MERGERS & ACQUISITION - PPT.ppt PRESENTATION

MERGERS & ACQUISITION

1. RRR CHAMBERS Email ID- [email protected] RRR Chambers - [email protected]

2. Scope of Presentation: Key Terms Merger v/s Acquisition Reasons for M & A Types of Acquisition Problems in achieving success MERGERS & ACQUISITION RRR Chambers - [email protected] ,

3. MERGER: Where Assets and Liabilities of one company are transferred to another and the first company loses its existence. MERGERS & ACQUISITION RRR Chambers - [email protected] ,

4. MERGERS & ACQUISITION RRR Chambers - [email protected] ,

5. MERGERS & ACQUISITION AMALGAMATION: Where two or more companies carrying on similar business go into liquidation and a new company is formed to take over their business. RRR Chambers - [email protected] ,

6. MERGERS & ACQUISITION ACQUISITION: A corporate action in which a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm. RRR Chambers - [email protected] ,

7. MERGERS & ACQUISITION How do Mergers and Acquisitions Differ? The words are often used interchangeably even though they mean something very different. Merger sounds more amicable, less threatening. RRR Chambers - [email protected] ,

8. h MERGERS & ACQUISITION Mergers Acquisitions Two firms are combined on relatively co-equal basis. Parent stocks are usually retired and new stock issued. Name may be one of the parents’ or a combination. One of the parents usually emerges as the dominant management. One firm buys another firm. Can be a controlling share, a majority, or all of the target firm’s stock. Can be friendly or hostile. Usually done through a tender offer. RRR Chambers - [email protected] ,

9. Why go for Mergers & Acquisitions 1)Increased market power: Exists when a firm is able to sell its goods or services above competitive levels or when the costs of its primary or support activities are lower than those of its competitors Sources of market power include Size of the firm Resources and capabilities to compete in the market Share of the market Entails buying a competitor, a supplier, a distributor, or a business in a highly related industry MERGERS & ACQUISITION RRR Chambers - [email protected] ,

10. MERGERS & ACQUISITION Contd...... 2)To increase market power , firms use: Horizontal Acquisitions Acquirer and acquired companies compete in the same industry Vertical Acquisitions Firm acquires a supplier or distributor of one or more of its goods or services; leads to additional controls over parts of the value chain Related Acquisitions Firm acquires another company in a highly related industry RRR Chambers - [email protected] ,

11. 3)Overcoming entry barriers into: New product markets – product diversification New international markets – geographic diversification Cross-border acquisitions – those made between companies with headquarters in different country MERGERS & ACQUISITION RRR Chambers - [email protected] ,

12. 4)Cost of new product development and increased speed to market : Can be used to gain access to new products and to current products that are new to the firm Quick approach for entering markets (product and geographic) MERGERS & ACQUISITION RRR Chambers - [email protected] ,

13. 5) Lower risk compared to developing new products: Easier to estimate acquisition outcomes versus internal development Internal development has a very high failure rate 6) Increased diversification : Most common mode of diversification when entering new markets with new products Hard to internally develop products that differ from current lines for markets in which a firm lacks experience The more related the acquisition the higher the chances for success MERGERS & ACQUISITION RRR Chambers - [email protected] ,

14. 7)Reshaping firm’s competitive scope : Can lessen a firms dependence on one or more products or markets 8)Learning and developing new capabilities : When you acquire a firm you also acquire any skills and capabilities that it has Firms should seek to acquire companies with different but related and complementary capabilities in order to build their own knowledge base MERGERS & ACQUISITION RRR Chambers - [email protected] ,

15. TYPES OF ACQUISITION 1) Friendly Acquisition A friendly Acquisition is done with the consent of the Target Company. Generally there is an agreement between the acquirer and the target company through negotiations 2) Hostile Acquisition Where an acquirer do not offer to Target Company the proposal to acquire its undertaking but unilaterally pursue efforts to gain control against the wishes of existing management MERGERS & ACQUISITION RRR Chambers - [email protected] ,

16. Problems in achieving Acquisition Success: MERGERS & ACQUISITION RRR Chambers - [email protected] ,

17. 1) Integration difficulties : Most important determinant of shareholder value creation Culture, financial and control systems, working relationships Status of newly acquired firm’s executives 2) Inadequate evaluation of target Due diligence – process through which a potential acquirer evaluates a target firm for acquisition Can result in paying excessive premium for target company MERGERS & ACQUISITION RRR Chambers - [email protected] ,

18. 3) Large or extraordinary debt : High debt can negatively effect the firm Increases the likelihood of bankruptcy Can lead to a downgrade in a firm’s credit rating May preclude needed investment in other activities that contribute to a firm’s long-term success R&D, human resource training, marketing MERGERS & ACQUISITION RRR Chambers - [email protected] ,

19. 4) Inability to achieve synergy : Synergy : Value created by units exceeds value of units working independently Achieved when the two firms' assets are complementary in unique ways Generates gains in shareholder wealth that they could not duplicate or exceed through their own portfolio diversification decisions MERGERS & ACQUISITION RRR Chambers - [email protected] ,

20. Private synergy : Occurs when the combination and integration of acquiring and acquired firms' assets yields capabilities and core competencies that could not be developed by combining and integrating the assets with any other company Very difficult to create private synergy Firms tend to underestimate costs and overestimate synergy MERGERS & ACQUISITION RRR Chambers - [email protected] ,

21. 5) Too much diversification : Firms can become over diversified which can lead to a decline in performance Diversified firms must process more information of greater diversity Scope created by diversification may cause managers to rely too much on financial rather than strategic controls to evaluate performance of business units Acquisitions may become substitutes for innovation MERGERS & ACQUISITION RRR Chambers - [email protected] ,

22. 6) Managers overly focused on acquisitions : Diverts attention from matters necessary for long-term competitive success (i.e., identifying other activities, interacting with important external stakeholders, or fixing fundamental internal problems) 7) Huge Size of Acquisition: Bureaucratic controls: Formalized supervisory and behavioural rules and policies designed to ensure consistency of decisions and actions across different units of a firm – formalized controls decrease flexibility Firms may produce less innovation. MERGERS & ACQUISITION RRR Chambers - [email protected] ,

23. THANKYOU MERGERS & ACQUISITION RRR Chambers - [email protected] ,