1. Merger & Acquisition
By Dr sheeba kapil

2. Framework for M&A:Due Diligence
Strategic Framework : Strategic due diligence
Legal Framework : Legal due diligence
Financial Framework : Financial due diligence

3. Strategic Framework :SDD
Why M&A?
When M&A?
Ascertain the Strategic fit between the acquirer & target.

4. Why M&A? Market access Eliminating competition Consolidation
Power play
Economies of scope
Economies of scale
Technology know-how
Cash reserves

5. Contd.. Hubris Increase in share price Lack of growth opportunities
Extension of product portfolios
Extension of business lines
Adding brands & intangibles
Diversification
Undervaluation

6. All reasons for M&A result in
Inorganic growth ‘g*’
Growth in EBIT
Growth in CFs
Growth in MPS
For the acquirer post M&A.

7. Inorganic growth ‘g*’
results in payment of AP by acquirer
AP- Acquisition premium
AP- Justified by synergy gains due to generation of added value derived from combination

8. Exception Diversification Does not create synergy gains
Results in stability of EBIT of the acquirer
Reduces business risk
Hence increases debt capacity for acquirer
AP should not be paid
If paid then only for time value of money

9. Exception Diversification AP should not be paid
If paid then only for time value of money

10. Undervaluation From the context of
MPS: market perception about the fundamentals of the firm
book value: intrinsic value of the firm reduces

11. Undervaluation AP is not justified
Acquirer should be able to identify undervalued firm
Cost of integration should be less than the
Benefit derived from undervaluation

12. Concept of contribution
HIGH FA- fixed assets
DOL- degree of operating leverage high
DFL- degree of financial leverage high
Business risk and financial risk high
Reduces risks
Large volume player 12

13. Why M&A?
To capture g* that translates into growth in value of the acquirer post M&A.
Hence acquisition premium paid to target for buying this g*.

14. STRAETIG DUE DILIGENCE M&A
WHEN M&A?
Difficult to decide?
Discretion of CEO?
Choice requires fundamental justification? 14

15. When M&A?
M&A is a one of the corporate restructuring tool to unlock value inherent in firms? 15

16. Corporate restructuring
Organizational restructuring
Financial restructuring
Portfolio restructuring 16

17. Organizational restructuring
Part and parcel of M&A exercise!
Can be exercised standalone!
Xerox post canon invasion into its market 17

18. Organizational restructuring
When vision and strategy of the firm changes
When structure drifts away from the existing strategy
Align the structure with the strategy 18

19. Financial strategy Any change in debt/equity ratio
Capital structure alters
Can be done stand alone!
Part and parcel of M&A!
(LBO, r-LBO, MBO, equity financing ) 19

20. Portfolio restructuring
Change in asset portfolio
Change in portfolio of business lines 20

21. Portfolio restructuring
M&A
Strategic alliance
Sell offs
liquidation
Choice of M&A over strategic alliance subject to VARIOUS REASONS! 21

22. M&A one of the tools for portfolio restructuring
Selection of M&A over other tools should be carefully structured! 22