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?
- Providing you better chances in securing corporate jobs
- Dealing with corporate clients for their works pertaining to M & A
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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