Description
Merger & Acquisitions - An Overview
Mergers & Acquisitions - Overview
Presentation Overview
? ? ? ? ? ? ? ? ?
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M & A – Introduction & Current Trends Corporate Restructuring Motives for Restructuring Modes of Restructuring Valuation – Introduction Purpose & Methods of Valuation Due Diligence Review – Introduction & Types Financing for Restructuring Implications Points to be noted Intermediaries Involved Pitfalls of M & A
June 21, 2008
2 of 34
M & A – Introduction
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Liberalization of economy and reforms programmes have resulted in a 'churn' in the industrial and services sector. Companies are resorting to acquisitions as a means to consolidate and grow rapidly. Globalization has given importance to size for competing effectively with the multinationals and exploring the world markets. As a result, there is a manifold increase in the level of M & A activity.
3 of 34
June 21, 2008
M & A - Currents Trends
Acquirer
Tata Chemicals
Target
General Chemical Industrial Products Inc.
Sector
Chemicals Offshore oilfield services
Acquisition price in $ mn
1000.00
Great Offshore Ltd.
Government Investment Corporation of Singapore and Citigroup Venture Capital International Roca Sanitario S.A., Spain Times of India group (Bennett, Coleman & Co. Ltd.)
4 of 34
SeaDragon Offshore Ltd.
500.00
SPV by Shapoorji Pallonji Parryware Roca Pvt. Ltd.
Real Estate Hardware
290.00 170.88
UK’s Virgin Radio
Entertainment
105.2
June 21, 2008
Corporate Restructuring
?
Corporate Restructuring
is significant modification made to the debt, operations or structure of a company. This type of corporate action is usually made when there are significant problems in a company, which are causing some form of financial harm and putting the overall business in jeopardy. The hope is that through restructuring, a company can eliminate financial harm and improve the business
5 of 34
June 21, 2008
Motives for Restructuring
Achieve Growth And Survive Gain Better Competitive Position
Strategic Reasons
Focus on Core Activities
Achieve Economies of Scale
Cont…
June 21, 2008
6 of 34
Motives for Restructuring (cont.)
Fund Raising Dividend Distribution Tax minimisation
Financial Reasons
Utilisation of Excess Cash
Tax Planning & Reducing Costs
Cont…
7 of 34
June 21, 2008
Motives for Restructuring (cont.)
Bail Out ‘Takeovers’ Diversification – Entering into a new segment
Other Reasons
Family Separation
Warding-off Predators
8 of 34
June 21, 2008
Modes of Restructuring
M&A
Acquisitions Asset Purchase
Slump Sale
Mergers Share Purchase
Demergers Subsidiar isation Capital Reduction
Others
Buy-Back
Itemized Sale
9 of 34
June 21, 2008
Acquisitions / Takeovers
?
Acquisitions / Takeovers: ? An acquisition, also known as a takeover, is the buying of one company (the ‘target’) by another. Types: ? Asset Purchase: This type of transaction leaves the target company as an empty shell. It is further divided into: a) Slump Sale b) Itemised Sale
?
?
Share purchase: The buyer buys the shares, and therefore control, of the target company ? Examples: Axis IT&T Ltd. has entered into a share
purchase agreement with M/s. Tayana Software Solutions Pvt. Ltd.
Cont…
11 of 34
June 21, 2008
Acquisitions / Takeovers (cont.)
?
Slump Sale: Section 2(42C) of the Income Tax Act, 1961 defines Slump Sale as the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities.
?
?
Itemised Sale: Sale of assets & liabilities with values assigned separately for each item of assets & liabilities.
Example: Grasim sold sponge iron unit to Welspun Power for Rs. 1030 crores.
?
Slump Sale vs. Itemised Sale: In case of itemised sale, unlike slump sale, it is possible to pick and choose assets and liabilities. Also, the consideration is identifiable against each item.
June 21, 2008
12 of 34
MERGER
13 of 34
June 21, 2008
Mergers
?
?
Mergers: ? In business or economics a merger is a combination of two companies into one larger company. Types: ? Horizontal mergers take place where the two merging companies produce similar product in the same industry ? Vertical mergers occur when two firms, each working at different stages in the production of the same good, combine. ? Conglomerate mergers take place when the two firms operate in different industries. ? Forward Merger of target into the acquirer ? Reverse Merger of acquirer into the target
June 21, 2008
14 of 34
DEMERGER
15 of 34
June 21, 2008
Demergers
?
Demerger: ? corporate strategy to sell off subsidiaries or divisions of a company
Post
Pre
Undertaking A
AB Ltd
Undertaking B
Undertaking A
AB Ltd
Undertaking B
B Ltd
16 of 34
Assets, liabilities of undertaking B transferred to B Ltd.
June 21, 2008
Subsidiarisation
? ?
Transferring the business to a wholly owned subsidiary. Under this option business gets transferred to a subsidiary and the parent company continue to hold 100% equity stake in the subsidiary. ? S. Kumars Nationwide Limited transferred its Reid & Taylor division to a subsidiary namely, Reid & Taylor (India) Limited
17 of 34
June 21, 2008
Capital Reduction Scheme
?
?
Reduction of share capital may be effected in the following ways: ? In respect of share capital not paid-up, extinguishing or reducing the liability on any of its shares; ? Cancel any paid-up share capital, which is lost, or is not represented by available assets. This may be done either with or without extinguishing or reducing liability on any of its Shares; or ? Pay off the paid-up share capital, which is in excess of the needs of the company. This may be achieved either with or without extinguishing or reducing liability on any of its shares Example ? Aptech Limited
June 21, 2008
18 of 34
Buyback of Shares
?
?
Buyback is acquiring its own shares from the existing shareholders by the company. Examples
?
Philips Electronics India Limited has decided to go for buy back of up to a maximum of 6,923,076 equity shares at a price not exceeding Rs 260 per equity share
19 of 34
June 21, 2008
Valuation - Introduction
What is Valuation ? Valuation means assigning a value to underlying assets The value should be a fair value Valuation is not a science; more of an art Valuation is largely influenced by Valuer’s judgment, knowledge of business, analysis and interpretation and the use of different methods ? Valuation varies with purpose ? Valuation is time sensitive
? ? ? ?
20 of 34
June 21, 2008
Purpose of Valuation
? Determining the consideration for Acquisition/ Sale
? ? ? ?
?
of Business or for Purchase/Sale of equity stake Determining the swap ratio for Merger/Demerger Corporate Restructuring Sale/Purchase of Intangible Assets including brands, patents, copyrights, trademarks, rights Determining the value of family owned business and assets in case of Family Separation Determining the Fair Value of shares for issuing ESOP as per the ESOP guidelines
Cont…
21 of 34
June 21, 2008
Purpose of Valuation
(..cont)
? Determining the fair value of shares for Listing
on the Stock Exchange ? Determining the Portfolio Value of Investments by Venture Funds or Private Equity Funds ? Liquidation of a Company ? Other Corporate Decisions
22 of 34
June 21, 2008
Methods of Valuation
? Asset Based Approach ? Book Value ? Replacement Value/Realisable Value ? Earning Based Approach ? Capitalisation of Maintainable Earnings ? Discounted Cash Flow Method ? Market Approach ? Market Price ? Market Comparables
23 of 34
June 21, 2008
Due Diligence Review
? Dictionary meaning of ‘Due’ is ‘Sufficient’ &
‘Diligence’ is ‘Persistent effort or work’ ? It is an investigation into the affairs of an entity prior to its acquisition, flotation, restructuring or other similar transaction ? Due Diligence Review is a process whereby an individual, or an organization, seeks sufficient information about a business entity to reach an informed judgement as to its value for a specific purpose
24 of 34
June 21, 2008
Types of DDR
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?
? ? ?
Business/Market Due Diligence Technical Due Diligence Human Resource Due Diligence Legal Due Diligence Environmental Due Diligence System Due Diligence Financial Due Diligence Accounting Due Diligence Tax Due Diligence
25 of 34
June 21, 2008
Financing for Restructuring
?
Stock Financing Route:
? ?
? ?
Acquirer issues the stock of his firm As compared to Debt, cost being dividend does not increase the fixed cost Dilution of EPS Risk as well as Synergies will be shared by the share holders of both the firms
?
?
Example:
Gitanjali Gems Limited acquired a majority stake in Samuels Jewelers, Inc by allotting 1,554,050 equity shares of Rs. 10 each at an issue price of Rs. 290 per share.
Cont…
26 of 34
June 21, 2008
Financing for Restructuring (cont.)
?
Cash Financing
?
?
Entail heavy out flow of cash upfront (PSU disinvestment) Synergetic benefit pay for interest cost.
Reliance Capital Limited has acquired stake in Lakshmi Precision Screws Limited its preferential allotment of 9 lacks shares to the Reliance Capital Limited by Lakshmi Precision Screws Ltd Cadila Healthcare Ltd has acquired Liva Healthcare
?
Examples
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?
Cont…
27 of 34
June 21, 2008
Financing for Restructuring (cont.)
?
Leveraged Buy-Outs (LBO)
?
?
2 Categories of Debt. ? Secured Debt – Senior Debt & Term Debt ? Secured Debt – Against F.A. & C.A. Characteristics ? Stable Cash Flow ? Room for significant cost reduction ? Equity interest of owners
The Tata-Corus (the Anglo-Dutch steelmaker) $12.1billion mega-acquisition
June 21, 2008
?
Example
?
28 of 34
Implications
The following factors should be kept in mind during restructuring: 1. Regulatory Considerations a) Companies Act b) SEBI & Other Capital Market Regulations c) FEMA Guidelines 2. Accounting 3. Income Tax 4. Stamp Duty 5. Sales Tax
Cont…
29 of 34 June 21, 2008
Implications
(cont.)
6. Excise Duty 7. Other Laws a) Competition Act b) Rent Act – if valuable tenanted property c) IPR Legislation d) Labour Laws
30 of 34
June 21, 2008
Points to be noted
Buyer
? Do not Sign any confidential documents without consulting advisors ?Consider the structure of your acquisition ?Conduct a thorough Due – Diligence of the Seller ?Base your price on Economics and not Emotions ?Retain Legal & Financial Advisors as soon as possible
31 of 34
Seller
?Conduct your own Due Diligence ?Have a thoughtful communication plan on when and how will you inform your Employees, regulators, and customers. ?Determine when you should place the enterprise on market
?Retain Legal & Financial Advisors as soon as possible
June 21, 2008
Intermediaries Involved
?
?
? ? ? ?
Merchant Bankers Lawyers Chartered Accountants Company Secretaries Technical Valuers Bankers, etc.
32 of 34
June 21, 2008
Pitfalls of M & A
Reasons why M & A may fail: ? Cultural Clash ? Wrong/Improper estimates ? Contractual limitations ? Synergies not well understood ? Loss of Key talent ? Inability to sustain financial performance
33 of 34
June 21, 2008
THANK YOU
doc_123337633.pptx
Merger & Acquisitions - An Overview
Mergers & Acquisitions - Overview
Presentation Overview
? ? ? ? ? ? ? ? ?
?
? ?
M & A – Introduction & Current Trends Corporate Restructuring Motives for Restructuring Modes of Restructuring Valuation – Introduction Purpose & Methods of Valuation Due Diligence Review – Introduction & Types Financing for Restructuring Implications Points to be noted Intermediaries Involved Pitfalls of M & A
June 21, 2008
2 of 34
M & A – Introduction
?
?
?
?
Liberalization of economy and reforms programmes have resulted in a 'churn' in the industrial and services sector. Companies are resorting to acquisitions as a means to consolidate and grow rapidly. Globalization has given importance to size for competing effectively with the multinationals and exploring the world markets. As a result, there is a manifold increase in the level of M & A activity.
3 of 34
June 21, 2008
M & A - Currents Trends
Acquirer
Tata Chemicals
Target
General Chemical Industrial Products Inc.
Sector
Chemicals Offshore oilfield services
Acquisition price in $ mn
1000.00
Great Offshore Ltd.
Government Investment Corporation of Singapore and Citigroup Venture Capital International Roca Sanitario S.A., Spain Times of India group (Bennett, Coleman & Co. Ltd.)
4 of 34
SeaDragon Offshore Ltd.
500.00
SPV by Shapoorji Pallonji Parryware Roca Pvt. Ltd.
Real Estate Hardware
290.00 170.88
UK’s Virgin Radio
Entertainment
105.2
June 21, 2008
Corporate Restructuring
?
Corporate Restructuring
is significant modification made to the debt, operations or structure of a company. This type of corporate action is usually made when there are significant problems in a company, which are causing some form of financial harm and putting the overall business in jeopardy. The hope is that through restructuring, a company can eliminate financial harm and improve the business
5 of 34
June 21, 2008
Motives for Restructuring
Achieve Growth And Survive Gain Better Competitive Position
Strategic Reasons
Focus on Core Activities
Achieve Economies of Scale
Cont…
June 21, 2008
6 of 34
Motives for Restructuring (cont.)
Fund Raising Dividend Distribution Tax minimisation
Financial Reasons
Utilisation of Excess Cash
Tax Planning & Reducing Costs
Cont…
7 of 34
June 21, 2008
Motives for Restructuring (cont.)
Bail Out ‘Takeovers’ Diversification – Entering into a new segment
Other Reasons
Family Separation
Warding-off Predators
8 of 34
June 21, 2008
Modes of Restructuring
M&A
Acquisitions Asset Purchase
Slump Sale
Mergers Share Purchase
Demergers Subsidiar isation Capital Reduction
Others
Buy-Back
Itemized Sale
9 of 34
June 21, 2008
Acquisitions / Takeovers
?
Acquisitions / Takeovers: ? An acquisition, also known as a takeover, is the buying of one company (the ‘target’) by another. Types: ? Asset Purchase: This type of transaction leaves the target company as an empty shell. It is further divided into: a) Slump Sale b) Itemised Sale
?
?
Share purchase: The buyer buys the shares, and therefore control, of the target company ? Examples: Axis IT&T Ltd. has entered into a share
purchase agreement with M/s. Tayana Software Solutions Pvt. Ltd.
Cont…
11 of 34
June 21, 2008
Acquisitions / Takeovers (cont.)
?
Slump Sale: Section 2(42C) of the Income Tax Act, 1961 defines Slump Sale as the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities.
?
?
Itemised Sale: Sale of assets & liabilities with values assigned separately for each item of assets & liabilities.
Example: Grasim sold sponge iron unit to Welspun Power for Rs. 1030 crores.
?
Slump Sale vs. Itemised Sale: In case of itemised sale, unlike slump sale, it is possible to pick and choose assets and liabilities. Also, the consideration is identifiable against each item.
June 21, 2008
12 of 34
MERGER
13 of 34
June 21, 2008
Mergers
?
?
Mergers: ? In business or economics a merger is a combination of two companies into one larger company. Types: ? Horizontal mergers take place where the two merging companies produce similar product in the same industry ? Vertical mergers occur when two firms, each working at different stages in the production of the same good, combine. ? Conglomerate mergers take place when the two firms operate in different industries. ? Forward Merger of target into the acquirer ? Reverse Merger of acquirer into the target
June 21, 2008
14 of 34
DEMERGER
15 of 34
June 21, 2008
Demergers
?
Demerger: ? corporate strategy to sell off subsidiaries or divisions of a company
Post
Pre
Undertaking A
AB Ltd
Undertaking B
Undertaking A
AB Ltd
Undertaking B
B Ltd
16 of 34
Assets, liabilities of undertaking B transferred to B Ltd.
June 21, 2008
Subsidiarisation
? ?
Transferring the business to a wholly owned subsidiary. Under this option business gets transferred to a subsidiary and the parent company continue to hold 100% equity stake in the subsidiary. ? S. Kumars Nationwide Limited transferred its Reid & Taylor division to a subsidiary namely, Reid & Taylor (India) Limited
17 of 34
June 21, 2008
Capital Reduction Scheme
?
?
Reduction of share capital may be effected in the following ways: ? In respect of share capital not paid-up, extinguishing or reducing the liability on any of its shares; ? Cancel any paid-up share capital, which is lost, or is not represented by available assets. This may be done either with or without extinguishing or reducing liability on any of its Shares; or ? Pay off the paid-up share capital, which is in excess of the needs of the company. This may be achieved either with or without extinguishing or reducing liability on any of its shares Example ? Aptech Limited
June 21, 2008
18 of 34
Buyback of Shares
?
?
Buyback is acquiring its own shares from the existing shareholders by the company. Examples
?
Philips Electronics India Limited has decided to go for buy back of up to a maximum of 6,923,076 equity shares at a price not exceeding Rs 260 per equity share
19 of 34
June 21, 2008
Valuation - Introduction
What is Valuation ? Valuation means assigning a value to underlying assets The value should be a fair value Valuation is not a science; more of an art Valuation is largely influenced by Valuer’s judgment, knowledge of business, analysis and interpretation and the use of different methods ? Valuation varies with purpose ? Valuation is time sensitive
? ? ? ?
20 of 34
June 21, 2008
Purpose of Valuation
? Determining the consideration for Acquisition/ Sale
? ? ? ?
?
of Business or for Purchase/Sale of equity stake Determining the swap ratio for Merger/Demerger Corporate Restructuring Sale/Purchase of Intangible Assets including brands, patents, copyrights, trademarks, rights Determining the value of family owned business and assets in case of Family Separation Determining the Fair Value of shares for issuing ESOP as per the ESOP guidelines
Cont…
21 of 34
June 21, 2008
Purpose of Valuation
(..cont)
? Determining the fair value of shares for Listing
on the Stock Exchange ? Determining the Portfolio Value of Investments by Venture Funds or Private Equity Funds ? Liquidation of a Company ? Other Corporate Decisions
22 of 34
June 21, 2008
Methods of Valuation
? Asset Based Approach ? Book Value ? Replacement Value/Realisable Value ? Earning Based Approach ? Capitalisation of Maintainable Earnings ? Discounted Cash Flow Method ? Market Approach ? Market Price ? Market Comparables
23 of 34
June 21, 2008
Due Diligence Review
? Dictionary meaning of ‘Due’ is ‘Sufficient’ &
‘Diligence’ is ‘Persistent effort or work’ ? It is an investigation into the affairs of an entity prior to its acquisition, flotation, restructuring or other similar transaction ? Due Diligence Review is a process whereby an individual, or an organization, seeks sufficient information about a business entity to reach an informed judgement as to its value for a specific purpose
24 of 34
June 21, 2008
Types of DDR
? ? ? ? ?
?
? ? ?
Business/Market Due Diligence Technical Due Diligence Human Resource Due Diligence Legal Due Diligence Environmental Due Diligence System Due Diligence Financial Due Diligence Accounting Due Diligence Tax Due Diligence
25 of 34
June 21, 2008
Financing for Restructuring
?
Stock Financing Route:
? ?
? ?
Acquirer issues the stock of his firm As compared to Debt, cost being dividend does not increase the fixed cost Dilution of EPS Risk as well as Synergies will be shared by the share holders of both the firms
?
?
Example:
Gitanjali Gems Limited acquired a majority stake in Samuels Jewelers, Inc by allotting 1,554,050 equity shares of Rs. 10 each at an issue price of Rs. 290 per share.
Cont…
26 of 34
June 21, 2008
Financing for Restructuring (cont.)
?
Cash Financing
?
?
Entail heavy out flow of cash upfront (PSU disinvestment) Synergetic benefit pay for interest cost.
Reliance Capital Limited has acquired stake in Lakshmi Precision Screws Limited its preferential allotment of 9 lacks shares to the Reliance Capital Limited by Lakshmi Precision Screws Ltd Cadila Healthcare Ltd has acquired Liva Healthcare
?
Examples
?
?
Cont…
27 of 34
June 21, 2008
Financing for Restructuring (cont.)
?
Leveraged Buy-Outs (LBO)
?
?
2 Categories of Debt. ? Secured Debt – Senior Debt & Term Debt ? Secured Debt – Against F.A. & C.A. Characteristics ? Stable Cash Flow ? Room for significant cost reduction ? Equity interest of owners
The Tata-Corus (the Anglo-Dutch steelmaker) $12.1billion mega-acquisition
June 21, 2008
?
Example
?
28 of 34
Implications
The following factors should be kept in mind during restructuring: 1. Regulatory Considerations a) Companies Act b) SEBI & Other Capital Market Regulations c) FEMA Guidelines 2. Accounting 3. Income Tax 4. Stamp Duty 5. Sales Tax
Cont…
29 of 34 June 21, 2008
Implications
(cont.)
6. Excise Duty 7. Other Laws a) Competition Act b) Rent Act – if valuable tenanted property c) IPR Legislation d) Labour Laws
30 of 34
June 21, 2008
Points to be noted
Buyer
? Do not Sign any confidential documents without consulting advisors ?Consider the structure of your acquisition ?Conduct a thorough Due – Diligence of the Seller ?Base your price on Economics and not Emotions ?Retain Legal & Financial Advisors as soon as possible
31 of 34
Seller
?Conduct your own Due Diligence ?Have a thoughtful communication plan on when and how will you inform your Employees, regulators, and customers. ?Determine when you should place the enterprise on market
?Retain Legal & Financial Advisors as soon as possible
June 21, 2008
Intermediaries Involved
?
?
? ? ? ?
Merchant Bankers Lawyers Chartered Accountants Company Secretaries Technical Valuers Bankers, etc.
32 of 34
June 21, 2008
Pitfalls of M & A
Reasons why M & A may fail: ? Cultural Clash ? Wrong/Improper estimates ? Contractual limitations ? Synergies not well understood ? Loss of Key talent ? Inability to sustain financial performance
33 of 34
June 21, 2008
THANK YOU
doc_123337633.pptx