Mergers & Acquisitions(M&A)

This blog covers the following aspects related to M&A.

1. Conducting due diligence for evaluating Target comp

2. Performing risk assessments for M&A

3. Valuation of Target company and submitting the bid

4. Negotiations between acquiring company and the target company

5. Obtaining Statutory approvals for M&A

6. Managing Post-merger Integration

1. Conducting due diligence for evaluating Target comp

The top 5 key aspects of each function are listed below.

2. Performing risk assessments for M&A

      The top 5 assessment areas are as under:

·      Market risks

·      Financial risks

·      Operational risks

·      Legal risks

·      Human resource-related risks

3. Valuation of Target company and submitting the bid

Choosing the valuation option method out of the few available as below and determining the most appropriate one:

·      Comparable company analysis

·      Comparable transaction analysis

·      Discounted. Cash flow analysis

·      Assets-based valuation.

·      Industry-specific valuation

Other -Qualitative factors include Market share, Brand value, Intellectual property,

Management expertise, Revenue growth, Strategic Synergy advantages

  4. Negotiations between acquiring company and the target company  

A team of competent persons from the acquiring company needs to evaluate the following for determining the financial proposal depending on the size and type of target company:

§  Stock purchase option

§  Assets purchase option

§  Both

§  Any alternative

Further below aspects need to be factored in developing a purchase bid.

·      Purchase price  and taxes

·      Payment terms -down payment and progressive based on milestones

·      Exclusions

·      Key manpower to be acquired from the target company

·      Labour contracts/union agreements 

·      Covenants

·      Employee emoluments, transfers, retirement age, and pension matters

·      Regulatory approvals timelines and responsibilities

·      Integration plans  between acquiring company and the target company and change management

·      Communication links /contact persons for resolving conflicts/issues till complete M&A occurs

·      Timelines for completion of M&A

5. Obtaining Statutory approvals for M&A

Depending on the type of the bidding company & nature of transactions, a few of the below applicable approvals may be necessary.

·      Approval from SEBI, for listed companies, in matters related to the substantial acquisition of shares. 

·      RBI approvals in case M&A involves foreign investment or cross-border foreign exchange,

·      Sector-specific approvals (from bodies like NCLT, TRAI, IRDA etc as applicable

·      Tax authorities  vis a vis Capital Gain tax, transfer pricing, indirect taxes

·      Competition Commission approval to prevent anti-competition activities under The Competition Act 2002

·      Court approvals, as necessary, related to convening of meetings of shareholders, creditors, etc

6. Managing Post-merger Integration

Once the M&A negotiations are complete and both acquiring and target companies decide to merge, the following activities must be performed for a smooth transition.

·      Executing M&A agreements

·      Getting statutory approvals speedily

·      Communicating key highlights of M&A to all stakeholders  ( Vendors, channel partners, key OE customers, business associates, and employees, at the appropriate time

·      Meeting identified stakeholders by key people

·      Integrating staff deployment with new organization structure

·      Reviewing the compensation structure of the acquired company

·      Retaining talented employees of the acquired company

·      Assigning new roles in the merged entity

·      Improving methods  in all functions, as required for enhancing productivity, quality business, reducing costs and market share increase :

·      Meeting key vendors along with key professionals from the acquired company

·      Meeting key Channel partners and key customers along with key professionals from the acquired company

Activities(including unethical) that can affect the business adversely

·      Due to diligent (DD) checklists not being exhaustive and  DD  performed by individuals rather than cross-functional team

·      The risk assessment process is not comprehensive and not performed by specialists.

·      Incomplete or & Inaccurate information gathering by the DD team on for arriving at valuation on past financial performance and future projections for five years

·      Incorrect Assumptions on qualitative management aspects, long-term liabilities, technical strengths, Sales growth potential/market share projections, synergy advantages, etc.

·      inadequate market intelligence on competition bids/strategy

·      Collusion amongst key members acquiring & target company

·      Compromising on statutory requirements leading to delays

·      Not preparing the organization for change management

·      Pursuing a biased approach while dealing with the erstwhile employees of the target company acquired

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