MERGERS & ACQUISITIONS

Presentation by Group 3 & Group 4

Five Stage Model of M&A Process

Business Plan

First Stage

Acquisition Plan
Search

Second Stage
Screen First Contact Negotiation Integration Plan Closing Integration
Refine Valuation Structure Deal Perform Due Diligence Developing Financing Plan Decide: Close or Walk Away

Third Stage Fourth Stage

Evaluation

Fifth Stage

Economic Rationale for M&A

Increased Market Power

E.g. Adidas Reebok merger for $3.8 billion in 2006 posed a great threat to Nike
Most Effective Technology

E.g. Daiichi Sankyo acquired Ranbaxy Labs. for $4.6 billion in 2008
Growth & Revenue

E.g.: iGATE acquired Patni Computers for $1.2 billion in 2011

Lower Risk

E.g.: Bank of Rajasthan merged with ICICI Bank for $0.6 billion in 2010
Diversification

E.g.: P&G acquires Richardson Vicks for $1.2 billion in 1985

Tax Savings

TYPES OF MERGERS
1. Vertical Mergers
2. Horizontal Mergers 3. Conglomerate Mergers

4. Concentric Mergers

VERTICAL MERGERS
Starbucks- Tata Coffee Alliance
Tata and Starbucks will jointly explore the development of Starbucks retail stores

in associated retail outlets and hotels

Sourcing & roasting of coffee beans from the Tata ecosystem
At a later stage, both might invest jointly in facilities for roasting green coffee for

export market
This is in line with Tata Coffee plans to expand its base in the Food & Beverage

arena
The alliance will ease the entry for Starbucks given a local partner

HORIZONTAL MERGERS

Google bought YouTube ($1.65B in 2006) Google bought a rival YouTube had four times as many hits as Google Video YouTube streamed nine times as many clips as Google Video. Googles choice to buy rather than build marked a big strategic change. (Economist, 10/14/06, p82)

Bennett Coleman & Co

27 Acquisitions Timeline: 6 in 2005, 7 in 2006, 14 in 2007 Target Industries: Automotive, Consumer Goods & Services, Electronics & High Technology, Industrial Equipment, IT Services, Media & Entertainment, Outsourcing, Pharmaceuticals & Healthcare, Retail, Telecommunications Target Countries: India Average Size of Acquisitions: US$2.34 mn

CONGLOMERATE MERGERS
Wipro
14 Acquisitions Timeline: 1 in 2000, 2 in 2001, 4 in 2002, 3 in 2003, 3 in 2006, 1 in 2007 Target Industries: Consumer Goods & Services, Energy, IT Services, Pharmaceuticals & Healthcare, Telecommunications Target Countries: Finland, India, Singapore, US Average Size of Acquisitions: US$47.85 mn

CONCENTRIC MERGERS

INDIAS TOP 5 DEALS OF 2012

India M&A Deals (2008-2012*)

35000 30000 25000 20000 15000 10000 249 5000 0 2008 2009 2010 2011 No. of deals 2012 Deal value($ mn) 18500 600 10700 400 200 0 30300 1070 1095 31400 1049 24100 799 1200 1000 800

Source: ASSOCHAM

Cross border M&A

353 334

288

229

163

100

96

41
0 0 0 5 0 0

Japan-India

Mauritius-India

France-India

Singapore-India

SA-India

SL-India

US-India

Inbound M&A($ mn)

Outbound M&A($ mn)

Source: ASSOCHAM, Mergers & Acquisitions Newsletter Volume1 (April-June 2012)

SECTOR WISE M&A ACTIVITIES (2008-12)

Others 13%

Media 5%

Telecom 6% Real Estate 6%

High-Tech 12%

Jai Luxmi Real Estate Pvt. Ltd. with D L F Home Developers Ltd.

Financial Services 58%

Source: ASSOCHAM, M&A Newsletter Volume1

Ranbaxy Laboratories 16 Acquisitions Timeline: 1 in 1998, 1 in 1999, 1 in 2000, 1 in 2001, 2 in 2002, 1 in 2003, 1 in 2005, 5 in 2006, 3 in 2007 Hindalco Industries 11 Acquisitions Timeline: 3 in 2000, 3 in 2002, 2 in 2003, 1 in 2005, 1 in 2006, 1 in 2007

Target Industries: Pharmaceuticals & Healthcare

Target Countries: Belgium, France, Germany, India, Romania, South Africa, Spain, US Average Size of Acquisitions: US$80.80 million

Target Industries: Chemicals, Metals & Mining

Target Countries: Australia, India Average Size of Acquisitions: US$117.41 million

Most Acquisitive Companies

Hindustan Unilever 10 Acquisitions Timeline: 3 in 1999, 4 in 2000, 1 in 2002, 1 in 2003, 1 in 2007 Target Industries: Consumer Goods & Services Target Countries: India Average Size of Acquisitions: US$17.28 million Tata Consultancy Services 11 Acquisitions Timeline: 2 in 2002, 3 in 2004, 3 in 2005, 2 in 2006, 1 in 2007 Target Industries: Capital Markets, Consumer Goods & Services, IT Services Target Countries: Australia, Brazil, Chile, India,

Philippines, Switzerland
Average Size of Acquisitions: US$30.66 million

FRAMEWORK FOR ANALYSIS OF MERGERS

Transaction description Market definition Market Share Entry Effect on competition. Unilateral effects Coordinated interaction Countervailing Effect

Legal Framework

ORGANIZATIONAL LEARNING
Organizational learning is defined as

the ability of the institution as a whole to discover errors and correct

them, and to change the organizations knowledge base and values so as to generate new problem solving skills and new capacity for action.

Four basic types of organizational learning: - Competence acquisition - Experimentation

- Continuous improvement - Boundary Spanning

Characteristics in the process of organizational learning: - Change in organizational knowledge - Increase in the range of possible actions and

DIFFERENT LEVELS OF LEARNING

Single-loop learning

 DOUBLE-LOOP LEARNING

 DEUTERO-LEARNING

ORGANISATION CAPITAL
Information is an asset to the firm, for it affects the production

possibility set and produced jointly with output. This is called as organization capital
Information about employee and task characteristics that influence

productivity is part of the firms capital stock

The process by which information is accumulated leads to:

1. constant returns to scale 2. increasing costs

 A merger is one way that a Firm can acquire the organization

capital of another.
The merger may arise if there is a gain to trading the

organization capital

MERGERS & INDUSTRY LIFE CYCLE

INTRODUCTION STAGE
Newly created firms may sell to larger firms who sense an opportunity to enter a growing industry. Smaller firms may sell because of the desire to cash out / unwillingness to make huge investments.

Related or Conglomerate Merger take place.

Horizontal merger may also take place. Eg. IBM and Netezza

EXPLOITATION STAGE
Similar to mergers during introductory stage
The impetus for such mergers is driven by the more visible indications of prospective growth and profit and by the larger capital

requirements of a higher growth rate.

Horizontal mergers more suitable E.g. Starbucks and Tata Coffee Exxon and Mobil

MATURITY STAGE
Mergers undertaken to achieve economies of scale in research, production and marketing in order to match the low cost. Acquisitions may also happen to provide smaller firms with financial and other resources.

Vertical mergers (forward integration) more suitable

E.g. Brook Bond And Lipton Disney and Pixar

DECLINE STAGE
Horizontal mergers may happen for sheer survival. Vertical mergers may be carried out to increase efficiency and profit margins. Concentric mergers may provide opportunities to tap synergies;

conglomerate mergers may facilitate more efficient utilization of

cash flows. Conglomerate merger most suitable.

Eg. Tech Mahindra and Satyam (June,2009)

A FEW MERGERS
Acquiring Company Tata Telecom Ltd Asian Paints Bharat Gears Sick Company Tata Keltron Ltd Pent Asia Chemical Ltd. Universal Steel Alloys Ltd

1. Related/ Conglomerate 2. Horizontal

1. Horizontal & Related Mergers 2. Horizontal Acquisition s

1. 2. 3. 4.

Horizontal Vertical Concentric Conglomera te 5. Divestment