1. A
Project Synopsis
On
“Valuation of Merger &Acquisition”
By
Ms.Satpute Archana Jyotiling [Roll No: 31]
Specialization: Finance
Aruna Manharlal Shah Institute of
Management and Research
Ghatkopar [W], Mumbai-86
2012-13

2. RATIONALE
There are several reasons for M&A. M&A has been widely used in
developed economies as a growth strategy of business strategy. It
is increasingly becoming the order of the dayin businesses
especially in rapidlyevolving businesses like information
technology, telecommunications, business process outsourcing as
well as in traditional businesses.Indian businesses are also rapidly
using M&A to grow internationally. Results of the
InternationalBusiness Owners Survey recentlycarried out by Grant
Thorntonthrough 6,900 interviews conducted in 26 countries in
Europe, Africa, Asia-Pacific and theAmericas, say that 34% of
businesses will use M&A as a methodto maintain or improve
profitability. Businesses are acquired to gainstrengths, expand
customer base,cut competition or enter into a new market or
product segment (European media groups such as Bertelsmann,
Pearson, etc. have driven their growth by expanding into the
United States throughM&A). When HLL acquiredLakme, it got an
entry into the cosmetics market through an established brand.
Similarly, whenGlaxo and SmithKline Beechammerged, they not
only gained market share, but eliminated competition between
each other. IBMDaksh is a case in point for acquiring a
competence (detailed casestudy later in this section). Tata Tea’s
acquisition of Tetley wasmade to leverage Tetley’s international
marketing strengths (Tetleyhas a strong market network in
35countries across the world whileTata Tea’s strengths lie in tea
production). Ashok LeylandInformation Technology (ALIT)was
acquired by Hinduja Finance, agroup company, so that it could set
off the accumulated losses inALIT’s books against its profits.In

3. order to maximise value creation it is important to focus onone’s
core competencies. It is therefore equally important to plan
forselling a business as it is to acquirea business. Grant
Thornton’sInternational Business Owners’ survey results show
that 56% of businesses will eliminate non-coreservices activities
to maintain or improve profitability. Hence, a key reason for
divesting a business could be to focus oncore activities (HLL is
trying toprune non-core brands to concentrate on power brands
through saleof brands like Dalda, Glucovita,etc.). The other
reasons could bedeclining profitability or as an exit opportunity
for promoters. The table shows the key rationale forsome of the
well known transactions based on public knowledge.Typically
financial investors orventure capitalists look for exitopportunities
through a trade sale to astrategic investor at some stage. Withthe
venture capital industry maturinginternationally and in India,
currently

4. OBJECTIVES
 To find out the change in the value of the Acquirer firm due to Merger &
Acquisition activity bydoing Pre and Post-valuation of the acquirer firm
 To understand valuation process

5. RESEARCH METHODOLOGY
 After considering all the valuation approaches the income approach & the
comparable method will be used as all the information is available.
 There is no point in using the depreciated cost approaches and due to current
market situation and the needs that the client is looking for.
 For the second part of Pre and Post-Valuation of the Acquirer Firm will be done
by using Discounted Cash Flow Model.
 Help of various engines on internet, mainly google.com and yahoo.com for
referencearticles on the subject.

6. LIMITATION
 Data collection for the project is done from secondary sources. The source of data
isassumed to be authentic and will be disclosed properly in the report.
 Valuation done in this research is based on financials upto year 2012 and
variousassumptions are taken as per the macroeconomic factors prevailing at the
time of theentering of the deal. Since economic factors are dynamic and keep
changing, so valuationdifferent times can also vary.
 Valuation depends on the various estimates taken by different analyst. Hence,
subjectivitycreeps in the valuation and comes up with different figure.

7. BENEFITS
The number as well as the average size of merger and acquisition deals is increasing in India. During
post liberalization, increase in domestic competition and competition against cheaper imports have
made organizations merge themselves to reap the benefits of a large-sized company. The merger and
acquisition valuation is the building block of a proposed deal. It is a technical concept that needs to be
estimated carefully.
M&A valuation involves determining the maximum price that a buyer is willing to pay to buy the target
company. From the seller's point of view, it means estimating the minimum price he wants to take
against his business. If there are many buyers, then each one bids a purchase price based on his
valuation. Finally, the seller will give the business to the highest bidder.
The use of different valuation techniques and principles has made valuation a subjective process. A
conflict in the choice of technique is the main reason for the failure of many mergers. For instance, the
asset value can be determined both at the market price and the cost price. Therefore, it is important that
the merging parties should first discuss and agree upon the methods of valuation.
Calculating the swap ratio is at the core of the valuation process. It is the ratio at which the shares of the
acquiring company will be exchanged with the shares of the acquired company. For instance, a swap
ratio of 1:2 means that the acquiring company will provide its one share for every two shares of the
other company.
Worlds market changes very fast. Each day a lot of companies are launched and closed at the
same time. They supply thousands of different types of product and services. During the
lifecycle of each company they have to improve their quality, fight with their 27

8. competitors and, of course, get high profit. Nowadays companies are connecting with each
other, to be bigger, to be able to achieve new goals. There is description of mergers and
acquisitions as a possibilities of connection between two or more companies or organizations
in article above. These can be done on national or international area. It is easier to survive on
the market when the company has more resources and capital than other company. To make
an M&A successfully it should be fulfilled long list of different criteria.
This paper summarizes information on how corporate business entity can be valued for
mergers and acquisitions. It shows what business valuations really is, and how it is used
while mergers and acquisitions. There are shown steps for M&A and for valuating
businesses before doing M&A. After analyze of several method of valuation it is now
more explicit that knowledge of valuer is important and has to be wide and up to date,
to achieve the concrete goal.