MERGERS AND ACQUISITIONS What is meant by Mergers

MERGERS AND ACQUISITIONS

What is meant by Mergers and Acquisitions? � A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed. Merger Acquisition

Difference Between Mergers and Acquisitions Mergers Acquisitions Merging of two organisations into one Buying one organisation by another It is a mutual decision It can either be a friendly turnover or a hostile turnover They are more expensive as the legal cost involved is high Acquisitions are relatively cheaper It is time consuming and the company has to maintain many legal issues It is faster and an easier transaction Dilution of ownership occurs in merger The acquirer does not experience the dilution of ownership

Considerations to be taken into account while companies opt for Mergers and acquisitions � Company must be willing to take risk, and make investment early-on to benefit fully from the merger, competitors and the industry takes heed and start to merger or acquirer themselves . In order to reduce and diversify risk, multiple bets must be made, since some of the initiatives will fail, while some will prove fruitful. � The management of the acquiring firm must learn to be resilient, patient and able to emulate change owing to everchanging business dynamics in the industry. �

Different Types of Mergers Horizontal Merger • When two companies merges together which offers the same product lines and services to the final customer, which means that it is in the same industry and the same stage of production. • It helps in achieving economies of scale and also encourage cost efficiency. Vertical Merger • Vertical mergers is done with an aim to combine two companies that are in the same value chain of producing the same good and service, but the only difference is the stage of production at which they are operating. • They help in ensuring the secure supply of essential goods and avoid disruption in supply • They also help in cost saving and a higher margin of profit, since the manufacturer’s share is eliminated.

Concentric Merger • It takes place between firms that serve the same customers in a particular industry, but they don’t offer the same products and services. Their products may be complements , product which go together, but technically not the same products. • They are usually undertaken to facilitate consumers, since it would be easier to sell the product together. • It helps the company to diversify, hence leading to higher profits. Conglomerate Merger • When two companies that operate in completely different industry , regardless of the stage of production, a merger between both companies is known as Conglomerate Merger. • This is usually done to diversify into other industries, which helps reduce risks.

Reverse Merger • It allows a private company to go public while avoiding the high cost and lengthy regulations associated with Initial Public Offer • A private company merges with an existing public company, which may be a “Shell Company”, install it’s own management and takes all the necessary measures to maintain the public listing • . For example, portable digital device-maker Handheld Entertainment did this when it purchased Vika Corp in 2006, creating the company known as ZVUE. Accretive Merger • When one company acquires another company and the transaction increases the first company’s earning per share. • The earnings of the target company add market value to the acquiring company • Hewlett-Packard announced a merger with services company EDS in 2008, but said that the deal would become non-GAAP accretive in 2009 and GAAP accretive in fiscal year 2010. Dilutive Merger • A merger in which the acquirer company’s earning per share decreases. • Entering into a dilutive merger is not necessarily bad , transactions that are initially dilutive may create value over time , such as when a low growth company purchases a high growth company • Copper mining company Phelps Dodge entered a dilutive merger with Canadian nickel miners Inco and Falconbridge in 2006.

Benefits of Mergers and Acquisitions Greater Value Generation Cost efficiency through achieving economies of scale Revenue Enhancement through market share gain

Mergers and Acquisitions are also beneficial in the following cases: � When a firm wants to enter a new market � When a firm wants to introduce new products through research and development � When a forms wants achieve administrative benefits � To increased market share � To lower cost of operation and/or production � To gain higher competitiveness � For industry know how and positioning � For Financial leveraging � To improve profitability and EPS

Mergers and Acquisitions of Indian Companies in 2015 � Anil Ambani’s Mumbai based Reliance Infrastructure acquires India’s largest ship building and heavy industries company Pipavav Defence and offshore Engineering Company Ltd � Bengaluru based online cab aggregator Ola Cabs acquires Taxifor. Sure � Rupert Murdoch owned Newscorp inc acquires VCCircle Network � Mumbai based Star India Pvt ltd owned by 21 st century Fox acquires Screenentertainment weekly from Indian Express Group � German speciality chemicals manufacturer Evonik Industries AG acquires Mumbai based catalyst supplier Monarch Catalyst Pvt Ltd � Thomas cook owned Quiz Coro Ltd acquires Indian arm of American MNC Aramark(Hospitality and healthcare facility management) � New Delhi based online marketplace Snapdeal acquires Exclusively. com � Star India acquires telugu language based MAA network

� Book. My. Show acquires Bangalore based Eventifier Malaysia based Foodpanda acquires food ordering portal Just Eat India � New Delhi based online restaurant based Zomato buys Turkish rival Mekanist � � Kolkatta based FMCG company Emami Ltd acquires Australian personal care firm Fravin Pty Ltd � Temasek Holdings Pte Ltd, the Singapore govt’s investment arm acquires Punj Llyod stake in Medanta super speciality hospital owned by Global Health Pvt Ltd � Mumbai based Piramal MNC’s Piramal Enterprises Ltd acquires Coldstream Laboratories Inc � Hike, messenger app by a Joint Venture of Bharati enterprises and Soft. Bank acquires US-based Zip Phone � Mumbai based conglomerate’s division Godrej Consumer Products Ltd acquires South Africa’s Frica Hair (Pty) Ltd � Chennai based hospital chain, Apollo Hospital acquires Nova Speciality

Recent Developments Global mergers and acquisitions hit all-time high in 2015 at $4. 86 trillion: Dealogic report � NEW DELHI: The 2015 was a record year for global merger and acquisitions (M&A) as corporates announced deals worth USD 4. 86 trillion and a significant portion of this came from Asia Pacific targeted deals, says a report. � According to global deal tracking firm Dealogic, global M&A volume at USD 4. 86 trillion in 2015 was the highest on record for any year, surpassing the previous record of USD 4. 61 trillion in 2007.

� Moreover, this year's total is a good 33 per cent higher than the last year. � In another first, the Asia Pacific targeted M&A broke the USD 1 trillion mark, reaching USD 1. 16 trillion in 2015, and accounted for a record 24 per cent share of global M&A. � Sector wise, healthcare was the top ranked sector in 2015 with USD 708. 7 billion, up 62 per cent from 2014 when deals worth USD 436. 3 billion were announced. � Technology was a close second with record high volume and activity (USD 697. 4 billion by way of 9, 038 deals), almost double 2014 volume (USD 326. 1 billion). � The four largest technology deals on record were all announced in 2015, led by Dell's USD 66 billion bid for EMC, announced on October 1. � Meanwhile, Goldman Sachs (USD 1. 76 trillion), Morgan Stanley (USD 1. 49 trillion), JPMorgan (USD 1. 48 trillion) and Bank of America Merrill Lynch (USD 1. 12 trillion) all recorded their highest annual advisory volumes on record. � All these firms surpassed their previous M&A records set in 2007, the report added.

2015 in review: Mergers and acquisitions peak in pharma industry; so does regulatory glare Facing an increasingly watchful eye of the health regulator in the US, Indian pharmaceutical firms are gearing up to tap new markets in 2016 as they look to consolidate their positions after a spate of mergers and acquisitions consummated this year. � Globally also, it remained a year marked with record mergers, led by the USD 160 billion deal between Viagra maker Pfizer Inc and Botox manufacturer Allergan �

It wasn't Pfizer's only deal -- the US giant also bought Hospira Inc, a leading provider of injectable drugs, infusion technologies and biosimilars, in a USD 17 billion deal. � Indian firms, including Sun Pharma, Cipla and Lupin, took the acquisition path in their quest for international footprint expansion. � The biggest acquisition by an Indian firm in 2015 was by Lupin which agreed to pay USD 880 million (over Rs 5, 610 crore) to take control of US-based Gavis. Drug major Sun Pharma also inked deal of over USD 48 million to acquire US-based eyecare firm In. Site. � Another homegrown pharma major Cipla also paid USD 26 million (around Rs 166 crore) upfront to acquire majority stake in Uganda's Quality Chemicals. �

� Almost an year after announcing a USD 4 billion deal, Sun Pharma completed the merger of Ranbaxy with itself. The deal fortified Sun's position as the world's fifth largest specialty generic pharmaceutical firm and the top ranking Indian pharma company with significant lead in market share. � In contrast, Japanese drug maker Daiichi Sankyo sold its entire stake of around 9 per cent in Sun Pharma for over Rs 20, 420 crore, which it had received after merger of Ranbaxy with the Indian firm, ending its seven years of tumultuous experience in the country

L Capital plans to sell stake in Fabindia The private equity arm of Louis Vuitton Moet Hennessy is planing to sell its stake in ethnic wear retailer Fabindia Overseas, � A report says that L Capital is targeting $100 mn (Rs 660 crore) for 8% holding in the unlisted Indian company. � The size of the deal has not been disclosed yet. � L Capital acquired stake in 2012 from Wolfensohn Capital Partners for Rs 150 crore. �

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