Chapter 4.ppt of mergers and acquisition

Chap 4

1. Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2018 Wiley India Pvt. Ltd.
  All rights reserved.

2. Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2018 Wiley India Pvt. Ltd.
  All rights reserved.
Chapter 4
Corporate Restructuring
and M&A

3. Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Learning objectives
After reading this chapter, you will be able to:
•Understand the concept of corporate restructuring.
•Understand the various types of corporate restructuring, such as
organization restructuring, financial restructuring, and portfolio
restructuring.
•Understand the tools of portfolio restructuring.
•Understand M&A as a tool for portfolio restructuring.
•Understand the concept of alliances and joint ventures.
•Understand the concept of divestitures, spin-offs, demerger, and sell-offs.
•Understand the nature and concept of mergers and acquisitions.

4. Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Corporate restructuring
•Corporate restructuring is aimed at streamlining the business
operation, restructuring the business divisions, restructuring the
funding sources (capital structure), or consolidating by spin-off or
demerger. Ultimately, all restructuring exercises lead to improving the
wealth of the firm in the long run.
•Restructuring activities include diverse initiatives taken by firms, such
as acquiring a new business, reducing debt from its capital structure,
selling off traditional business, or merging its business units or
dividing existing business unit into subsets, etc.

5. Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Types of restructuring
•Broadly, corporate restructuring can be categorized into three broad
categories, namely:
1. Organizational restructuring
2. Financial restructuring
3. Portfolio restructuring

6. Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Organizational Restructuring
•Organizational restructuring takes place when the firm makes important
changes in its organizational structure, such as span of control, hierarchy,
and firm divisions.
•Redesigning the overall organizational structure of a firm, its divisional
boundaries, markets, employees, product portfolio reduction, etc., form an
integral part of organizational restructuring.
•This exercise should create wealth for the firm. To put it simply, it
•should result in improved financial performance. Organizational
restructuring includes restructuring of business processes and operations
to align the organizational structure with the vision of the firm.

7. Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Financial Restructuring
•Financial restructuring caters to changes in the capital structure of the
firm, resulting in value enhancement for the firm. Capital structure is
broadly a mix of debt and equity the firm has.
•Any change in debt–equity mix results in change in the overall cost of
capital for the firm impacting its value.
•Firm activities, such as converting high-cost debt to low-cost debt,
debt recapitalization, making a leveraged buyout (buyout through
loan), equity swap, etc., affect the capital structure of the firm, and
hence the overall cost of capital.

8. Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Financial Restructuring….
•In M&A activity deals are financed by Debt , Equity Or both.
•When deals are financed by debt they are termed as leveraged
buyouts- LBO. LBO deals create a change in debt equity mix as well as
the risk profile of the company.
•Equity financed deals also change the debt equity mix of the acquirer
post deal.

9. Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Portfolio Restructuring
•Portfolio restructuring relates to changes in the asset composition
owned by the firm and the business line mix the firm operates in.
•It includes activities, such as alliances and JVs, mergers and
acquisitions (M&As), spin-offs, demergers, etc.
•Portfolio restructuring recomposes the asset mix of a firm by selling
off undesired assets and/or buying desired assets.

10. Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Portfolio Restructuring …..
•Portfolio restructuring can be broadly classified into:
1. Divestment or divestiture
2. Alliances and joint ventures
3. Mergers and acquisitions

11. Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Types of portfolio restructuring
1. Divestment or Divestiture
•Divestment or divestiture is a portfolio structuring strategy by which a
company sells off non-strategic assets.
•Asset sell off is also known as asset divesture or spin-off. Sometimes
series of asset expansion decisions (M&As) may force the company to
consolidate or divesture to realign its focus on the core businesses.
•Divestitures can take three different forms, namely:
1. Equity carve out
2. Spin-off or demerger
3. Asset sell off

12. Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Types of portfolio restructuring
2. Joint Venture and Strategic Alliances
•Alliances and JVs are another form of portfolio restructuring. JV is a
business agreement between two parties, where they agree to form a
new entity.
• In many cases, the two companies come together to form a common
project or purpose.

13. Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2016 Wiley India Pvt. Ltd.
  All rights reserved.
Types of portfolio restructuring
3. Mergers and Acquisition
•M&A is also a strong form of portfolio restructuring tool along with
divestiture and alliances.
•Merger occurs when firms consolidate to form a new entity, or the
dominant player absorbs the target player.
•Acquisition occurs when the acquirer acquires a controlling stake in
the public listed company by acquiring its outstanding shares.
•Merger can be categorized into following types:
1.Horizontal merger
2.Vertical merger
3.Conglomerate merger