Description
This is a presentation helps understand the forms of M&A and Restructuring, including slump-sale, share sale, asset sale, through Scheme u/s. 391, demerger etc.
“M&A - Restructuring”
Presentation context & focus
• To understand the forms of M&A and Restructuring, including slump-sale, share sale, asset sale, through Scheme u/s. 391, demerger etc.
• To identify key challenges in some of these processes.
2
Management Objectives
Every one today wants to be a market leader or sustain its position, produce better quality, sell larger quantity, but with – less cost, – less people, – in less time and – without any competition!
3
Why Restructuring?
1. Consolidation or focus on corecompetencies. 2. Global acquisition or sale, resulting in change in India 3. Family separation 4. Restructuring to defend a potential takeover 5. Only carried out as Tax planning exercise
4
Forms of Restructuring
1. Slump Sale of Business Undertaking. 2. Asset Purchase (Plant/ Building/ Brands etc).
3. Share Purchase (Secondary/ Primary).
4. Court Schemes including (Merger or Amalgamation/ Demergers/ Capital Restructuring including reduction/ buy-back).
5
Types of Mergers
• • • • Horizontal Mergers. Vertical Mergers. Conglomerate Mergers Reverse Mergers
6
Parties involved
COMPANY
• • • • • • • •
Owners Management Shareholders Creditors Statutory Bodies Advisors Other Side External Parties
7
Challenges (unforeseen….)
Internal
• Owners
External
• Other Side • Statutory Bodies • External Advisors
• Shareholders
• Creditors
• Internal Advisors
• Unknown factors
8
Internal issues
1. Owners
– Family related – Personality driven – Inability to run or grow business
2. Management
– No Effective management – Personality driven
9
Internal issues – contd..
3. Shareholders
– – – – Block shareholders Institutional/ PE Investors Strategic (Foreign Collaborators) Small Shareholders
4. Creditors
– – – Secured Unsecured Family / Group Creditors
10
Internal issues – contd..
5. Internal Advisors
– – – – Investment Bankers Law firms Auditors Other Consultants
11
External Issues – contd..
1. Other Side
– – – Very aggressive Lack of Clarity Change of Assumptions
2. Statutory Bodies
– – – – – RBI/ Authorised Dealers FIPB SEBI/ Stock Exchanges RoC/ Liquidator Industry Specific
12
External issues – contd..
3. External
– – – – – – – – – PIL (Public interest litigation) & PIL (Private Interest litigation - Competition) Political Intervention Media/ Press Finding Local advisors Lack of Public Information Cultural issues Poor processes Aggressive timelines
13
Slump Sale – Issues
Legal Concerns – Extensive diligence and indemnity provisions – significantly similar to a full entity acquisition. – Documentation – (reps & indemnity heavily negotiated) – Difficulty in getting regulatory approvals/ license/ consents transferred. – Assignment of third party contracts (vendors/ key customers) – Tenancy/ leases may require consent
14
Slump sale contd..
– Consents from Shareholders (compulsorily through postal ballot). – Consent from Creditors (secured & unsecured. depending upon the agreements and need). – Employees – to preserve not “less favourable” status. – Stamp duty on Immovable property and IP Assignment; though Sales Tax saved. – Could get challenged before any Court including industrial/ labour and the scrutiny could go well beyond in all directions!
15
Asset Purchases - Issues
• Acquirer may “cherry pick” pre-identified assets • Legal Concerns:
– Stamp duty on immovable property and IP Assignment (5 - 13%); Sales tax on movable, and IP in some states, (8 - 12%) – Target Employees – to be hired by Acquirer – Assignment of Contracts/ tenancy may require consent. – Statutory approvals/Permits and licenses – generally to be freshly obtained.
16
Asset Purchase contd…
– Carry forward of losses of the target not possible in the hands of the Acquirer. – Capital Gains for the Seller and inefficient for Seller Shareholders. – Tax Holiday denied to undertakings formed by splitting or reconstruction or acquisition of used Plant & Equipment.
17
Share Acquisitions - Issues
Legal Concerns: – Extensive diligence and indemnity provisions – significantly similar to a full entity acquisition. – Documentation – (reps & indemnity heavily negotiated). – Insider Trading issues. – FIPB/ RBI approval in case of non-automatic industry. – Structuring of investment vehicles.
18
Contd..
? Takeover Regulations apply to listed companies (certain issues unresolved and provisions ambiguous). ? SEBI DIP guidelines – allotment to be made within 15 days and other provisions. ? FIPB permission required if Press Note 18 is applicable (New issue of holding cum operating company) ? RBI Approval in certain cases.
19
Court Schemes u/s 391- Issues
• Extensive due-diligence. • Time consuming process, starting from Stock Exchange notice of one month – (SE heading towards scrutiny of commercial terms). • Process gets delayed because of Court vacations. • Valuation questioned – New requirement of „fairness opinion? from independent Merchant Bankers. • Role of Court perceived as anachronistic. • Third party contracts/ immovable property leases transfer not automatic.
20
Issues contd..
• Creative structuring has led to discomfort among regulators, since Court is only a referee and its focus is primarily on technical compliance and self-certification. • Stamp duty on order of amalgamation virtually in all states. • Objections from Regional Director/ Liquidator. • Objections from minority shareholders. • Public Interest Litigation.
21
Common challenges!
• To expect Companies to 100% transparent during the due-diligence – still a distant dream! • Documentation - Representation & warranties – lawyers delight! • To expect Regulators to give clarity – hope against hope! • Managing Advisors – increasing challenge! • Indian Promoters – all MBAs!
22
THANK YOU
23
doc_719213526.ppt
This is a presentation helps understand the forms of M&A and Restructuring, including slump-sale, share sale, asset sale, through Scheme u/s. 391, demerger etc.
“M&A - Restructuring”
Presentation context & focus
• To understand the forms of M&A and Restructuring, including slump-sale, share sale, asset sale, through Scheme u/s. 391, demerger etc.
• To identify key challenges in some of these processes.
2
Management Objectives
Every one today wants to be a market leader or sustain its position, produce better quality, sell larger quantity, but with – less cost, – less people, – in less time and – without any competition!
3
Why Restructuring?
1. Consolidation or focus on corecompetencies. 2. Global acquisition or sale, resulting in change in India 3. Family separation 4. Restructuring to defend a potential takeover 5. Only carried out as Tax planning exercise
4
Forms of Restructuring
1. Slump Sale of Business Undertaking. 2. Asset Purchase (Plant/ Building/ Brands etc).
3. Share Purchase (Secondary/ Primary).
4. Court Schemes including (Merger or Amalgamation/ Demergers/ Capital Restructuring including reduction/ buy-back).
5
Types of Mergers
• • • • Horizontal Mergers. Vertical Mergers. Conglomerate Mergers Reverse Mergers
6
Parties involved
COMPANY
• • • • • • • •
Owners Management Shareholders Creditors Statutory Bodies Advisors Other Side External Parties
7
Challenges (unforeseen….)
Internal
• Owners
External
• Other Side • Statutory Bodies • External Advisors
• Shareholders
• Creditors
• Internal Advisors
• Unknown factors
8
Internal issues
1. Owners
– Family related – Personality driven – Inability to run or grow business
2. Management
– No Effective management – Personality driven
9
Internal issues – contd..
3. Shareholders
– – – – Block shareholders Institutional/ PE Investors Strategic (Foreign Collaborators) Small Shareholders
4. Creditors
– – – Secured Unsecured Family / Group Creditors
10
Internal issues – contd..
5. Internal Advisors
– – – – Investment Bankers Law firms Auditors Other Consultants
11
External Issues – contd..
1. Other Side
– – – Very aggressive Lack of Clarity Change of Assumptions
2. Statutory Bodies
– – – – – RBI/ Authorised Dealers FIPB SEBI/ Stock Exchanges RoC/ Liquidator Industry Specific
12
External issues – contd..
3. External
– – – – – – – – – PIL (Public interest litigation) & PIL (Private Interest litigation - Competition) Political Intervention Media/ Press Finding Local advisors Lack of Public Information Cultural issues Poor processes Aggressive timelines
13
Slump Sale – Issues
Legal Concerns – Extensive diligence and indemnity provisions – significantly similar to a full entity acquisition. – Documentation – (reps & indemnity heavily negotiated) – Difficulty in getting regulatory approvals/ license/ consents transferred. – Assignment of third party contracts (vendors/ key customers) – Tenancy/ leases may require consent
14
Slump sale contd..
– Consents from Shareholders (compulsorily through postal ballot). – Consent from Creditors (secured & unsecured. depending upon the agreements and need). – Employees – to preserve not “less favourable” status. – Stamp duty on Immovable property and IP Assignment; though Sales Tax saved. – Could get challenged before any Court including industrial/ labour and the scrutiny could go well beyond in all directions!
15
Asset Purchases - Issues
• Acquirer may “cherry pick” pre-identified assets • Legal Concerns:
– Stamp duty on immovable property and IP Assignment (5 - 13%); Sales tax on movable, and IP in some states, (8 - 12%) – Target Employees – to be hired by Acquirer – Assignment of Contracts/ tenancy may require consent. – Statutory approvals/Permits and licenses – generally to be freshly obtained.
16
Asset Purchase contd…
– Carry forward of losses of the target not possible in the hands of the Acquirer. – Capital Gains for the Seller and inefficient for Seller Shareholders. – Tax Holiday denied to undertakings formed by splitting or reconstruction or acquisition of used Plant & Equipment.
17
Share Acquisitions - Issues
Legal Concerns: – Extensive diligence and indemnity provisions – significantly similar to a full entity acquisition. – Documentation – (reps & indemnity heavily negotiated). – Insider Trading issues. – FIPB/ RBI approval in case of non-automatic industry. – Structuring of investment vehicles.
18
Contd..
? Takeover Regulations apply to listed companies (certain issues unresolved and provisions ambiguous). ? SEBI DIP guidelines – allotment to be made within 15 days and other provisions. ? FIPB permission required if Press Note 18 is applicable (New issue of holding cum operating company) ? RBI Approval in certain cases.
19
Court Schemes u/s 391- Issues
• Extensive due-diligence. • Time consuming process, starting from Stock Exchange notice of one month – (SE heading towards scrutiny of commercial terms). • Process gets delayed because of Court vacations. • Valuation questioned – New requirement of „fairness opinion? from independent Merchant Bankers. • Role of Court perceived as anachronistic. • Third party contracts/ immovable property leases transfer not automatic.
20
Issues contd..
• Creative structuring has led to discomfort among regulators, since Court is only a referee and its focus is primarily on technical compliance and self-certification. • Stamp duty on order of amalgamation virtually in all states. • Objections from Regional Director/ Liquidator. • Objections from minority shareholders. • Public Interest Litigation.
21
Common challenges!
• To expect Companies to 100% transparent during the due-diligence – still a distant dream! • Documentation - Representation & warranties – lawyers delight! • To expect Regulators to give clarity – hope against hope! • Managing Advisors – increasing challenge! • Indian Promoters – all MBAs!
22
THANK YOU
23
doc_719213526.ppt