PRACTICE DETAILS
- Lawyer Mr. Shaman Jain
- Skills Change In Business
- CATEGORY Change In Business, Compliances
ABOUT THIS PRACTICE
Mergers and acquisitions (M&A) are defined as consolidation of companies. Understanding these two terms, Mergers can be understood as the combination of two companies so as to form one, while Acquisitions is one company taken over by the other. M&A is one of the crucial aspects of corporate finance world. The reasoning behind M&A can be understood as two separate companies collectively create more value in comparison to having an individual stand. With the aim of wealth maximization, companies keep assessing different opportunities through the route of merger or acquisition.
Mergers & Acquisitions can take place:
- by purchasing assets
- by purchasing common shares
- by exchange of shares for assets
- by exchanging shares for shares
Reasons for Mergers and Acquisitions
- Financial synergy for lower cost of capital
- Boosting company’s performance and accelerating growth
- Economies of scale
- Diversification for higher growth products or markets
- To increase market share and positioning giving broader market access
- Strategic realignment and technological change
- Tax considerations
- Undervalued target
- Diversification of risk
Stages involved in any M&A
Pre-acquisition review: this phase includes self analysis by the acquiring company with regards to the need for M&A, determine the valuation (undervalued is the key) and prepare the growth plan through the target.
Search and screen targets: This phase includes exploring the possible fitting takeover candidates. This process mainly aims at scanning for a good strategic fit for the acquiring company.
Investigate and valuation of the target: Once the appropriate companies are shortlisted through primary screening, a detailed examination of the target company has to be complete. This is also known as due diligence.
Acquire the target through negotiations: Once the target company is selected, the next step is to start negotiations so as to reach a consensus for a negotiated merger or a bear hug. This brings both the companies to concur for the long term working of the M&A.
Post merger integration: If all the above steps remain successful, both the participating companies are supposed to make a formal announcement about the agreement of merger.
Reasons for the failure of M&A – Analyzed during the stages of M&A
- Poor strategic fit: Huge difference in objectives and strategies of the company
- Poorly managed Integration: Integration is often poorly managed without planning and design. This leads to failure of implementation
- Incomplete due diligence: Inadequate due diligence can lead to failure of M&A as it is the essence of the complete strategy
- Overly optimistic: Too much optimistic projections about the target company leads to bad decisions and failure of the M&A
