Merger and analysis ppt
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Transcript of Merger and analysis ppt
MERGERS & ACQUISITION
BY LERIE PERERA-
PRATIK SAVLA-135RITESH TRIPATHI-161
VISHAL WAVAL-SURAJ .J - 162
SAGAR SRIVASTAVA-155
MERGER AND ACQUISITION
WHAT IS MERGER?A merger is a combination of two or more companies where one corporation is completely absorbed by another corporation.
WHAT IS ACQUISITION?Acquisition essentially means ‘to acquire’ or ‘to takeover’. Here a bigger company will take over the shares and assets of the smaller company.
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DEFNITIONS
Parties to the acquisitions: The target company The acquiring company Classified based on endorsement of parties’ management: A hostile takeover A friendly transaction
DIFFERENCE BETWEEN MERGER AND ACQUISITION:
i. Merging of two organization in to one.
ii. It is the mutual decision.
iii. Merger is expensive than acquisition(higher legal cost).
iv. Through merger shareholders can increase their net worth.
v. It is time consuming and the company has to maintain so much legal issues.
vi. Dilution of ownership occurs in merger.
i. Buying one organization by another.
ii. It can be friendly takeover or hostile takeover.
iii. Acquisition is less expensive than merger.
iv. Buyers cannot raise their enough capital.
v. It is faster and easier transaction.
vi. The acquirer does not experience the dilution of ownership.
MERGER ACQUISITION
MERGER:WHY & WHY NOT
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i. Increase Market Share.
ii. Economies of scale
iii. Profit for Research and development.
iv. Benefits on account of tax shields like carried forward losses or unclaimed depreciation.
v. Reduction of competition.
i. Clash of corporate cultures
ii. Increased business complexity
iii. Employees may be resistant to change
WHY IS IMPORTANTPROBLEM WITH MERGER
ACQUISITION:WHY & WHY NOT
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i. Increased market share.ii. Increased speed to
marketiii. Lower risk comparing to
develop new products.iv. Increased diversificationv. Avoid excessive
competition
i. Inadequate valuation of target.
ii. Inability to achieve synergy.
iii. Finance by taking huge debt.
WHY IS IMPORTANT PROBLEM WITH ACUIQISITION
TYPES OF M&A
M&A
Market-extension merger
Two companies that sell the same
products in different markets
Product-extension merger
Two companies selling different but related products in the same market
Conglomeration
Two companies that have no
common business areas
PROCESS OF MERGER & ACQUISITION IN INDIA:
The process of merger and acquisition has the following steps:
i. Approval of Board of Directors
ii. Information to the stock exchange
iii. Application in the High Court
iv. Shareholders and Creditors meetings
v. Sanction by the High Court
vi. Filing of the court order
vii. Transfer of assets or liabilities
viii. Payment by cash and securities
Maximum Waiting period:210 days from the filing of notice(or the order of the commission - whichever earlier).
FAILED MERGERS
TYPES OF MERGER
1. Horizontal Merger
2. Vertical Merger
3. Conglomerate Merger
4. Concentric Merger
Horizontal Merger
Horizontal mergers are those mergers where the companies manufacturing similar kinds of commodities or running similar type of businesses merge with each other.
COMMON MOTIVATIONS FOR M&A
Synergies Achieving more rapid growth Increased market power Gaining access to unique capabilities Diversification
Bootstrapping EPS Personal benefits for managers Tax benefits Unlocking hidden value Achieving international business goal
MOTIVES OF MERGER
Factors are Need for capital.
Need for resources.
Degree of competition and the number of competitors.
Growth opportunities .
Opportunities for synergy.
Industry’s stage in its life cycle.
FORM OF ACQUISTION In a stock purchase.
A stock purchase needs shareholder approval.
Target shareholders are taxed on any gain.
Acquirer assumes target’s liabilities.
In an asset purchase. An asset purchase may not need shareholder approval.
Acquirer likely avoids assumption of liabilities.
M&A ANALYSIS
The discounted cash flow (DCF) method is often used in the valuation of the target company.
The cash flow that is most appropriate is the free cash flow (FCF). To estimate future FCF.
Pro forma financial statements to estimate FCF
We use a two-stage model when we can more accurately estimate growth in the near future and then assume a somewhat slower growth out into the future.
BENEFITS OF MERGERS Mergers create value Acquirers tend to overpay in merger bids.
The transfer of wealth is from acquirer to target company shareholders.
Roll: Overpayment results from “hubris.”
Acquirers tend to underperform in the long run. They are unable to fully capture any synergies or other benefit from the merger.