Mergers & Acquisition Services

Merger and acquisition (M&A) is one of the most difficult and most challenging processes when it comes to corporate restructuring activity. It is important that these procedures should be followed in such a way that a company can gain maximum rewards and benefit from the concerned merger or acquisition. According to the Companies Act, 2013 merger is a combination of two or more entities to form a new entity. Merger or acquisition can be achieved through merging into one entity or through acquiring 100% of the business as a prospective buyer, but the first step is always business valuation.

The prime motive behind merger and acquisition is always becoming a stronger business entity and a challenging corporate activity.

Forms of Mergers & Acquisitions:

Mergers & Acquisitions can be completed by the following ways:

  • Purchasing of Assets
  • Purchasing of common shares
  • Exchange of shares for shares
  • Exchange of shares for assets

Reasons

  • Synergy
  • Reducing operating costs
  • Elimination of competition
  • Increasing opportunities and capabilities
  • Survival of the company during the financial crisis
  • Diversification of services or products
  • Diversification of risk in the market
  • Acquiring better distribution and marketing networks
  • Gain a competitive edge over existing competitors in the market
  • Increase revenue with combined technologies and expertise along with the low cost of production

Benefits & Advantages

  • Tax Benefit
  • Diversification
  • Reducing competition
  • Increase in net worth
  • Increase in Goodwill
  • Increased value generation
  • Increase in cost efficiency
  • Increase in market share
  • Better access to a large market
  • Reducing cost and overhead
  • To overcome the barrier for entry
  • Reshaping competitive scope
  • Merged power and control over the market

Types of Transactions under Merger and Acquisition

Consolidation: It is a process to combine or unite two entities into one united entity.


Acquisition: When one company takes over another and establishes itself as the new owner of the business.


Acquisition of Assets: It is a strategy where the company is being acquired by purchasing its assets but not stock.


Merger: The Board of directors of the company proposes the scheme to combination of two or more companies into one united company.


Tender offer: It is an offer given by the public traded companies to the shareholder to purchase companies securities within the prescribed time.


Management Acquisition: It is a strategy where the company acquires a controlling stake of another company and manages the decision of the company privately.

Merger Types

REVERSE MERGER: This is a merger between two or more companies where the product manufacturing company merges with a raw material supplier.


CONGLOMERATE MERGER: This is a merger between two or more companies which entirely operate in different business activity and are totally unrelated to each other.


FORWARD MERGER: This is a merger between two or more companies where a company merges directly as the buyer. Target Company ceases to exist and both the company separately operate in the name of the buyer.


CO-GENERIC MERGER: This is a merger between two or more companies that are in the same industry or market but do not offer the same product. They are related to each other by some group or technology or some other manner.


FORWARD MERGER: This is a merger between two or more companies where a company merges directly as the buyer. Target Company ceases to exist and both the company separately operate in the name of the buyer.


VERTICAL MERGER: This is a merger between two or more companies which produce separate product or services but falls on same value chain for final product. This is adopted mainly where both the companies provide complementary products of each other.

Acquisition Types

FRIENDLY ACQUISTION: The Acquiring Company give an offer to the target company proposing acquisition which is accepted by the target company. In this type, both the company shall sign the agreement mutually.


HOSTILE ACQUISTION: The Acquiring Company secretly acquires the majority stake or ownership in the target Company as the target company. does not agree with the acquisition and hence no such agreement executed.

Process

  1. Valuation of Business - This includes the evaluation and examination of both the present and future market value of transferring the Company. A detailed research of the history of Seller Company is required with regards to credibility, strengths, market share, capital gains, the organisational structure in the market, and many other aspects which shall also be covered for the merger to become successful.
  2. Proposal phase - The company sends a proposal letter for the merger or acquisition with all details of the deal including the value of purchase consideration and commitments to the seller company, this letter shall be sent through a non-binding offer document.
  3. Exit Planning - Exit planning should be done in a profitable and organized manner. In the process of exit planning the management of Seller Company has to evaluate all the financial and other business issues such as which portion shall be the sale and up to what extent.
  4. Business deal structure - The new emerging entity shall take initiative to promote the company and take innovative action to enhance the business.
  5. Integration stage - Both the company with their parameters shall come together, to prepare the document, signing the required agreements and negotiating the deal.  
  6. Venture operation - After all the formalities, it is important to operate the venture. The merger and acquisition transaction after the deal shall include all the essential measures and activities.

Reasons for Failure of Mergers

  • Unsecured debts
  • Work-culture differences
  • Monopoly of one company
  • Inadequate due diligence before integration
  • Firing of the employees of targeted company
  • Difference in the objectives of the companies
  • Integration without any proper prior-planning
  • Difference in the strategies of both the companies
  • Overestimation of the value and expertise of the target company

 

The value of minority shareholding shall be determined by a Registered Valuer and in listed company, the offer price shall be calculated by SEBI regulations.

The terms mergers and acquisitions (M&A) signifies the combination of a company with another but in a merger, two entities come together and form a new legal entity under a banner while in acquisition one company purchases all the rights of another but does not change structure, name, and identity of the company. In simpler words, merger forms a new identity with joint ownership and in acquisition, identities of the entities remain the same but the ownership of one company completely handed to another.

The agreement between Acquirer Company and Target Company where the information and documents disclosed by Target Company to the Acquirer Company shall remain non-disclosed and confidential. It is a necessary document and executed only after the Target Company accepts the offer.

It is important that the Target company shall go for due diligence, this process requires time. This report will helpful for the Acquirer Company.

The evaluation and examination of both the future and present market value of Seller Company. Detailed research of the history of Seller Company is required with regards to credibility, strengths, market share, capital gains, and the organisational structure in the market. There are many other aspects to be covered for the merger to become successful.

If transferor company or transferee company contravenes the provisions of this section, it shall be punishable with fine which shall not be less than Rs.1,00,000 but which may extend to Rs. 25,00,000 and every officer in default shall be punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than Rs. 1,00,000 but which may extend to 3,00,000 or with both.

Leveraged-By-Out is the acquisition where Acquiring Company using large amount of borrowed money purchases Target Company.

What’s Included

  • Consultation with our team of M&A experts
  • Valuation Analysis
  • Due diligence
  • Drafting of the salient terms & conditions
  • Strategy Planning

Documents Required

  • MOU or letter of intent.
  • RBI approval in case of foreign company
  • Confidentiality or Non-disclosure agreements.
  • Asset purchase or business transfer agreements.
  • Preparation of scheme of arrangement between companies, members and creditors.
  • Share subscription agreement or share purchase agreement where terms and conditions of the agreement shall be in accordance with the Articles of Association or else amend the article.
  • On the nature and type of transaction:
  1. Employment agreements
  2. Novation of contracts
  3. Transfer agreements containing intellectual or real property
  4. Non-competence agreements with existing company owners/promoters

Mergers & Acquisitions Advisory


Mergers & Acquisitions are essential corporate restructuring activities which require extensive due diligence and analysis prior to execution. Filecrat can provide you with the best analysis with its team of highly experienced professionals.

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