Mergers and Acquistions

8/2/2019 Mergers and Acquistions

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MERGER AND ACQUISITION

Merger

A transaction where two firms agree to integratetheir operations on a relatively coequal basisbecause they have resources and capabilities thattogether may create strong competitiveadvantage.


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Company A Company B

Newly FormedCompany


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Deal SummaryY-0n-Y

Volume Volume(US $billion)

2009 2010 2011 2009 2010 2011

Inbound 74 91 132 3.9 9 26.9

Outbound 82 198 132 1.4 22.5 10.4

Cross border 156 289 264 5 31 37

Domestic 174 373 342 6.7 18.3 5

Total M&A 330 662 606 12 50 42

PE 206 253 347 3.4 6.2 7.7

QIP 54 56 8 8.6 6.2 0.9

Grand Total 590 971 961 24 62.2 50.9


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The year witnessed a sustained momentum inM&As as well as Private Equity(PE) activitydespite the ongoing euro zone crisis, rising

inflation, low business confidence and interestrates, weakening rupee and volatile stockmarkets. The year 2011 recorded 961 dealsamounting to $51 billion compared to 971 dealsamounting to $62 billion in 2010 (both M&Aand PE). As events unfolded in the euro zone,there was significant decline in deal values inboth M&As and PE in the second half of theyear.


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Acquirer Target Sector % stake $ billion

1. Vedanta Plc Cairns India Oil & Gas 59.00%

2. British Petroleum Reliance Industries Oil & Gas 30.00%

3. Vodafone Group Plc Vodafone Essar Telecom N.A

4. Mundra Port SEZ Ltd (Adani Group) Abbot Point Port Shipping& ports 100.00%

5. GVK Power & Infrastructure Hancock group-coal minesand a port and rail project

Mining 79.00%

6. iGATE Corporation Apax Partners Patni computers IT and ITES

7. Aditya Birla Group Columbian Chemicals Plastic &Chemicals

26.00%

8. Hero Investment Ltd Hero Honda Motors Ltd

from Honda motors

Automotive 26.00

9. Nippon Life Insurance Reliance Life Insurance Banking& FinancialServices

26.00%

10. Fortis Healthcare Fortis HealthcareInternational

Pharma,Healthcare &

Biotech

100.00%


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The top three M&A (Vedanta, BP,Vodafone) deals remained in the newsthroughout the year due to regulatoryhurdles . All these deals over over $ 1

billion each. There has been an increasingtrend of stake sale by promoters of Indiancompanies to strategic acquirers . Thetrend may also continue in the future asthe need of large scale operation andinternational expansion grows. Foreigncompanies are still finding Indian

businesses highly attractive and hencethere was a sharp jump in inbound dealscomplimented with huge premium overmarket valuations.


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Sector Volume Value ( $ billion) %

Oil & Gas 14 16530 39.00%

Telecom 11 5769 14.00%

IT & Ites 117 3251 8.00%

Pharma, Healthcare & Biotech 57 2053 5.00%

Shipping & Ports 3 1957 5.00%

PE 206 253 347

QIP 54 56 8

Grand Total 590 971 961


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As a sector , Oil & Gas dominated M&Aactivity with big deals like Reliance andBritish petroleum , Cairn and Vedanta. Thetelecom sector came second to Oil & Gas .However, the value of Indi-focused M&Adeals just managed to total $39 billion in thefirst nine months of this year- a significant31% decline compared t the same period lastyear. This was primarily a result of highinterest rates, inflation, policy paralysispertaining to foreign direct investment andpoor returns from financial markets.However, with the expected rate cuts, thesituation might improve I the near future andcan help attract foreign companies to thecounty in turn acceleration M&A activity


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sector 2007 2008 2009 2010 2011

Telecom 14755 7181 2772 15132 5831

Metals & Ores 1264 21 430 4100 603

Pharma, Healthcare &Biotech

1925 5908 1646 6565 2315

Banking & FinancialServices

3714 4113 741 4234 1775

Power & Energy 4489 3596 863 3038 1478

Hospitality 362 12 164 958 58


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Due to lack of policy reforms, telecom sector saw ahuge retreat in M&As this year. Same was the casewith metals and Ores sector due to regulatory

issuers over mining . On the other hand sectors likeOil and Gas, IT and ITES saw a big leap in terms ofM&A. Ongoing carnage in financial markets also hada negative impact and hence. As a result the BFSIsector did not witness as much M&A activity as itdid in 2010. However, the situation might improve in

the next year as there seems to be a desperateeffort from authorities to introduce a series ofpolicy reforms in the telecom sector


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Hero Honda is a joint Venture, set up in1984 between Indias Hero Group and

Japans Honda Motor Co. It has been

the world largest two wheelerCompany for nine years in successionwith a customer base of more than 30million. It has 48% share of thedomestic two wheeler market; in fact,

Every second motorcycle sold in thecountry rolls out from one of the HeroHondas Factories.


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June,1984 Hero Honda was formed

Honda agreed to provide technicalknowledge to HHM and setting upmanufacturing facilities.

Both have equal stake.


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2011 2010 2009 2008 2007

Total incomes16,784.16 13,093.56 10,607.36 8,982.43 8,726.92

Total Expense 19,669.29 16,096.14 12,537.80 10,517.22 11,731.89

Sales(nos.) 4600130 3722000 3337142 3336756

Sales turnover

19,245.03 15,860.51 12,356.88 10,331.80 9,899.96

Profit After Tax 1,927.90 2,231.83 1,281.76 967.88 857.89

MarketCapitalization

38827 21390 13869 13753

Earning per Share

96.55 111.77 64.19 48.47 42.96

Current Ratio0.24 0.58 0.46 0.48 0.57

CAGR (%) of Sales

12.5 11.9 12.4 14.7 18.5

Debt Equity Ratio 0.50 0.02 0.02 0.04 0.07


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05000

10000150002000025000

3000035000400004500050000

Market cap

sales turnover

Total Assets


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The increasing cost of royalty and technological(R&T).

The growing presence and market of HondaMotorcycle & Scooter India (HMSI) a 100%subsidiary of Honda.

Relaxed government norms.

Enough knowledge of Indian market for Honda

India would want to go on its own because 9.3million two-wheeler market will grow to 16 millionby 2015.

A minority stake in Hero Honda also yield limitedprofits for Honda compared with a fullyconsolidated 100%.


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It will not have R & D support fromHonda.

Launch of new products and itsacceptance.

Competition will become more fierce.

Honda will become more aggressive.


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Company is considering a brand strategyfocusing on popular bike brands, ratherthan the corporate brand.

Pushing the product brands for the timebeing, but building the corporate brand inthe background for latest products.

Exploiting overseas market.

The company can now establishdistribution networks across the globe.


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2010-2011 2009-2010 2008-2009 2007--2008 2006-2007

EPS 85.02 67.56 52.85 46.22 36.29

PAT 392640 294870 228063 228063 163875

PE 26.29 28.80 18.42 28.62 27.59

Current Ratio 0.06 0.03 0.04 0.04 0.04

Quick Ratio 6.89 7.14 5.23 4.89 4.07

Total Assets 277,352.61 222,458.56 183,270.78 133,176.60 91,235.61

Total Liabilities 277,352.60 222,458.56 183,270.77 133,176.60 91,235.61


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Mergers and Acquistions

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