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Introduction to Mergers & Acquisitions of Companies in India

Where could I do a certificate course in company Mergers and Acquisitions laws?

How a law course in mergers and acquisitions can help me?

Career in Mergers and Acquisitions:

Ø  Corporate Lawyer

Ø  Counsel / Attorney

 

Closely Associated Professionals:

Ø  CAs

 

Relevance of CAs and Lawyers regarding M & A

CAs and lawyers both are involved in M & A to who the clients resort. While CAs are more concerned with accountancy, lawyers are more concerned with court presentations.

 

What are corporate mergers?

Mergers

Merger is amalgamation of 2 or more business entities which may have any business constitution like partnership, or company such that the owners of the old entities are now owners of the newly formed entity after the combination or amalgamation of the former entities. E.g.:

1.        PVR - INOX Merger

2.        HDFC LTD - HDFC BANK Merger

3.        Microsoft - Activision Blizzard

4.        Moj - MX TakaTak

 

 What are the different types of company mergers?

Types of Mergers

q  Vertical Merger: Involved parties / businesses involved in same type production but at different stages. E.g. Merger between Zee Entertainment Enterprises Limited Ltd. (ZEEL), a broadcaster, and Dish TV India Limited, a distribution platform operator is an example of vertical merger where both the entities are at different stages of the production / supply chain.

q  Horizontal Merger: Parties / Businesses are in same line of business and may be competitors. E.g. Merger of Vodafone India and Idea Cellular Limited, 2 telecommunication companies.

q  Congeneric Merger: A merger between two parties that are somehow related to each other with no mutual buyer or supplier relationship. E.g. Merger between Thomas Cook India Limited and Sterling Holiday Resorts (India) Limited is an example of a congeneric merger as both the companies were involved in the tourism industry but their customer-bases and process chains were unrelated.

q  Conglomerate Merger: Parties operate in different lines of businesses.

q  Cash Mergers: A kind of merger where shareholders get cash instead of shares of the merged entity.

q  Forward Mergers: When an organization decides to merge with its buyers.

q  Reverse Mergers: When an entity decided to merge with its suppliers of raw material.

q Market-extension merger
A market-extension merger is a merger between companies that sell the same products or services but operate in different markets. The object of a market-extension merger is to gain access to a larger market and thus ensure a larger customer base. E.g. Merger between Mittal Steel and Arcelor Steel, a Luxembourg-based steel company, is an instance of market-extension merger.

q Product-extension merger
A product-extension merger is a merger between companies that sell related products or services and operate in the same market. It is notable that the products and services of the merging companies are not the same, but they are relevant. E.g. This type of merger is not prominently visible in India. However, a classic example of such merger is PepsiCo's merger with Pizza Hut. Both companies worked in the same sector i.e., food and beverages industry, and sold related but not the same products.

                       

 What are acquisitions?

Acquisitions

Under acquisition, a company acquires other company or companies and the previous company is now known by the name of the company which has acquired it.

The company which acquires is called acquiror and the company that acquires is called acquiree. E.g.:

1.        Elon Musk - Twitter

2.        Tata Group - Air India

3.        Adani Group - NDTV

4.        Zomato - Blinkit

 

 

 What are the purposes of Mergers and Acquisitions?

Objectives of M & A

q  Growth: Growth obviously takes place due to any merger or acquisition due to increased business of the uniting companies.

q  Market Exploitation: The resulting market can be exploited due to fewer operators who may be in a position like monopoly.

q  Acquiring Specific Factors: There may be specific factors like skilled employees, patent technologies, copyrights, etc. including goodwill of the merging companies or the acquired company.

q Tax: M&A can sometimes lead to tax benefits if the target company is in a strategic industry or a country with a favorable tax regime. Further, acquiring a company with net tax losses enables the acquiring company to use the tax losses to lower its tax liability.

q  Govt. Policies Compliance: Sometimes government policies may require merger mandatorily (e.g. Government imposing additional duty of certain types of companies and such company may acquire or merge with company which already carries out such duties and already possess a setup for it) or may be voluntarily to secure certain benefits (e.g. There may be a lower limit on turnover for applying for some governmental benefits and when entities get together may be in a position to create cumulative turnover to satisfy the requirement.)

q  Diversification: To diversify into other field or segments of the same field requires a lot of factors of production to be accumulated which is time consuming and may create competition. This situation is easily overcome by merger or acquisition.

           

 

M & A   vs   Partnership & JV

Stage: M & As can only be at a later stage while Partnership and JVs can be since inception.

Ease: M & As are harder to carry out while Partnerships and JVs are much easier to establish.

Joint ventures do not give rise to a fully distinct entity as JV is only for a specific time period or for some specific purpose of the whole entity and not all objectives of the entities forming JV. The entire entities do not become one. So, in case where the entities do not wish to become 1 may form a JV temporarily and who wish to become with a newer company existence may resort to merger or acquisition.

 

 

 

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