Strategic Perspective of Mergers & Acquisitions

Major Event Better Image Easy Funding Synergy Tax Benefits Exploiting Hidden Value Quick Expansion & Consolidation Licensing Quick Acquisition of Resources

Five Stages Stage I Corporate Strategy

Development Stage II Organising for Acquisition Stage III Deal Structuring & Negotiation Stage IV Post-Acquisition Integration Stage V Post-Acquisition Audit &

Organisational Learning

M&A is a part of Corporate Strategy Enhancing competitive advantage Optimising Current portfolio of business Gaining Economies of Scale Searching for Partners with Matching

Resources -continued……….

Difficulty of Quantifying competitive advantage of M& A

High Risk of Integration Failure Related Mergers likely to bring in better

operating performance, shareholder value and innovation than unrelated mergers

- contd………….

Industry Structure Driven view of Competition like gaining market power, cost leadership through vertical integration and product differentiation

Resource based View of Competition like financial, human, intangibles, physical, organisational and technological gains

M&A may be a separate function or a part of the normal functions

Acquirer must develop capability and core competence

Arrange for obtaining additional resources Prepare a Road Map for Post Merger

Scenario of each department and functions Standardise & internalise early warning

signals

Major Pitfalls in Deal Structuring & Negotiation - Overvaluation of target company (Hubris/Winner’s

Curse) - Conflict of Interest of Advisors such as Investment

Bankers, lawyers, accountants and environmental consultants

- Obtaining insufficient data - Defective due diligence - not determining the range of negotiation parameters -lack of clear negotiation regarding the positions of the

senior managers of both the firms - not developing defense strategies regarding regulatory

agencies -continued……..

For avoiding the pitfalls, the corporate should - do proper valuation of the target - conduct in advance a thorough

investigation of conflict of interest of the advisors

- conduct an elaborate due diligence even by more than one agency

- negotiate clearly the absorption of the HR and their designations

Change Management Project management capabilities Communication Plans Deadlines for execution of plans Performance benchmarks Reward for achievements Merger of information systems -

continued………..

HR Problems - detailed meeting and discussion with

HR - reduce anxiety - assuring retention - no cultural shock - no downgrading of designations - no superior-inferior treatment

“ A thorough investigation about the target company and its operations is called due diligence”

[a] Commercial Aspects[b] Operational Aspects[c] Financial Aspects[d] Legal Aspects[e] HR Aspects[f] Organisational Aspects[g] Aspects of Information Systems

Competitive Position Customer Relation Patents/Copyrights Market Share Brand Portfolio

Production Processes Technology used Production Systems Channels of Distribution Outsourced Operations Sub-contracting

Capital Structure Lending Agencies Accounting Systems Audit Systems Tax Liability

Contractual Obligations Product Liability Class Action Suits Environmental Liability Cases Pending with Regulatory

Agencies like RBI, SEBI, and other Government Departments

Competence Compensation Training Employee Relations Disputes Outstanding Contracts

Structure Delegation of Authority Leadership Bureaucracy

Performance Cost Complexity Compatibility