Guru Jambheshwar University of science and technology

Haryana School of Business.

SESSION 2019-2021.
SEMINAR TOPIC:-Mergers &
Acquisition

SUBMITTED TO:- SUBMITTED BY:-

SONIA
1901010100
M.B.A (I.B)
 Content
∆ introduction
∆ Theme
∆ Types of merger
∆ Example of M&A
∆ Strategies Behind M&A
∆ Acquisition introduction
∆ Process of Acquisition
∆ Reasons for making Acquisition
∆ Strategic tactics in M&A
∆ Motives & Benefits of mergers
∆ Accounting for M&A
∆ The implementation process
∆ Conclusion
 Introduction

 Mergers & Acquisitions are common way

companies try to grow quickly
 Unfortunately, more than 50% of merge
fail

 Mergers & Acquisitions need to be part

of an overall strategy, otherwise they w
likely fail
 Theme

Successful M&A
integration requires that
you plan before M&A
integration starts

Merger - transaction that results in a wholly new firm

Acquisition - transaction in which one firm is absorbed by
another
 Mergers & Acquisitions

 Merger: a strategy through which two

firms agree to integrate their
operations on a relatively co-equal
basis
 Acquisition: a strategy through which
one firm buys a controlling interest in
another firm with the intent of making
the acquired firm a subsidiary business
within its own portfolio
A merger is a transaction that results in
the transfer of ownership and control
of a corporation.

 Merger
A transaction where two firms agree to integrate
their operations on a relatively coequal basis
because they have resources and capabilities
that together may create a stronger competitive
advantage
 the 2 firms combine all assets & liabilities

 Acquirer = target

 Usually take a new name

JP Morgan/Chase Manhattan becomes JP Morgan Chase

 Target firm shares disappear
 Target shareholders get either
1) Shares in new firm
2) Cash

Exchange Ratio = # shares in new firm

given for each share of Target firm
 Ex) # target = 250 million & ER = 1.25
# New = 1.25 x 250 M = 312.5 M

 Buyer firm shares are kept as shares in

new firm ( in effect their ER = 1).
 3 Types of Mergers

Economists distinguish between

three types of mergers:
1. Horizontal
2. Vertical
3. Conglomerate
 Horizontal Mergers

A horizontal merger results in the

consolidation of firms that are direct
rivals—that is, sell substitutable
products within overlapping
geographic markets.
 Vertical Mergers

The merger of firms that

have actual or potential
buyer-seller relationships
 Conglomerate Mergers

Consolidated firms may sell related

products, share marketing and distribution;
or they may be wholly unrelated channels
and perhaps production processed.

• Product extension conglomerate

mergers involve firms that sell non-
competing products use related
marketing channels of production
processes.
 • Market extension conglomerate
mergers join together firms that sell
competing products in separate
geographic markets.

• A pure conglomerate merger unites

firms that have no obvious
relationship of any kind.
MERGER AND ACQUISITIONS EXAMPLES
DIFFERENT FORMS
HORIZONTAL MERGER : COMPETING IN SIMILAR BUSINESSES
IN SAME MARKETS

VERTICAL MERGER : A SORT OF VERTICAL INTEGRATION

MARKET-EXTENSION MERGER : SELLING SAME PRODUCTS IN
DIFFERENT MARKETS

PRODUCT-EXTENSION MERGER : SELLING DIFFERENT BUT

RELATED PRODUCTS IN SAME
MARKET
 Integration Growth Strategies

VERTICAL INTEGRATION
Toward the Source of Supply

Backward

HORIZONTAL
INTEGRATION Similar
Businesses
Acquired

Forward

Toward the Customer

STRATEGIES BEHIND M&A

• REDUCE COMPETITION
• COST EFFICIENCY
• AVOID BEING A TAKEOVER TARGET
• IMPROVE EARNINGS AND REDUCE SALES VARIABILITY
• MARKET AND PRODUCT LINE ISSUES
• ACQUIRE RESOURCES
• SYNERGY
• TAX SAVINGS
• CASHING OUT
 Acquisition

A transaction where one firm buys another firm

with the intent of more effectively using a core
competence by making the acquired firm a
subsidiary within its portfolio of businesses
Acquisition Integration-Defin

in∙te∙gra∙tion (ĭn´tĭ-grā´shən) n. 1620

The act of forcing two different groups, commonly

opposed to each other, to unite or battle until one
[typically the seller] wears down and the other
[typically the buyer] rises in triumph and moves on
to the next deal.
Acquisition Integration-
Process
 Appoint an Integration Team
 Learn the Business
 Develop a Detailed Integration Plan and Timetable
 Implement Change Promptly
 Communicate Strategy and Market the Strengths of the
Combined Organization
 Monitor the Progress
 Reasons for Making Acquisiti

Learn and develop

new capabilities
Increase Reshape firm’s
market power competitive scope

Overcome Acquisitions Increase

entry barriers diversification

Cost of new Lower risk compared

product development to developing new
Increase speed products
to market
 Mergers & Acquisitions

Merger
A B = AB

Acquisition/Takeover

A B = A
 Reasons for Making Acquisitions:
Increased Market Power
 Factors increasing market power
 when a firm is able to sell its goods or services above
competitive levels or
 when the costs of its primary or support activities are
below those of its competitors
 usually is derived from the size of the firm and its
resources and capabilities to compete
 Market power is increased by
 horizontal acquisitions
 vertical acquisitions
 related acquisitions
Reasons for Making
Acquisitions:
Overcome Barriers to Entry
 Barriers to entry include
 economies of scale in established competitors
 differentiated products by competitors
 enduring relationships with customers that create
product loyalties with competitors
 acquisition of an established company
 may be more effective than entering the market as a
competitor offering an unfamiliar good or service
that is unfamiliar to current buyers
 Cross-border acquisition
 Reasons for Making
Acquisitions:
Cost of New Product Development and Increased
Speed to Market

 Significant investments of a firm’s resources

are required to
 develop new products internally
 introduce new products into the marketplace
 Acquisition of a competitor may result in
 lower risk compared to developing new products
 increased diversification
 reshaping the firm’s competitive scope
 learning and developing new capabilities
 faster market entry
 rapid access to new capabilities
 Reasons for Making
Acquisitions:
Lower Risk Compared to Developing
New Products

 An acquisition’s outcomes can be

estimated more easily and accurately
compared to the outcomes of an internal
product development process
 Therefore managers may view
acquisitions as lowering risk
 Reasons for Making
Acquisitions:
Increased Diversification
 It may be easier to develop and introduce
new products in markets currently served
by the firm
 It may be difficult to develop new products
for markets in which a firm lacks experience
 it is uncommon for a firm to develop new
products internally to diversify its product lines
 acquisitions are the quickest and easiest way to
diversify a firm and change its portfolio of
businesses
Reasons for Making
Acquisitions:
Reshaping the Firms’ Competitive Scope

 Firms may use acquisitions to reduce

their dependence on one or more
products or markets
 Reducing a company’s dependence on
specific markets alters the firm’s
competitive scope
 Reasons for Making
Acquisitions:
Learning and Developing New Capabilities

 Acquisitions may gain capabilities that

the firm does not possess
 Acquisitions may be used to
 acquire a special technological capability
 broaden a firm’s knowledge base
 reduce inertia
 Strategic Tactics in M&A

 Grow market share quickly (market penetration)

 Improve the use of cash on-hand
 Provide additional products for existing customers
(product development)
 Recruit hard to find personnel
 Expand into new markets (market
development/diversification)
 Gain control of brands
 Access to distribution channels
 Widen the organization’s product range
 Gain access to new technology
 Economies of scale
 Motives & Benefits of Merger

 Limit competition
 Utilise under-utilised market power
 Achieve diversification
 Gains economies of scale and increase income with
proportionately less investment
 Overcome the problem of slow growth and
profitability in one’s own industry
 Displace existing management
 Synergy
Accounting for M & A

 Merger & Acquisition involves a complex accounting

treatment.
 A merger defined as amalgamation in India, involves
the absorption of the target co.
 The merger should be structured as Pooling of
Interests Method.
 The acquisition should be structured as a Purchase
Method…
Accounting for M & A

 Pooling of Interests Method:

 The Balance Sheets and Profit & Loss Accounts
items are combined without recording the effect
of merger. This implies that assets and liabilities
of the acquiring and acquired firms are added at
its book-values without making any adjustments.
 Purchase accounting is generally used under
other financing arrangements…
 Accounting for M & A

 Purchase Method:
 The assets and liabilities of the acquiring firm after
the acquisition of the target co. are adjusted for the
purchase price paid to the target co. the assets and
liabilities are revalued. If the acquirer pays a price
greater than the fair market value of the assets and
liabilities, the excess amount is shown as goodwill in
the acquiring co.’s books. Or otherwise as capital
reserve.
 The Implementation process
1. Communicate goals and objectives (1/2 day)
To make sure everybody understands why the organisations
merge and what is going to be achieved; Drafting of the
integration plan
2. Identify key opportunities and challenges (1/2 day)
How can we synergize from bringing the organisations
together and which problem we may face. Will our corporate
and national cultures work together?
3. Concerns about the Future (1/2 day)
To identify the demotivating factors for integrating. Reducing
people’s fear is essential in successful integration.
4. Cultural differences (1/2 day)
What is culture and why are we different and how do we deal
with this diversity. In which areas will we accept diversity and
in which areas will we not?
5. Prepare for change - networking (2 days)
A 2 day course, where the employees will improve their self-
confidence and learn to seek opportunities outside their usual
network
Workshops with people from both companies

6. How do we succeed - Quickwins (1 day)

Groups of people from both companies will identify
quickwins that can serve as models for the ongoing
integration process. The results of the organisational
effectiveness analysis is used as input.
7. Prioritise management issues in the integration process (1/2 day)
The groups identify key areas for the management to focus
on based on the current work and the results of the analysis.
8. Follow up and adjust integration plan
Assess the current plan and make the necessary
adjustments.
The Implementation process

Company A Company B

Communicate goals Communicate goals

and objectives and objectives
Identify key opportunities and Identify key opportunities and
challenges challenges
Concerns about the future and the other Concerns about the future and the other
company company
How to deal with cultural differences How to deal with cultural differences
Preparation for change Preparation for change

Learn how to network Learn how to network

How do we succeed? Consolidation
Quickwins (what can we do right now)
Identify key focus areas for
Results of management in the transition process Results of
organisation Agree on action plan organisation
effectiveness effectiveness
assesment assesment

Follow up and adjust action plan

 Reference
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