merchant banking & financial services
TRANSCRIPT
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MERCHANT BANKING &
FINANCIAL SERVICES
UNIT- III
ByKARPAGAM SIGAPPI A L
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Table of content Mergers and Acquisitions
Portfolio Management Services
Credit Syndication
Credit Rating
Mutual Funds
Business Valuation
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MERGERS &
ACQUISITIONS
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A merger is a transaction that result in the transfer of ownership and control of a corporation.
When one company purchases another company of an approximately similar size. The two companies come together to become one.
Two companies usually agree to merge when they feel that they can do something together that they can not do one their own.
Meaning
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TYPES OF MERGER
CONGLOMERATE
VERTICAL
HORIZONTAL
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Horizontal mergerA merger occurring
between companies producing similar products, goods and offerings similar services.
This type of merger occurs frequently as a result of larger companies attempting to create more effective economies of scale.
Example- Boeing-McDonnell Douglas
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Vertical mergerA merger between two
companies producing different goods and services for one specific finished products.
The merger of the firm that have actual or potential buyer-seller relationship.
Example- Car manufacture purchasing a tire company.
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Conglomerate mergerA merge between firms that are
involved in totally interrelated business activity.
Two types of conglomerate merger are:
Pure conglomerate merger- It involve firms with nothing common.
Mixed conglomerate merger- It involves firms that are looking for product extensions or market extensions.
Example- PepsiCo-Pizza Hut; Proctor & Gamble-Clorox.
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WAYS OF MERGER
A merger can take place in following ways:By purchasing of assets By purchase of common shares By exchanging of shares for
assets By exchanging of shares for
shares
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By purchase of assets
The assets of company Y may be sold to company
X.Once this is done
company Y is then legally terminated and company
X survives.By purchase
of common shares
The common share of company Y may be
purchased by company X. When company X holds all the share of
company Y, it is dissolve.
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By exchanging of
shares for assets
By exchanging of
shares for shares
The company X may give their shares to
stakeholders of company Y for its net assets. The
company Y terminated by its shareholder who now holds share of company
X.Company X gives its shares to the
shareholder of company Y and then company X is
terminated.
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Reasons of
merger
Future goals
Mutual benefit
Maximizing
profits
Expansion of
businessEconomy of
scale
Increase market share
Cost maximization
Diversification of risk
Goodwill
Product improveme
nt
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PORTFOLIO MANAGEMENT
SERVICE
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SHARESBONDSGOLDSTOCKSCASH
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Portfolio management is the art and science of making decisions about
• Investment mix and policy,
• Matching investments to objectives,
• Asset allocation for individuals and institutions,
• Balancing risk against performance.
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Balanced Portfolio
Maximum Returns, Minimum Risks
Adjust Portfolio to market trends
Personalized Advice
Continuous monitoring
Transparency
Why PMS?
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TYPES OF PMS
DISCRETIONARYPMS
NON-DISCRETIO
NARYPMS
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CREDIT SYNDICATION
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Definition'Syndicated Loan' is a loan offered by a group of lenders (called a syndicate) who work together to provide funds for a single borrower.
The borrower could be a
Corporation,
A large project,
Or a sovereignty (such as a government).
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‘Credit syndication services’ are services rendered by the merchant bankers in the form of organizing and procuring the financial facilities form financial institutions, banks, or other lending agencies.
Financing arranged on behalf of the client for meeting both fixed capital as well as working capital requirements is known as ‘loan syndication service’
Credit syndication services
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SCOPE The scope of syndicated loan services
as provided by merchant bankers include identifying the sources of finance, approaching these sources, applying for the credit, and sanction and disbursal of loans to the clients.
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CREDITRATING
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Credit rating is a mechanism by which the reliability and viability of a credit instrument is brought out.
Credit rating reveals the soundness of any credit instruments issued by various business concerns for the purpose of financing their business.
In credit rating, the investor is able to analyze between different credit instruments and he can make a trade off between risk and return.
Credit Rating
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Equity rating
Bond rating
Promissory note rating
Commercial paper rating
Sovereign rating.
Types of Credit Rating
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1. EQUITY RATING: While judging the equity rating, the past
performance of the company, the earning per share and the turn-over of the company will be taken into account. If a loss making company turns into a profit making one, after wiping off its losses, its equity rating will go up.
2. BOND RATING: Rating of bonds will depends on the rate of interest
offered and the value of the currency it represents.
3. PROMISSORY NOTE RATING: Depending upon the credit rating, ranging from P1
to P6, promissory notes are preferred as a short-dated instrument.
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4. COMMERCIAL PAPERS:In order to enable the commercial banks to discount
commercial papers, credit rating is provided to the commercial papers which depends upon the standing of the non-banking financial company NBFC) which is issuing the commercial paper.
5. SOVEREIGN RATING: When countries are issuing credit instruments in the
international market such as Treasury bills and Bonds, they will be rated according to the economic condition of the country. Generally, the countries in the world are grouped under three categories, viz.,
(a) Countries which are politically and economically well developed.
(b) Countries which are politically stable but economically week.
(c) Countries which are politically and economically unstable or weak.
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MUTUAL FUNDS
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A mutual fund is a fund exchanged between the public and the capital market through a corporate body.
The Securities and Exchange Board of India Regulations, 1993 defines a mutual fund as ‘a fund established in the form of a trust by a sponsor, to raise monies by the trustees through the sale of units to the public, under one or more schemes, for investing in securities in accordance with these regulations’.
Mutual Funds
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M U T U A L F U N D S
PUBLIC CORPORATE BODY
CAPITAL
MARKET
FUND FUND
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On the basis of operation
OPEN ENDED
CLOSE ENDED
Mutual Funds Types
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INCOME FUND
GROWTH FUND
BALANCED FUND
SPECIALISED FUND
MONEY MARKET
FUNDTAXATION
FUND
On the basis of yield and investment
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CLOSE ENDED FUNDS Close ended funds are funds which have
definite period or target amount . Once the period is over and or the target is reached, the door is closed for the investors. E.g. UTI Master Share, 1986.
OPEN ENDED FUNDS Open ended funds are those which have no fixed
maturity periods. Investors can buy or repurchase units at net asset value or net value related prices, as decided by the mutual fund. Example: Unit Trust of India’s Growth sector funds.
INCOME FUND: Income funds are those which generate regular
income to the members on a periodical basis. It concentrates more on the distribution of regular income and it also sees that the average return is higher than that of the income from bank deposits.
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GROWTH FUND: Growth are those which concentrate mainly on long
term gains i.e., capital appreciation. Hence they are termed as “Nest Eggs” investments.
BALANCED FUND: It is a balance between income and growth fund.
This is called as “Income –cum-growth”. It aims at distributing regular income as well as capital appreciation.
SPECIALISED FUNDS: These are special funds to meet specific needs of
specific categories of people like pensioners, widows etc.
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BUSINESS VALUATION
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Business valuation is a process and a set of procedures used to estimate the economic value of an owner's interest in a business. Valuation is used by financial market participants to determine the price they are willing to pay or receive to effect a sale of a business
Meaning
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Economic conditions
Financial Analysis
Normalization of financial statements Income approach
Asset approach
Market Approaches
Elements of business valuation
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The income approaches determine fair market value by multiplying the benefit stream generated by the subject or target company times a discount or capitalization rate. The discount or capitalization rate converts the stream of benefits into present value.
Income Approach to business valuation
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The asset approach to business valuation is based on the principle of substitution: no rational investor will pay more for the business assets than the cost of procuring assets of similar economic utility. Most assets are reported on the books of the subject company at their acquisition value, net of depreciation where applicable. These values must be adjusted to fair market value wherever possible.
Asset Approach to business valuation
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In certain industries, when businesses change hand on a regular basis, industry-wide rules of thumb are sometimes used to value a company.
Examples of such industries include recruitment agencies, accountancy firms, etc. Buyers would not pay more for the business, and the sellers will not accept less, than the price of a comparable business enterprise.
Market Approach to business valuation
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