merger and acquits it ion

8/8/2019 Merger and Acquits It Ion

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Joint Venture , MergerJoint Venture , Merger

&&

SubSub --ContractingContractingPresented by:Presented by:RichaRicha ParmarParmar

SagrikaSagrika MahajanMahajanPallaviPallavi SoodSood

RajenderRajender NagpalNagpal

PrashantPrashant RanaRana


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ContentsContentsIntroductionIntroduction

MergerMerger

Joint VentureJoint Venture

SubSub--ContractingContracting

Relation with small enterpriseRelation with small enterprise

TheoriesTheories

M & A : Background and ScenarioM & A : Background and Scenario

Issues & FailuresIssues & Failures

ConclusionConclusion


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Joint VentureJoint Venture

A contractualA contractual agreementagreement joining togetherjoining togethertwo or more parties for the purposetwo or more parties for the purpose

ofof executingexecuting a particulara particularbusinessbusiness undertaking. All parties agreeundertaking. All parties agreetoto shareshare in the profitsin the profits andand losseslosses ofofthethe enterprise.enterprise.


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MergerMerger

When one company purchases anotherWhen one company purchases anothercompany of an approximately similarcompany of an approximately similar

size.size. The two companies come togetherThe two companies come togetherto become one.to become one. Such actions areSuch actions arecommonly voluntary and involve stockcommonly voluntary and involve stockswap or cash payment to the target.swap or cash payment to the target.


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SubcontractingSubcontracting

Current trend is an increase inCurrent trend is an increase insubcontracting, where firms delegate asubcontracting, where firms delegate apart of the production process to anotherpart of the production process to another

firm, or delegate business servicesfirm, or delegate business servicesExamples, subcontracting out accountingExamples, subcontracting out accountingor HR functions to specialist firmsor HR functions to specialist firms

Reduces costs for large firms and createsReduces costs for large firms and createsa larger market for small firmsa larger market for small firms


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Small FirmsSmall Firms

What is a small firm?What is a small firm?

Size of the firm may be based on number ofSize of the firm may be based on number ofemployees or amount of revenuesemployees or amount of revenues

To promote uniformity inTo promote uniformity in India, the proposedIndia, the proposedmembers use less than 250 employees as themembers use less than 250 employees as thedefinition of small to medium sized enterprisesdefinition of small to medium sized enterprises(SME)(SME)

Under this definition, a large percentage ofUnder this definition, a large percentage ofmanufacturing firms and service firms in themanufacturing firms and service firms in theIndiaIndia are small firmsare small firms


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Reasons for Growth in Small FirmReasons for Growth in Small Firm

SectorSectorChanging pattern of industryChanging pattern of industry

Changes in consumer spending habitsChanges in consumer spending habits

Flexible specialization and growth ofFlexible specialization and growth ofsubcontractingsubcontracting

Reorganization and job reductionReorganization and job reduction

Government policyGovernment policyGrowth in selfGrowth in self--employmentemployment


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Advantages of a Small FirmAdvantages of a Small Firm

Clearly defined small marketsClearly defined small markets

Specialist, quality and nonSpecialist, quality and non--standardizedstandardized

productsproductsGeographically localized marketsGeographically localized markets

Development of new ideasDevelopment of new ideas


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Virtual OrganizationVirtual Organization

Virtual organizationVirtual organization--a networka network--basedbasedstructure built on partnerships where astructure built on partnerships where asmall core operating company outsourcessmall core operating company outsources

most of its processesmost of its processesAdvantages are increased flexibility,Advantages are increased flexibility,efficiency, and responsiveness toefficiency, and responsiveness to

changing market conditionschanging market conditionsAlso minimizes costsAlso minimizes costs


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NetworkingNetworking

NetworkingNetworking--relationships that exist betweenrelationships that exist betweenorganizations and people within theorganizations and people within theorganizationsorganizations

Two basic types:Two basic types:1)1) Where firms are members of a network, butWhere firms are members of a network, butthe network has a different name from individualthe network has a different name from individualfirmsfirms

2)2) Where firms are part of a network ofWhere firms are part of a network ofindependent firms, but the network does notindependent firms, but the network does nothave a separate identityhave a separate identity


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ACQUISITIONSACQUISITIONS

AnAn acquisitionacquisition, also known as a, also known as a takeovertakeoverororaa buyoutbuyout, is the buying of one company (the, is the buying of one company (thetarget) by another. An acquisition may betarget) by another. An acquisition may be

friendly or hostile. In the former case, thefriendly or hostile. In the former case, thecompanies cooperate in negotiations; in thecompanies cooperate in negotiations; in thelatter case, the takeover target is unwilling tolatter case, the takeover target is unwilling tobe bought or the target's board has no priorbe bought or the target's board has no prior

knowledge of the offer. Acquisition usuallyknowledge of the offer. Acquisition usuallyrefers to a purchase of a smaller firm by arefers to a purchase of a smaller firm by alarger one.larger one.


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Theories In Relation toTheories In Relation to AcqAcq. &. &M

ergerM

ergerValue Increasing

Theory

Value DestroyingTheory

ManagerialEntrenchment Theory


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ValueIncreasingTheories-

EfficiencyTheory

Corporatecontrol Theory

Value-

DestroyingTheories

Managerialhubris

Managerialdiscretion

Managerial

entrenchment-

Theory ofempire-building


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TheThe ValueValue--IncreasingIncreasing TheoriesTheories

TheoryTheory ofof efficiencyefficiency

TheoryTheory of corporateof corporate controlcontrol

The ValueThe Value--Destroying TheoriesDestroying TheoriesTheory of managerial hubrisTheory of managerial hubris


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Theory of managerial discretionTheory of managerial discretion

Theory ofTheory of managerialmanagerial entrenchmententrenchment--TheoryTheory of empireof empire--buildingbuilding


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Why M & A ?Why M & A ? Quicker way to growth.Quicker way to growth.

Accessing new markets.Accessing new markets.

Taking on the global competition.Taking on the global competition.

Improving operating margins and efficiencies.Improving operating margins and efficiencies.

Acquiring visibility and international brands.Acquiring visibility and international brands.

Buying cuttingBuying cutting--edge technology rather than importing itedge technology rather than importing it

Developing new product mixesDeveloping new product mixes

Objective behind M&A Transaction Responses (in%)

To improve revenues & profitability 33%

Faster growth in scale quicker time to

market

28%

Acquisition of new technology or competence

22%

To eliminate competition & increasemarket share

11%

Tax shields & investment savings 3%

Any other reason 3%


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M&A : Background & ScenarioM&A : Background & Scenario

In 1990, only six developing and transition countriesIn 1990, only six developing and transition countrieshad made any outward investment.had made any outward investment.

In 2007, the number increased to 25.In 2007, the number increased to 25.

Between 1987 and 2008, the share of global M&As byBetween 1987 and 2008, the share of global M&As by

MNCs from developing and transition countries roseMNCs from developing and transition countries rosefrom 4% to 13% in value terms, and their sharefrom 4% to 13% in value terms, and their shareexpansion projects exceeded 15 percent in 2008.expansion projects exceeded 15 percent in 2008.


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M&A : Background & Scenario...Contd.M&A : Background & Scenario...Contd.

AA surveysurvey showsshows thatthat 8181%% ofof thethe companiescompanies havehave consideredconsidered

M&AsM&As andand 3030%% havehave actuallyactually donedone aa transactiontransaction inin thethe pastpast 33

yearsyears.. OverOver 7070%% saysay thatthat theythey expectexpect toto dodo aa dealdeal inin thethe nextnext 33

yearsyears.. AllAll thisthis denotesdenotes thatthat wewe areare setset forfor anan M&AM&A boomboom inin thethe

yearsyears toto comecome.. GlobalGlobal M&AM&A volumesvolumes ofof $$1010bnbn aa day,day, IndiasIndias

$$1919..88bnbn forfor thethe yearyear 20082008 indicatesindicates thatthat therethere isis stillstill aa longlong wayway

toto gogo.. TheThe trendtrend isis clearlyclearly onon thethe wayway upup..

M&AM&A inin 20072007--0808 -- $$ 33..66 TrillionTrillion

M&AM&A inin 20062006--0707 -- $$ 33..5555 TrillionTrillion (data(data byby Bloomberg)Bloomberg)

OctoberOctober 20062006 M&AM&A dealsdeals -- $$ 262262 BillionBillion

TheThe AsianAsian M&AM&A marketmarket sawsaw 57925792 dealsdeals worthworth $$ 255255..0707 billionbillion

ChinaChina alonealone waswas thethe largestlargest marketmarket withwith 18621862 dealsdeals worthworth

$$5454..7676 billionbillion


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M&A Activities in India:

In 2007, there were a total of 676M

&A deals and 405private equity deals, in 2007, the total value ofM&Aand PE deals was USD 70 billion, Total M&A dealvalue was close to USD 51 billion, Private equitydeals value increased to USD 19 billion..

In year 2008..M&A deals in India in 2008 totaled worth USD 19.8 bn.

Less compared to last year which stood at 33.1 bn $.

Decline ofM&A activity was in line with the global

activity. Cross borderM&A totaled 8.2 bn $ compared to 18.7

bn $.


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Major M&A Deals UndertakenAbroad by India Inc.

Tata steel buys Corus : 12.1$ billion

Tata buy jaguar and land rover : 2.3$ billion

Essar steel buys Algoma Steel: 1.58$ billion Vodafone buys hutch : 11$ billion

POSCO to invest in building steel manufacturingplants and facilities in India by 2016


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NetherlandsNetherlands--basedbased MittalMittal SteelSteel claimedclaimed itit hashas metmet thetheminimumminimum conditionsconditions forfor takeovertakeover ofof ArcelorArcelor byby acquiringacquiring 5050

perper centcent ofof thethe company'scompany's outstandingoutstanding sharesshares..

AA mergermerger ofof thethe twotwo wouldwould createcreate thethe world'sworld's largestlargest steelsteelentityentity ArcelorArcelor--MittalMittal,, whichwhich wouldwould bebe threethree timestimes biggerbigger thanthanitsits nearestnearest rivalrival..

IfIf thethe takeovertakeover isis acceptedaccepted byby 100100 perper centcent ofof currentcurrent ArcelorArcelorshareholders,shareholders, theythey willwill endend upup owningowning 5050..55 per per centcent ofof thethecombinedcombined group,group, withwith thethe MittalMittal familyfamily owningowning 4343..66 perper centcent ofofthethe capitalcapital andand votingvoting rightsrights..


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SOME FAIL CASES INM&A.SOME FAIL CASES INM&A.

Quaker Oats boughtQuaker Oats bought in 1994in 1994 Snapple for $ 1,7 bn.Snapple for $ 1,7 bn.

$ 500 mil. lost on announcement, $ 100 mil. a year later$ 500 mil. lost on announcement, $ 100 mil. a year later

Snapple was spun off 2 years later at 20% of priceSnapple was spun off 2 years later at 20% of price

AnheuserAnheuser--BuschBusch bought in 1982 Campbellbought in 1982 Campbell--Taggart at $Taggart at $560 mil560 mil

Closed down after 13y of struggling for survivalClosed down after 13y of struggling for survival

IBM bought Lotus for $ 3,2 bn. (more than 100%IBM bought Lotus for $ 3,2 bn. (more than 100%premium)premium)

Probably never to be recoupedProbably never to be recouped


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CONCLUSIONCONCLUSION

MergersMergers && AcquisitionsAcquisitions areare aa significantsignificant formform ofof businessbusinessstrategystrategy todaytoday forfor CorporatesCorporates..

TheThe twotwo mainmain objectivesobjectives behindbehind anyany M&AM&A Transaction,Transaction, forforcorporatescorporates todaytoday isis ::

to improve Revenues and Profitabilityto improve Revenues and Profitability Faster growth in scale and quicker access to marketFaster growth in scale and quicker access to market

Competition in Globalised MarketCompetition in Globalised Market

The most important factors according to corporate India thatThe most important factors according to corporate India thatcontribute to the success of an M&A Transaction are :contribute to the success of an M&A Transaction are :

TimingTiming

Intrinsic FitIntrinsic Fit

PersonnelPersonnel

Advisors on legal, policy and financial strategiesAdvisors on legal, policy and financial strategies


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TTHANK YOUHANK YOU

merger and acquits it ion

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