GLOBAL MERGERS & ACQUISITIONS

Mergers and Acquisitions (M & A) describes a business transaction that joins organisations together or splits them apart, triggering major changes for employees of participating companies. Such transactions include mergers, acquisitions, spin-offs, divestitures or partial disposals, joint ventures, private equity deals, management buy-outs and buy-ins, and IPOs. Merger also consults on the people implications of transactions for distressed and bankrupt companies and the companies that acquire them. Economic pressures developed within the framework of a global marketplace have led to unprecedented numbers of mergers and acquisitions over the past decade. The number of mergers and acquisitions involving US companies alone in 2004 reached 376 with an aggregate total paid of US$22.64 billion. In comparison, in 2003, the total amount paid was US$12.92 billion. However, statistics show that the failure rate of most mergers and acquisitions lies somewhere between 40-80%. If one were to define 'failure' as failure to increase shareholder value then statistics show these to be at the higher end of the scale at 83% (Cnnfn.com 1999). The facts highlight a worryingly poor success rate for international mergers and acquisitions due to various factors. Many business commentators are now acknowledging that failure does not have its roots simply in financial, monetary and legal issues but in lack of intercultural synergy. Research suggests that up to 65% of failed mergers and acquisitions are due to 'people issues', i.e. intercultural differences causing communication breakdowns that result in poor productivity. A recent example of such intercultural failure has been that of DaimlerChrysler. Both sides in the partnership set out to show that intercultural hurdles would and could be overcome in their global merger. Recent articles in the Wall Street Journal and Business Week suggest however that DaimlerChrysler underestimated the influence of culture, and due to culture clash, almost two years later is still struggling to become a unified global organization. Such discourse is highlighting the need for more intercultural training both within the framework of mergers and acquisitions and for key personnel such as managers and HR departments. In both instances culture is being ignored rather than being embraced and used positively. Piero Morosini, author of Managing Cultural Differences: Effective Strategy and Execution Across Cultures in Global Corporate Alliances, emphasizes that, "misunderstood national cultural differences have been cited as the most important factors behind the high failure rate of global JVs [joint ventures] and alliances."

Mr. Morosini argues that when intercultural differences are ignored during the evaluation and negotiation stages of a merger, integration inevitably fails. He adds that the manner in which an organization handles intercultural challenges is directly correlated with the performance of the merger in the post-integration stage and can mean the difference between long-term success or failure. If intercultural understanding is to be recognised within the systems of processes of mergers and acquisitions, staff training is critical. It is the leaders, managers and HR personnel of companies that must have intercultural competency. However, it appears that companies are not investing enough in intercultural, or for that matter any, training. In the Business Energy Survey, October 2004 (Adecco and Chartered Management Institute) where 1,500 managers were surveyed only a third had received training in the last 12 months. If management are receiving such low levels of support one can assume that other functions are receiving as much or even less. Companies must start to become more aware of these deficiencies and their possible future impacts. If the mergers and acquisitions of the future are to prove fruitful , companies must design and implement comprehensive intercultural training programs for staff; assess and tackle possible areas of intercultural difficulties prior to, during and after mergers and put into place mutually agreeable intercultural frameworks of understanding to act as guidelines for post-merger synergy. These tasks should not be seen as reactive, damage limitation exercises but as a positive, proactive means of creating cohesion, maximising efficiency and building a competitive advantage. Global mergers & acquisitions are also termed as International mergers & acquisitions or cross border mergers & acquisitions. Global mergers & acquisitions have become a reality of life for all kinds of companies. Privately businesses have realized in an increasingly challenging & competitive environment, well thought out & carefully executed cross border M & A transactions can boost their value of businesses. Globalization and worldwide financial reforms have collectively contributed towards the development of global mergers and acquisitions to a substantial extent. Global mergers and acquisitions are taking place in different forms, for example horizontal mergers, vertical mergers, conglomerate mergers, congeneric mergers, reverse mergers, dilutive mergers, accretive mergers and others. Global mergers and acquisitions are performed for the purpose of obtaining some strategic benefits in the markets of a particular country. With the help of global mergers and acquisitions, multinational corporations can enjoy a number of advantages, which include economies of scale and market dominance. International mergers and acquisitions play an important role behind the growth of a company. These deals or transactions help a large number of companies penetrate into new markets fast and attain economies of scale. They also stimulate foreign direct investment or FDI. The reputed global mergers and acquisitions agencies also provide educational programs and training in order to grow the expertise of the merger and acquisition professionals working in the global merger and acquisitions sector. The rules and regulations regarding global mergers and acquisitions

keep on changing constantly and it is mandatory that the parties to global mergers and acquisitions get themselves updated with the various amendments. Numerous investment banks professionals, consultants and attorneys are there to offer valuable and knowledgeable recommendations to the merger and acquisition clients. There are various methods which are implemented to fund global mergers & acquisitions like Financing or taking loans, Cash, Factoring, Hybrid Financing. The major factors which influence the global mergers & acquisitions are the following:i) ii) iii) iv) v) Company Acts Capacity of average workers Expectation of the consumers Political features of a country Tradition & culture of a country

Merger and acquisition trends are seen to affect an economy's product market, money market, and labor market. Global markets are also considerably influenced by the merger and acquisition trends. The general trend was that, there was a decline in the number of public sector undertakings along with a hike in the number of private sector enterprises. This was due to the fact that many public sector organizations worldwide were either acquired by large private sector enterprises or merged with them. This merger and acquisition trend towards increased privatization of public sector holdings was observed in Europe, Brazil, North America, and China. Europe in that period hosted a strong investment market, which catered to the public to private sector transition of companies. For China mergers and acquisitions from public to private business enterprises got government approval in 2006. More on Private Equity Driven International Merger and Acquisition Trends. Private equity transactions had been the buzzword for the world economy in 2007 and 2006. The real estate sector and the energy sector witnessed much of this type of activity. Private equity firms were working overnight for augmenting proprietary deal flows. China was an unique case in point. There the powerful trend towards mergers and acquisitions involving private equity dealings comprised a lot of policy and regional diversity. A great amount of equity capital flowed into China from US, Japan, Israel, and Europe as retail sector investments. This was primarily aimed at tapping China's heightened domestic consumer demand. Focus shifted to the northern and western regions of China as costs escalated for the commercial hubs alongside the eastern seacoast. In the US, private equity funds succeeded in raising more than $200 billion in this period for global merger and acquisition dealings.

Mergers & acquisitions are used as tools for business expansion and restructuring. Through mergers the acquiring company gets an expanded client base and the acquired company gets additional lifeline in the form of capital invested by the purchasing company. Some of the recent mergers & acquisitions are as follows: i) ii) iii) iv) v) vi) Merger of British Petroleum with AMCO (erstwhile standard oil of Indiana) Acquisition of Mannesmann AG by Vodafone Airtouch PLC Exxon with Mobil Acquisition of AirTouch Communications by the Vodafone Group Acquisition of Compaq by Hewlett-Packard Acquisition of Shell Transport & Trading Company by Royal Dutch Petroleum Company Merger of Bank One Corporation with JPMorgan Chase & Company with a rebound in global markets, Indian companies are back with their appetite to go for ambitious overseas acquisitions in order to log into inorganic growth-driven expansion plans. According to the quarterly deals data, the total value of outbound (overseas) deals by Indian companies grew to over $12 billion in the March 2010 quarter from a measly $52 million seen in the same period last year. The number of deals also increased to 45 from 15 over the year. Gradually, the strength of the recovery is ensuring that corporate honchos pull-up their firms back to the normalcy levels of pre-crisis duration a couple of years back. Going further, increased optimism would lead to revival in the number of outbound deals by the corporate India.

Indian Mergers & Acquisition Deals Comparison over last year Month Jan 10 Feb 10 Mar 10 Volume 15 13 17 Value* 341.3 615.8 12303.6 MOnth Jan 09 Feb 09 Mar 09 Volume 5 6 4 Value* 40.2 135.7 52.2

* in million / # according to data from Grand Thorton India

However, closure of mega-deals may need to determine and verify several aspects in order to envelope a seamless coming together of two different entities from different culture and locations altogether.

6 important Aspects of Global Mergers & Acquisitions Global Thinking : The foremost requirement for a corporate looking to go global, to start with, is to change the old technocrat mindset and think big and global. Companies working in overly competitive environment have to change fast as per the evolving dynamics in their industry of operation. Bharti Airtels take-over of Zain Telecom is a case in point. Even as Bharti holds a numero uno position in the growing telecom markets of India, the companys management whiffed saturation of the urban markets in India along with regime of intensifying price wars. Without being content with their current market share and stature, the company initiated a bold step of acquiring African assets of Kuwaits Zain Telecom in a whooping $10.7 billion deal, inviting wrath of analysts community over valuations. As per an estimate only one in two Africans hold mobile phone and with Zain having strong presence in most of the countries in Africa, Bharti has taken a lead in diversifying its risks involved in domestic markets.

Pricing and Valuations: Pricing and valuations at which the targeted firm is being taken over is the most crucial decision to be taken while contemplating a global acquisition move. Preferably, both the CEO and the CFO of the company needs to figure out the net cost-benefit analysis involved in acquiring an overseas company.

At the same time, it must be kept in mind that merely pricing and valuation should not form a base of final decision. Even long term impact of the deal should be taken into account. In most of the mega-deals, the valuations are often touted as being overtly expensive in terms of pricing. But, if the deal is likely to be earnings accretive over the longer duration it may be worth it to go for a bold move. Similarly, if the move is likely to give the company a quick head-start within a given market, it could be worth it rather than going for slow organic growth process unless the valuations demanded are above realistic levels. The example of Bharti Airtel provided above fits perfectly well under this heading too.

Abiding Local Laws:

An overseas company targeted to be acquired is governed by specific local laws and policies. Different countries are governed by diverse set of jurisdiction processes. It could be in the form of local land acquisition laws or even local labour laws with different set of trade union rules. Let us consider the case of Tata Steels acquisition of UKs Corus, where the initial strains have begun to show through labour issues and could likely result in labour strikes on account of Tata Steels decision to mothball its Teesside unit in northeastern England. The regulatory issues of overseas destination have to be tackled in conformation with local jurisdiction laws and rules under the recommendations of local legal experts.

Flexible decisions & Adaptability to Change: Companies have to ensure that their business decisions and mandates are flexible and adaptable to change in the overseas markets. A product which is an instant hit domestically need not necessarily be as much viable in a foreign market. Take the case of same company Bharti Airtel. The telecom company played well its cards related to low-cost, high-volume game in the growing markets of India. In fact, it got a firm foothold through this strategy as Indias premier telecom operator. And now the company is looking to replicate the same model in Africas too. It is not necessary that the same model would work over there too. If the volume game does not work over there, the company needs to be ready with a Plan B to quickly adapt to the diverse trend of local consumers.

Diverse Tactics of Marketing: An acquisition abroad is like marrying with an entity with distinct features and characteristics altogether, even though the new entity becomes a part of ones own company post-takeover. While on the marketing front, it could entail relating to diverse tastes of consumers situated in the destination country. It could be more sensible to hire employees from local state who are more acquainted of the local environment conditions and trend dynamics. Availing services of the local employee expertise in production and marketing aspect could be seen as a game clinching aspect for going along with overseas ambitions. Employing local people would attract less stiffness from local people on issues related to employment concerns. Higher levels top executives, preferably even on the board seats, would act as an added boost for an able aid to top management in working our local business strategies for the company.

Serving to Social Causes of Local Destination:

A foremost most rule that drives any top class company is to serve the social causes of the society. Whatever you give, comes back goes the saying. A responsible and accountable company would be better-off to part away some small portion of its earnings as a give-back to the local country and its people. Companies can initiate a number of societal objectives like adopting responsibility for improving infrastructure of a specific area or a location. It could be donations to charity organization and leprosy hit people. It could as well be any other social cause which spreads awareness among the people. Taking part in rehabilitation of areas hit with natural disasters. Most of all, the companies should also take accountability about the environmental aspects and welfare of the local country.

Top 10 Mergers & Acquisitions in India for 2010 Tata Chemicals buys British salt Tata Chemicals bought British Salt; a UK based white salt producing company for about US $ 13 billion. The acquisition gives Tata access to very strong brine supplies and also access to British Salts facilities as it produces about 800,000 tons of pure white salt every year

Reliance Power and Reliance Natural Resources merger This deal was valued at US $11 billion and turned out to be one of the biggest deals of the year. It eased out the path for Reliance power to get natural gas for its power projects Airtels acquisition of Zain in Africa Airtel acquired Zain at about US $ 10.7 billion to become the third biggest telecom major in the world. Since Zain is one of the biggest players in Africa covering over 15 countries, Airtels acquisition gave it the opportunity to establish its base in one of the most important markets in the coming decade Abbotts acquisition of Piramal healthcare solutions Abbott acquired Piramal healthcare solutions at US $ 3.72 billion which was 9 times its sales. Though the valuation of this deal made Piramals take this move, Abbott benefited greatly by moving to leadership position in the Indian market GTL Infrastructure acquisition of Aircel towers This acquisition was worth about US $ 1.8 billion and brought GTL Infrastructure to the third position in terms of number of mobile towers 33000. The money generated gave Aircel the funds for expansion throughout the country and also for rolling out its 3G services ICICI Bank buys Bank of Rajasthan This merger between the two for a price of Rs 3000 cr would help ICICI improve its market share in northern as well as western India JSW and Ispat Ki Kahani Jindal Steel Works acquired 41% stake at Rs 2,157 cr in Ispat Industries to make it the largest steel producer in the country. This move would also help Ispat return to profitability with time Reckitt Benckiser goes shopping Reckitt acquired Paras Pharma at a price of US $ 726 million to basically strengthen its healthcare business in the country. This was Reckitts move to establish itself as a strong consumer healthcare player in the fast growing Indian market Mahindra goes international Mahindra acquired a 70% controlling stake in troubled South Korea auto major Ssang Yong at US $ 463 million. Along with the edge it would give Mahindra in terms of the R & D capabilities, this deal would also help them utilise the 98 country strong dealer network of Ssang Yong

Fortis Healthcare acquisitions Fortis Healthcare, the unlisted company owned by Malvinder and Shivinder Singh looks set to make it two in two in terms of acquisitions. After acquiring Hong Kongs Quality Healthcare Asia Ltd for around Rs 882 cr last month, they are planning on acquiring Dental Corp, the largest dental services provider in Australia at Rs 450 crores. As we see in the list, the M & As have happened across industries and sectors like banking, automotive, healthcare, FMCG, telecom etc. This shows that this really has been the dream year of Indian industry.

A recent survey from Reuters (Reporting by Tommy Wilkes, editing by David Hulmes in last November 2010) says: Global mergers and acquisitions (M&A) may jump more than a third in 2011 to the highest level since the credit crisis, driven by a big pick-up in real estate and financial services deals, a survey found. M&A volumes will surpass $3 trillion next year, the highest since 2007's $4.28 trillion, according to a poll of senior executives by Thomson Reuters and Freeman, a consultancy. The poll, out on Monday, cited pressure to keep up with competitors as one of the biggest strategic reasons for deals. It canvassed 150 executives at firms ranging from $200 billion global conglomerates to small regional businesses, with almost two-thirds of respondents based in the United States. Almost half of survey participants see emerging markets as the most attractive region for acquisitions next year. Equity capital markets (ECM) issuance will also increase, as media and real estate firms drive 2011 equity issuance to $902 billion, a 21 percent rise on 2010. Sales of new corporate bonds will rise 14 percent to $1.28 trillion next year, according to the survey.