Mergers and Acquisitions

PRESENTED BY : GROUP NO 3
ARUN PRASAD (12PGDM06) ARUN V KANNAN (12PGDM07) ASHOK RAUT (12PGDM40) HARSHAL PALKRITWAR (12PGDM32) RAJKUMAR SHARMA (12PGDM37) JESTIN THOMAS (12PGDM49)

Merger & Acquisition : Defined

Merger
Combination of two or more Independent business co-operation into a single enterprise

Acquisition
Act of one enterprise of acquiring directly or indirectly of share, voting rights assets or control over the management of another enterprise

Merger Vs. Acquisition

Merger A merger happens when two firms agree to go forward as a single new company rather than remain separately owned and operated
Eg: Continental airlines and United airlines merged to form United Continental

Acquisition When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition.
Eg: The acquisition of Cadbury by Kraft foods

MERGER
THE MERGER OF COMPANY 1 AND COMPANY 2

Company 1

Company 2

Company 3 (newly formed)

ACQUISITION
THE ACQISITION OF COMPANY 1 BY COMPANY 2

Company 2

JUST IN CASE YOU STILL HAVENT GOT IT

ITS AS SIMPLE AS THAT

Types of M & A Activity

Related

Vertical Horizontal

suppliers or customers competitors

Product Extension complementary products

Market Extension complementary markets Unrelated Conglomerate everything else

Vertical Merger When a company merges with either a supplier or a customer to create an extension of the supply chain Horizontal Merger

mergers that involve companies in direct competition with one another

Market extension Similar to horizontal mergers the companies merging produce the same types of products however the companies are not in direct competition with one another and compete in different markets, such as one company being North America-based and selling only in the US and another being Asia-based and only selling in China Product extension Product extension mergers are types of mergers that combine companies that sell related products in the same market

EXAMPLES OF :
Vertical Acquisition Tata Motors acquired Trilix Srl, an Italian design and engineering firm to help Tata Motors enhance its design capabilities Horizontal Merger The combination of car companies Chrysler and Daimler Benz to form Daimler Chrysler

Product extension
A snow ski manufacturer merging with a ski apparel company

Market extension ???

Conglomerate ???

MERGER OF EQUALS
A merger of two firms of about the same size, that agree to go forward as a single new company rather than remain separately owned and operated

In practice, actual mergers of equals doesn't happen very often Usually one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals (even if it's technically an acquisition) Being bought out often carries negative connotations, therefore, by describing the deal as a merger, deal makers and top managers try to make the takeover more palatable

THE CONFIDENTIALITY BUBBLE

An acquisition may be friendly or hostile It depends on how it is communicated to and received by the target company's board of directors, employees and shareholders

Quite normal for M&A deal communications to take place in a so called 'confidentiality bubble' : whereby information flows are restricted due to confidentiality agreements
In the case of a friendly transaction, the companies cooperate in negotiations and in the case of a hostile deal, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer

REVERSE TAKEOVER
Acquisition usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger or longer established company and keep its name for the combined entity. This is known as a reverse takeover.

REVERSE MERGER
A deal that enables a private company to get publicly listed in a short time period of time A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publicly listed shell company (one with no business and limited assets) Reverse mergers allow a private company to become public without raising capital which considerably simplifies the process While conventional IPOs can take months (even over a calendar year) to materialize, reverse mergers can take only a few weeks to complete This saves management a lot of time and energy, ensuring that there is sufficient time devoted to running the company

MOTIVES FOR MERGERS AND ACQUISITIONS

TO IMPROVE FINANCIAL PERFORMANCE THROUGH Economies of scale: The combined company can often reduce its fixed costs by removing duplicate departments or operations, lowering the costs of the company relative to the same revenue stream, thus increasing profit margins. Economies of scope: refers to the efficiencies primarily associated with demand-side changes, such as increasing or decreasing the scope of marketing and distribution, of different types of products. Increased revenue or market share: This assumes that the buyer will be absorbing a major competitor and thus increase its market power (by capturing increased market share) to set prices.

Cross-selling: a manufacturer can acquire and sell complementary products.

Taxation: A profitable company can buy a loss maker to use the target's loss as their advantage by reducing their tax liability

Geographical or other diversification

MERGING OF AFFILIATES ?? What does it mean ??

CLASSROOM EXERCISE