Mergers & Acquisitions is described as the act of consolidating multiple companies or assets via several routes. It can be done via financial transactions, tender offers, management acquisition, consolidation, etc.
A Merger would be the act of two firms joining each other to work towards a greater mutual purpose. Whereas, Acquisitions is the act of company A taking over company B. This would declare company A as the owner of company B and company B would not exist anymore. All the assets, stocks, existing trades, etc. of company B would be transferred to the owner of company A.
Some of the top mergers and acquisitions firms in India make use of all kinds of merger structures to create profitable solutions for their clients. Here are few commonly adopted merger structures in India. Remember, these structures are centered around the sort of relationship between the companies/parties involved.
- Congeneric Merger: This structure has a mandatory condition that states – two companies serving the same industry/target audience can merge their businesses. For example, a sports apparel manufacturer and a sports management agency.
- Vertical Merger: This structure is only possible between a customer/supplier and a company. For example, an automobile manufacturer and a tire manufacturer.
- Horizontal Merger: This structure accommodates companies that are in direct competition with each other. Thus, the sales market and product lines can be shared.
- Product-extension Merger: Companies under this structure are generally selling related products, but with some differences. For example, a wireless earphone manufacturer and a wired earphone manufacturer.
- Market-extension Merger: Companies under this structure are selling the exact same product, but in different markets.
5 points to consider in Merger & Acquisitions Dealings
These points focus on the sale of private companies from the standpoint of the management and seller.
- Several bidders can help the seller get a more profitable deal
As a seller, the best offers come knocking on your door when you have several bidders. This competition that develops can be used to quote and attain higher prices. The very fact that several bidders have opted to take part means that they are willing to pay a price. Consider organizing an auction and you will have plenty of favorable deals coming your way.
Think about it, only one bidder wouldn’t give you access to many offers. More the bidders, the greater the returns.
- Hiring an investment banker would help
An experienced investment banker can go a long way in assisting the seller to curate optimal sales processes. Even better, the investment banker not only helps in setting up meetings with prospective buyers but also helps the seller manage buyer responses.
Whether an M&A project requires the preparation of a confidentiality or any other form of agreement, an investment banker can make these too.
Top merger and acquisitions firms in India face hindrances in M&A deals due to their inability to formulate an effective pricing structure. Investment bankers are adept in performing market research, market valuation, and then negotiating the seller’s expected price.
- Focus on Intellectual Property (IP) rights
Any kind of M&A deal would stress the seller of how his company’s innovation, information, and data would be used in the future. Make sure you set terms and conditions solely with respect to Intellectual Property rights.
A major concern is the usage of open source software by engineers and code developers. The inculcation of such actions opens the gates to a possible downfall in the licensing, ownership, and compliance fields on the buyer’s end. To eradicate this issue, the seller must perform an insightful technical replay of how the product was developed and resolve the open source software issues.
- Benefits to employees and collaborators must be re-analyzed
In the event of M&A deals, several employee benefits must be addressed and resolved to avoid future discrepancies. Make sure to set new terms, decide on how stock sharing will impact employers, decide which party will pay the cost for employee termination, etc.
Do employees need to sign new agreements due to the change in authorities post-successful completion of the M&A transaction? Do any retainer agreements need to be created for key employees? Figure out answers to all such questions before taking things further. Clarity is key.
- Merger & Acquisition transactions can take a long term to seal
Based on the urgency of the buyer and seller, the time period varies between 4 to 6 months. Adapting to the new working environment, setting new goals, nailing the competition, rejecting multiple bidders, etc. are a few time-chewers that come in the way.
Consider setting up an online data room. The seller can submit all vital corporate records, financial documents, employee contracts, patents, etc. in this room. The seller should also create a draft disclosure schedule at the early stages of the process.
Sellers must also anticipate the due diligence inquiry that the buyer’s side will perform. The process can be tedious and there are several moving parts involved if the company to be sold has not ceased operations yet.