MERGER & ACQUISITION
Presented by:
MD JASEEM
DEVINDER VERMA
MUKESH KR.JHA
DIVYA MITTAL
SURBHI SINHA
RADHIKA SHEGAL

MERGER & ACQISITION
 general term used to refer for the consolidation of
companies.
 WHY CONSOLIDATION?
1. Synergy
2. Growth
3. Diversification
4. Eliminate competition

MERGER
 A merger is a combination of two companies to form a
new company.
 Example: Company A + Company B = Company C

MERGER: WHY & WHY NOT
WHY IS IMPORTANT PROBLEMS WITH MERGER
1. Increase market share
2. Economies of scale
3. More R&D
4. Benefit of tax shields
5. Reduction of competition
1. Clash of corporate culture
2. Increased business
complexity
3. Employees may resistant to
change

ACQUITION
 An acquisition is the purchase of one company by
another in which no new company is formed
 Example: Company A + Company B = Company A

ACQUISITION: WHY & WHY NOT
WHY IS IMPORTANT
PROBLEM WITH
ACQUISITION
1. Increased market share
2. Lower risk compare to
developing new product
3. Increased diversification
4. Avoid excessive competition
1. Inadequate valuation of
target
2. Inability to achieve synergy
3. Finance by taking huge debt

Types of Merger & ACQUISITION
1. Horizontal Merger
2. Vertical Merger
3. Conglomerate Merger
4. Concentric Merger – Same industry, same customer, but do
not offer same product or services. Example: catering co.

Horizontal Merger
 A merger between firms that are competitors to each
other business activities.
Example: Brook Bond India Ltd & Lipton India Ltd =
Brook Bond Lipton India Ltd
Swap ratio – 10:9
Date – 16/05/1994

Vertical Merger
 A merger between two companies producing different
goods or services for one specific finished product.
Example: Acquisition of “Trilix Srl (an Italian design &
Engineering Firm) by Tata Motors”.
Stake: 80%
Price: 1.85 million Euro
Date: 04/10/2010

Conglomerate Merger
 A merger between firms that are involved in totally
unrelated business activities.
Example: L&T and Voltas Ltd.

Concentric Merger
 A type of merger where two companies are in the same
or related industries but do not offer the same
products.
Example: NEXTLINK Communications Inc. merged with
Concentric Network Corporation.
Swap ratio- .573:1
Date – 16/06/2000

Steps in M&A process:
 Company & buyer analysis: At this stage potential synergies,
restructuring needs, risks involved are analyzed.
 Share data analysis: At this stage the shareholding pattern of the
company is determined.
 Valuation & pricing: This step includes Valuation of company,
deciding on methods of payment (Cash or equity).
 Management meeting: Here buyer & seller meets face to face.
 Letter of intent: letter of intent & confidentiality agreement are made.

Continue…
 Process of due diligence: This includes review of public
registers, Annual reports and financial statements.
 Preparation of applications and filings
 Approval: Here the Submission of applications and filings to
Competition Authority and to Financial Supervisory Authority has to
be done for approval.
 Closing: Closing the deal, by paying in the decided way (cash, stock).

Valuation, How much to pay??
Commonly used method to value a company:
 Comparing with comparable peer companies in an
industry
 Comparative Ratios:
- Price-earning ratio
- Enterprise-value-to-sales ratio
 Replacement cost
 Discounted cash flow (DCF)
 Market value of trading securities

Financing method for M&A
 Cash: Such dealings are usually termed acquisitions rather than
mergers. This is because the shareholders of the target company are
removed from the big picture while the target comes under the control
of the Acquirer’s shareholders (indirectly).
 Stock: Here the Payment is made in the form of the acquiring
company’s stocks. These stocks are issued to the shareholders of the
acquired company.

Synergy analysis
 The concept that the value and performance of two companies combined
will be greater than the sum of the separate individual parts.
 Synergy is often a driving force behind a merger and acquisition.
 Shareholders will get benefit if a company's post-merger share price
increases due to the synergistic effect of the deal.
 The expected synergy achieved through the merger can be attributed to
various factors, such as increased revenues, combined talent and
technology, or cost reduction.
 Synergy analysis: an analysis performed in pre-deal phase to evaluate the
effect of transaction on the performance of company.

Accretion/Dilution analysis
 Accretion/dilution analysis is a type of M&A financial modeling
performed in the pre-deal phase to evaluate the effect of the
transaction on shareholder value/EPS.
 Generally, shareholders do not prefer dilutive transactions; however, if
the deal may generate enough value to become accretive in a
reasonable time, a proposed combination is justified.

Merger & Acquisition deals
 Flipkart- Myntra – 2,000 crore
 Ranbaxy- Sun Pharmaceuticals - 4:5 (swap)
 Tata steel-Corus - $12.2 billion
 Hindalco-Novelis- $ 6 billion
 Tech Mahindra – Satyam – 1:8.5 (swap)

THANK YOU