Mergers

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Mergers Acquisitions

• Shaping up for a Deal

Raghunath T.V Executive Director Co-Head,
Investment Banking Services
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Objectives

• Discuss some of the important elements of MA
  deals from a practical standpoint

No amount of theorising or generalisation can
capture all the dynamics involved in a MA
transaction
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MA is all about..
VALUE CREATION
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The Synergy Matrix
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Winning Tactics of Buyers

• Pricing
• Comprehensive assessment of Value TO me incl.
  synergy values
• Pre-assessment of post-acquisition corporate fit
• Approach / appeal to target and staff
• People and culture matters
• Awareness of other bidders strengths and
  weaknesses
• Experienced MA team
• Integration considerations

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Winning Tactics of Sellers

• Targeting the right buyer
• Optimum value extraction
• Not losing a deal for a few dollars more
• Getting the time right
• Keeping operational focus during transaction
  (Value preservation)
• Experienced MA team
• Culture and people matters
• Auction vs bilateral
• Exclusive vs parallel negotiations

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Structuring

• One of the most crucial elements of a MA
  transaction
• Yet unfortunately not adequately appreciated
• Objective of structuring a transaction is to
  optimise / maximise achievement of interests of
  all concerned parties, in full compliance with
  the law
• Example Grasim LT transaction

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The Need for Structuring

• Synchronising the interests of each party
• Seller may want initial payment maximisation
• Buyer may want risk minimisation
• Transaction costs - Leakages
• Business considerations
• Capital structure, financing needs, etc.
• Government policy regulations
• Sectoral caps on FDI
• Takeover code
• Quite often the structure of a transaction can be
  very critical to the conclusion of the deal
• Examples

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Structuring of Consideration

• Typical variables
• (Initial) Sale consideration
• Deferred/annual payments depending on performance
  (such as royalty)
• Pricing of any subsequent exit (Put Option)
• Management compensation, non compete, etc
• Selling/purchase price of the products
• Committed dividends
• Sharing of transaction costs, etc.

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Structuring Dynamics

• Impact Areas
• Transaction costs
• Income Tax
• Stamp duty
• Regulatory compliance
• NPV of consideration
• Control
• Time

Structure
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Transaction SupportEnsuring Value Creation at
all stages
Transaction Business Scope
Consideration
Transaction Structure
Management
Funding Structure
Warranties
Closing Arrangements
Strategic Business Need
Transaction Elements
Process
Target Search
Target Cultivation
Business Evaluation
Financial Evaluation
Preliminary Offer
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Transaction SupportEnsuring Value Creation at
all stages
Transaction Business Scope
Consideration
Transaction Structure
Management
Funding Structure
Warranties
Closing Arrangements
Negotiations
Transaction Elements
Process
MoU
Due Diligence
Risk Assessment
Definitive Agreement
Implement
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Transaction SupportEnsuring Value Creation at
all stages
Transaction Business Scope
Consideration
Transaction Structure
Management
Funding Structure
Warranties
Closing Arrangements
Strategic Business Need
Transaction Elements
Process
Target Search
Target Cultivation
Presenting the Story right
Business Evaluation
Financial Evaluation
Mitigating contingent risks
What is the fair EV Walk-Away
LBO vs Equity
Regulatory compliance check / solutions
Preliminary Offer
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One for the road
MA deals are a means to an end do NOT lose
sight of the end
Keep Questioning the Principal Motivation Create
Value
Value Creation happens thru numerous elements,
not just price
Structuring is as critical as, if not more than,
other facets like valuation
Transactions are entered into in Good Faith
Agreements protect you when that is breached