixing the cultures: HP acquires Compaq Two hallmarks of HP's absorption of Compaq were a strong focus on business issues and an equally strong focus on providing an interactive forum for employees using the Web. Interestingly, the extended proxy fight that delayed closing the deal may have helped integration by allowing time for product roadmaps to be completed before the integration began. Thus an end-state was clearly in view when large numbers of employees started to work toward it. The integration effort began with a two-day leadership kickoff. Expectations and rules of engagement were set firmly from the top down. Short deadlines were established to achieve clearly defined synergy targets. This forced collaboration in the interest of achieving desired goals. An employee portal was used to drive extensive communication and interaction, including feedback. On Day One alone, that portal received 50,000 hits from employees.

Addressing culture when two companies integrate 1. Make culture a major component of the change management work stream. 2. Identify who "owns" corporate culture and have them report to senior management. 3. Insist that the cultural work focuses on the tangible and the measurable. 4. Consider the strengths of both existing cultures, not just the weaknesses. 5. Implement a decision-making process that is not hampered by cultural differences. 6. Build the employee brand with a view toward how it will be understood by employees. 7. Put people with culture change knowledge and experience on the teams that define the key interfaces in the new organizational model

ISSUES IN M&A: POST MERGER INTEGRATION ISSUES Many threshold issues vital to deal structure inevitably turn on the buyers anticipated level of post-closing workforce integration. Before structuring, the buyer should articulate the extent to which it intends to integrate acquired employment operations after closing. Following are the few integration parameters:Project Management The stronger performers set and adhered to a tight time frame, understood that speed was critical and recognized the danger of being internally focused for too long. They also knew the importance of aligning project approach with the degree of integration necessary. Thus, a large, complex integration required very substantial planning before implementation. The larger projects typically entailed a formal phase of intensive analysis and design. Performance Measurement The companies that accomplished the smoothest integrations post M&A had developed detailed pictures of desired end states (i.e., what the organization would look like after six months, 12 months and two years). They had clear conceptions of the organizations structure, product range, systems and distribution channels at key intervals. This is particularly important when there are large numbers of employees who need to buy into these goals. The end state pictures were typically outputs from the design and analysis effort. Along with these targets, management must have a strong performance measurement and tracking system in place. Such a system should include both quantitative and qualitative measures of performance. To monitor progress effectively, an organization must dedicate sufficient resources to the task an easily overlooked factor. During the integration period, resistance or push back will inevitably occur. A strong measurement and tracking system, based on a thorough and credible design effort, is essential for containing and managing resistance. Management Grip Getting the post-merger management team to work together effectively is crucial to achieving the required degree of management grip. Divisions among management can undermine the whole exercise. Because leadership is so vital, the CEO must ascertain whether managers are truly committed to the goals or are

merely paying lip service. Ground rules on acceptable behavior are needed and must be enforced. The leaders have to make decisions quickly and adhere to them. To work together effectively, the management team must be clear on the precise objectives of the integration. Because management grip can be undermined by taking on too much change, the number of change initiatives taking place at the same time as integration needs to be reviewed. Some initiatives may have to be postponed. Management must take a tough line on what is really needed and when. Finally, accountability is the defining quality of management grip. Integration requires real commitment, and CEOs should be wary of assuming that it exists. Assigning ownership for the integration on functional grounds may seem logical, but it can leave important interdepartmental processes in limbo. Common areas of inadequately defined accountability in these circumstances are communications and management information. Managing the Risks The best organizations had identified and managed the most important risks inherent in the merger or acquisition. They paid careful attention to key areas of business performance, employee perceptions and expectations, and other people issues. Attention to Critical Business Areas. Not all corporate functions are affected similarly or are subject to the same risk of destabilization. Weak implementation has a greater impact on business performance for some functions than for others. Therefore, management must identify high-risk areas and make sure they receive the necessary attention. Some areas are obvious (e.g., distribution channels). Others are less so (e.g., management information systems, which can experience extreme stress if two product ranges are being merged). Distribution channels may require individualized treatment. For example, a self-employed direct sales force (DSF), with loosely defined operating territories, will have different issues from a broker sales force, where each salesperson focuses on clearly defined panels of brokers. Merging the latter inevitably produces some losers (e.g., due to smaller or non reducible panels). Merging self-employed DSFs may lead to fewer or smaller threats of redundancy or retrenchment but demands a quick buy-in by sales managers. If disgruntled, these managers can move a team to another company quite rapidly. Expectations Site closings emerged as a particularly thorny issue. Most companies had overestimated how many employees would voluntarily relocate as a result of the closure. The loss of a site and of large numbers of personnel can have major consequences. For example, when one of two sites is closed, the culture of the open site will prevail. Also, if the organizations aim is to have a best-of-both merger or a merger of equals, large staff losses can compromise the plan. In many mergers or acquisitions, management starts with the goal of retaining the best of both from the two organizations. Achieving this goal, however, is not easy. How do you assess fairly two similar candidates competing for the same job? What may seem pragmatic to management may not be acceptable to staff, and this best-of-both goal can create unrealistic expectations. Adopting such a policy requires careful consideration. The alternative may be to state explicitly that there is a dominant party, that not all positions will be open and that some decisions cannot be made based on best-of-both

principles. Once the complex task of integration gets under way, both organizations need to consider how the outside world will judge success and plan either to achieve the results anticipated by the stock market or to change the expectations. Failure to do so could undermine the credibility of the management team. Management of People Issues Staff generally regards a merger or an acquisition as a threat, initiating a period of uncertainty. Underestimating the stress people experience is easy to do and risks poor morale. Management must reduce the uncertainty with strong, clear communications from the outset. Even if the news is bad, it is better to relay it than to delay it. Most companies in the study acknowledged that their messages had been insufficient and that not enough resources had been used to confirm and reinforce them. Communications is a thankless task. As far as ones internal audience is concerned, it will never be completely right. However, with frequent communications even when there is no new message management will retain control of the process. There is no substitute for face-to-face communications. Furthermore, managers will seem more in control if they are perceived to be communicating ahead of events. A merger or an acquisition is a time of great stress and anxiety at all levels in the organization. It begins with the initial announcement and continues as the full impact of the decision becomes apparent and the integration unfolds. During this period, individual managers are likely to get less direction and encouragement than usual (because their supervisors are also extremely busy). Yet this is a time when support is most needed and companies may have to take special measures to compensate. A merger creates a major disruption in the life of an organization. The sheer enormity of the effort can overwhelm a business. Companies that plan effectively manage the process carefully and communicate directly to reduce employee uncertainty will have a greater chance of achieving a smooth integration. It is vital to move forward from the merger as quickly as possible to build a new future. ISSUES IN M&A: THE INTEGRATION PLAN The integration plan is the way the buyer plans to operate the business post acquisition. There are two primary ways a buyer can "integrate" an acquisition. The first way is they mostly leave your company alone. Examples of this are Google's acquisition of YouTube, eBay's acquisition of Skype, and The Washington Post Company's acquisition of Kaplan. The second way is they totally integrate the company into their organization so people cannot see the former company anymore. Examples of this are Google's acquisition of Applied Semantics, Yahoo's acquisition of Rocketmail, and AOL's acquisition of portfolio company TACODA. Generally, consumer facing web services are largely left alone in integration. On the other hand, infrastructure, like Doubclick's ad serving platform, is best tightly integrated.

The other critical piece of an integration plan is what happens to the key people. Do they stay with the business? Do they stay with the buyer but focus on something new? Do they parachute out at the signing of the transaction? The buyer needs to keep the key people in an acquisition. Otherwise, why the buyer should buying the company? So letting the key people parachute out at the signing is a really bad idea. The buyer also needs to recognize that great entrepreneurs will not be happy in a big company for long. So most M&A deals include a one or two year stay package for the founder/founding team. That makes sense. That gives the buyers time to put a new team in place before the founding team leaves. Generally, it is a good idea for the key people to stay with the business post acquisition. This provides continuity and comfort in a tumultuous time for the company. However, there are situations where the key people went to other parts of the organization and provided value. Dick Costolo left Feedburner post acquisition by Google and focused on other key issues inside Google. Dave Morgan left TACODA and focused on strategic issues for AOL post the TACODA acquisition. This can work if there is a strong management team left in the acquired business post transaction. Another key issue is how to manage conflicts between the acquired company and existing efforts inside the buyer's organization. This happened in Yahoo's acquisition of Delicious. Yahoo had a competing effort underway and they left it in place after acquiring Delicious. This resulted in a number of difficult product decisions and competing resources and a host of other issues. It was one of many reasons Delicious did not fare well under Yahoo's ownership.

Acquisition strategy of GE Capital The GE Capital uses a successful model called Pathfinder for acquiring firms. The model disintegrates the process of M&A into four categories which are further divided into subcategories. The four stages incorporate some of the best practices for optimum results. The pre-aquisition phase of the model involves due diligence, negotiations and closing of deals. This involves the cultural assessments, devising communication strategies and evaluation of strengths and weaknesses of the business leaders. An integration manager is also chosen at this stage. The second phase is the foundation building. At this phase the integration plan is prepared. A team of executives from the GE Capital and the acquiring company is formed. Also a 100 day communication strategy is evolved and the senior management involvement and support is made clear. The needed resources are pooled and accountability is ensured. The third is the integration phase. Here the actual implementation and correction measures are taken. The processes like assessing the work flow, assignment of roles etc are done at this stage. This stage also involves continuous feedbacks and making necessary corrections in the implementation. The last phase involves assimilation process where integration efforts are reassessed. This stage involves long term adjustment and looking for avenues for improving the integration. This is also the period when the organization actual starts reaping the benefits of the acquisition. The model is dynamic in the sense that company constantly improves it through internal discussions between the teams that share their experiences, effective tools and refine best practices.

Source: Ashkensas, R.N., DeMonaco, L.J. and Francis, S.C. (1998).Making the Deal Real: How GE Capital Integrates Acquisitions. Harvard Business Review, Jan/Feb98, Vol. 76 Issue 1, p165, 1

Acquisition strategy of Cisco The acquisition strategy of Cisco is an excellent example of how thorough planning can help in successful acquisitions. After experiencing some failures in acquiring companies, Cisco devised a three step process of acquisition. This involved, analyzing the benefits of acquiring, understanding how the two organizations will fit together how the employees from the organization can match with Cisco culture and then the integration process. In the evaluation process, Cisco looked whether there is compatibility in terms of long term goals of the organization, work culture, geographical proximity etc. For example Cisco believes in an organizational culture which is risk taking and adventurous. If this is lacking in the working style of the target company, Cisco is not convinced about the acquisition. No forced acquisitions are done and the critical element is in convincing the various stakeholders of the target company about the future benefits. The company insists on no layoffs and job security is guaranteed to all the employees of the acquired company. The acquisition team of Cisco evaluates the working style of the management of the target company, the caliber of the employees, the technology systems and the relationship style with the employees. Once the acquisition team is convinced, an integration strategy is rolled out. A top level integration team visits the target company and gives clear cut information regarding Cisco and the future roles of the employees of the acquired firm. After the acquisition, employees of the acquired firm are given 30 days orientation training to fit into the new organizational environment. The planned process of communication and integration has resulted in high rate of success in acquisitions for Cisco.

Source :: http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy2/BSTR083.htm

ISSUES IN M&A: THE STAY PACKAGE When a company acquires a business, they are buying the people as much as anything. Experience has shown that the most successful acquisitions require the team to stick around, at least for a while. But if everyone is getting cashed out day one, there is very little incentive to stick around. Therein lays the stay package. There are a number of different variations on the stay package to deal with different deal scenarios. They can be grouped into three main categories but there are many variations around these three main categories. Every deal is different. There is no standard deal in the M&A business. 1) When the employee and founder equity is worth a lot of money and much of it is unvested - In this scenario, the buyer usually assumes the unvested equity, converts it to unvested equity in its cap table, and uses the remaining unvested equity as the bulk of the stay package. The buyer is likely to adjust the stay package by issuing new employee equity or cash bonuses to certain members of the team to further incent them to stay. 2) When the key employees have equity of significant value and most/all of it is vested In this scenario, the buyer is going to have to come up with a large new employee equity grant or cash bonuses for the key employees and it often comes out of the sale price. Let's a company is getting purchased for $300mn and the buyer believes it will take $30mn of cash or equity in the buyer to incent the key team members to stay. It is typical to see the purchase structured as $270mn for the company and $30mn for a stay package for key employees. In this scenario, the rest of the team usually has remaining unvested equity and will typically be treated similarly to scenario 1. It is common practice, but by no means standard practice, for the employee equity and investors equity to be split up and treated differently in this kind of situation. In another situation, assuming the founders own 40% of the company and the investors own 60%. The company can be sold for $100mn and the investors can be cashed out for $60mn and the founders can get a two year stay package for $40mn plus some additional equity in the buyer's stock. 3) When the key employees' equity is worthless - This usually happens when the company is being sold for less than the total invested capital. The deal most investors make is they get their money back before the founder and employee gets paid out. In an investment that doesn't work out well, this means the founder and employee capital is worthless in a sale. But the buyers know this and won't allow all of the sale consideration to go to the investors, who don't matter to them, and none to the employees, who matter a lot to them. So what buyers typically do in this situation is to create a carve-out for founder and employee equity. The carve-out can often be as high as 25% of the total consideration. Sometimes buyers propose 50% or more but those deals don't get done because investors usually control the exits and they need to feel that they are being treated fairly. The founder and key employee carve-out is usually paid in cash over a two to three year period.

The typical stay package is for two to three years. The consideration is generally paid ratably over that period. But it can be back end loaded to further incent the team to stay. Some deals can include an "earn out" which is additional consideration based on the performance of the business. Earn outs can be for the entire shareholder base or can be made available only to the key employees. Earn outs can work well when the business is being left alone and the metrics are easy to establish and the team feels confident they can meet them within the confines of a larger organization. I don't consider earn outs to be stay packages. They are a different beast for a number of reasons. But they can be very effective at keeping the key employees around. It is difficult to find a founder or key early employee of any portfolio company that has stayed at a buyer for more than three years. Most are gone after two years and some leave well before that. There are a host of reasons for this, and most have to do with the psyche of founders. So it is wishful thinking to expect a founder or early key employee to stick around for the long haul, but getting them to stick around for a couple years can be done and should be done.

M&A ISSUES: GOVERNMENT APPROVALS When two companies combine, the government can sometimes get involved. It mostly happens when two large businesses combine and the most common reason for governmental review is antitrust considerations. It is also possible that foreign governments can take interest in a business combination. These governmental approvals are important for a bunch of reasons. First and foremost, they can prevent a transaction from happening. And they can also require significant changes be made to the transaction which may not be acceptable to the buyer. Bottom line, the government can mess with the deal. For transactions that are large enough to merit review, governmental approvals represent risks to the transaction that need to be considered upfront. From the buyer's perspective, they will want to be confident they can get the deal approved in a reasonable time frame without significant concessions. From the seller's perspective, they do not want to be tied up in a long governmental review process, be in limbo business wise, and risk not getting the transaction closed. The way that most letters of intent deal with these risks is they establish a breakup fee that the buyer pays the seller if the transaction does not close on substantially similar terms. The breakup fees can be considerable. From the seller's perspective, a long review followed by a failed transaction is a horrible outcome. And a large breakup fee may be suitable compensation for that kind of damage.

M&A ISSUES: BREAKUP FEES A breakup fee is a payment made by the buyer to the seller if the M&A transaction doesn't close. Many M&A transactions do not include breakup fees, particularly smaller transactions. But as the value of the transaction rises and the potential disruption to the seller's business increases, it is more likely that the transaction will include a breakup fee. The negotiation of the breakup fee can be an important part of the letter of intent (LOI) negotiation and there are cases where merger deals have not happened because both parties could not agree on a breakup fee. As a buyer would always want to avoid and/or limit the size of breakup fees as much as he can. On the other hand, a seller would always want to include a breakup fee in the LOI for a bunch of reasons. In addition, the merger transaction can be very distracting for the seller and the seller's management team. If the selling company goes through a prolonged M&A transaction and then the deal does not close, there can be significant negative impact to the business and the breakup fee is a way to get protected from that negative impact. However, a one time cash payment is rarely the solution to the problems that result from such a situation. It is very imperative for a buyer to anticipate how disruptive the transaction will be to his business. If the buyer has any qualms about the seller's intentions or the disruption that will ensue, buyer asks for a breakup fee. M&A ISSUES: REPS, WARRANTIES, INDEMNITIES, AND ESCROWS A seller makes a bunch of representations to the buyer (reps). A seller will tell a buyer that his company owns all of the assets that they have on their balance sheet. They have no more liabilities than they have listed on their balance sheet. They own all the intellectual property you claim to own. They have all the contracts with customers they claim to have. They are all reps. Reps are about what is true today. Warranties are about the future. You will also be asked to warranty a number of things in a sale contract. An indemnity is the amount of money that is to be paid from the seller to the buyer if any of the reps and warranties turns out to be false. They will be set up in the contract. A seller understands how much liability he is taking on for the reps and warranties. The seller will require a percentage of the purchase consideration be set aside to back up the indemnities, usually for one year. The percentage is most often 10%, but can be more or less depending on the type of deal it is. The escrow is the money the buyer can come after based on the indemnities without having to sue the seller. There will be an escrow agent representing the selling shareholders. It is most often the lead investor. If there is a fight over the escrow amounts or a larger claim, the shareholder representative will be the one dealing with the buyer.

One area that has been particularly problematic in M&A for tech startups is IP reps, particularly patent issues. An announcement of a large purchase of a tech company is a big fat target for patent trolls. The patent infringement suits will come out and the seller's escrow will be the target. Most of the time, the escrow is paid without much haggling by the buyer on time (usually a year later). But sometimes the buyer has legitimate claims and the escrow is used up paying the indemnities. It is rare for the buyer to come after more than the escrow. That is most common in outright fraudulent transactions. M&A ISSUES: TIMING This one is about timing, i.e, how long it should take from the first serious conversation about a sale transaction until the closing. It ranges from a week to over a year from the first serious conversation to close. If a buyer wants to take their time and feels like they can get away with it, they will. Not every buyer wants to take their time. Many buyers want the transaction closed as soon as possible. In that case, the seller has alignment with the buyer and the transaction closes quickly. Sellers usually want a quick close. They should. Selling your business is distracting and fraught with risk. Six weeks from serious conversation to close is fast. If the company is "clean" and the buyer is incented to do a quick close and there are no governmental approvals to take, it can be done. Anything over three months is too long. The sale process starts to hang over the company and impacts the team, the business, and can lead to lasting problems. Team members get antsy. Resumes hit the street. Customers hear rumors and start thinking about plan B. The senior team loses focus. The company suffers. If there are reasons why a close is going to take a long time (governmental approvals, buyer approvals, diligence, etc) an approach you can take is to sign a defintive agreement which obligates both sides to close and provides remedies if the close does not happen (including breakup fees). This is often the way deals are done with public companies that require shareholder approval. Another key issue related to timing is the news leaking out. The longer the process goes on, the more likely the news will leak out. The reality is most deals leak and it rarely gets in the way of a deal getting done. Buyers hate it when the news leaks out because it can bring additional buyers into the process and make it more competitive. But most sellers should prefer a quiet process too. Doing it in six weeks is desirable and should be the goal. Anything longer than three months is likely to be problematic and will require a ton of management effort to manage the fallout.

M&A ISSUES: CONSIDERATION Consideration is the way in which company and its shareholders will get paid. The most common way to get paid is by cash. The other common way to get paid is in the buyer's stock. You may also get paid by accepting a note (an IOU) from the buyer. And of course, many transactions include more than one form of consideration. A combination of cash and stock is very common. Cash is the best way to get paid in most cases. You know exactly what you are getting when you get paid in cash. If the purchase price is a significant amount of money to you and shareholders, then company generally prefers cash. Stock is the best way to get paid if the seller is selling his company relatively cheap but is a big believer in the upside of the buyer's stock. A good example of this is sales of young companies to fast growing privately held businesses. When Ev Williams sold Blogger to Google, the Blogger shareholders got privately held Google stock which appreciated a lot when it eventually went public. When Summize sold its twitter search service to Twitter, the Summize shareholders got Twitter stock (and some cash) and that Twitter stock has appreciated significantly since. In these kinds of transactions the Blogger and Summize shareholders would not have made much of a return if they had taken cash. By taking stock, they turned their company sales into fantastic transactions. There are situations where the buyer will require the seller to take stock. It might be because the buyer doesn't have sufficient cash to make the purchase. Or it might be because the buyer wants the seller to be aligned with the buyer and incented to stick around. If a seller accepts stock as consideration, he needs to be careful to evaluate the short, medium, and long term potential of the buyer's stock. Selling for public stock is a lot different than selling for private stock. Public stock is a lot closer to cash, particularly if there are no restrictions on the seller's stock. A public stock with no restrictions can be sold immediately and turned up into cash. Or stock can be hedged with puts and calls and take a lot of the risk out of the position. Taking a note from the seller is not very attractive. A note has very little upside (compared to stock) and it is not immediate cash. With a note seller are still taking risk that the purchaser could falter and not be able to pay the note. It is true that a note will not fluctuate with company performance like stock. If the purchaser remains in business and solvent, the note will be paid at face value with interest. In summary, a seller can get paid in multiple ways in an M&A transaction. Cash is usually best and is also the most common. Stock is attractive if seller believes there is a lot of upside in the purchaser's stock or if it is public and immediately liquid. A note is the least attractive form of consideration and also is rare in the venture capital and startup sector.

M&A ISSUES: PRICE AND EVALUATION The best way a seller adapts to get the highest price in a sale transaction is to have a competitive process. Multiple serious bidders will force the buyers to bid more aggressively than they would otherwise. However, most sellers don't want to be in an auction. They can lose potential buyers, maybe your best buyers, by overtly conducting an auction. So you must be careful about this. Sellers favorite approach is to get one bid, then quietly get another, and all of sudden they have a competitive process. Sellers don't like to start out the process telling everyone that "we are running an auction." M&A ISSUES: Transfer of IPRs Issues pertaining to M&A activity are not simply relegated to large, multinational corporations. Small and medium size businesses can add significant value and revenue by exploiting the full potential of their valuable intangible rights. In many instances, this means obtaining the necessary financing to acquire established properties and intellectual property rights in order to expand their business or to simply improve their performance and competitiveness. Working with the target company can make it easier to establish their freedom to operate (FTO) that is, the ability of the target to continue its business without infringing the valid intellectual property rights of others. The fact that the target company is currently doing business does not necessarily preclude the possibility of an FTO problem. In fact, the acquisition itself may trigger a third party infringement claim that would otherwise have remained dormant. Since IP rights are specific to different jurisdictions, an FTO analysis should relate to particular countries or regions where the company plans to operate after the acquisition. This assessment may uncover possible blocking IP rights that could limit access to certain markets or increase costs in those markets. Numerous challenges also arise when valuing IP assets. The approach to valuing intellectual property depends on the specific circumstances and type of intellectual property to be valued. The process should take into consideration the impact of IP, not only on projects and products, but also on its competitive position as a whole. Crucially, it is important to identify whether any other parties may have rights to the IP, apart from the target company. Cross-border considerations Experts agree that the treatment of IP assets becomes more complicated in crossborder deals. Completing deals overseas is challenging in its own right, but an

acquisition targets regulatory environment is a major variable that will determine the value of IP assets down the road. Because the regulatory environment varies from country to country, acquirers must consider whether the targets regulatory environment will allow them to defend the acquired IP assets should any conflicts arise after the deal is done. How different countries have implemented the GATT/TRIPS treaty provisions within the WTO can make IP protection more difficult in some countries. This impacts the valuation greatly but can be very hard to predict.

CONCLUSION Mergers create synergies and economies of scale, expanding operations and cutting costs. Investors can take comfort in the idea that a merger will deliver enhanced market power. M&A may not work well. Historical trends show that roughly two thirds of big mergers will disappoint on their own terms, which means they will lose value on the stock market. The motivations that drive mergers can be flawed and efficiencies from economies of scale may prove elusive. Hence, the study conducted figured out various issues associated with M&A which should be well- thought and researched for M&A. Following are the major issues that were found during the issues and must be the reason for consideration for M&A:: CULTURAL DIFFERENCES POST MERGER INTEGRATION ISSUES THE STAY PACKAGE GOVERNMENT APPROVALS BREAKUP FEES REPS, WARRANTIES, INDEMNITIES AND ESCROWS TIMING CONSIDERATION : METHOD OF TRANSACTION TRANSFER OF IPRs PRICING AND VALUATION CROSS-BORDER CONSIDERATIONS

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