What is Merger and Acquisition?
Transactions that entail joining two or more organizations into one are known as mergers and acquisitions. A merger is the coming together of two or more entities into one. An acquisition is a procedure wherein a business buys another corporation in order to expand its financial and technological capabilities. In a normal merger situation, there will be two or more firms involved in the transaction. However, the following parties are involved in an acquisition scenario:
The purchaser may also be referred to as the acquiring company or purchasing entity.
The Seller -
The seller is also known as the acquired company, or in case if the seller has a subsidiary, the subsidiary is being acquired by the buyer.
The firm that the buyer is purchasing is known as the target company. The target is frequently one of the seller's subsidiaries or perhaps the seller itself. There is no buyer, seller, or goal in a merger deal because both sides have resources to contribute. Domestic mergers and cross-border mergers are two terms used to describe mergers and acquisition services that take place within the United States. Cross-border mergers and acquisitions are complicated transactions with several stakeholders involved. These parties employ outside advisors, including risk consultants, investment bankers, and attorneys.
The Companies Act of 2013 defines mergers in India as the joining of two or more businesses for mutual benefit, scale advantages, and synergies. Mergers and acquisitions were not defined in the earlier Companies Act of 1956.
Overview of Mergers and Acquisitions Services
In the year 2000, globalization made India a target for international businesses. India has become a major center for mergers and acquisitions worldwide due to rising investment. The M&A environment in India has improved as growth and digitalization have increased.
The year 2015 was seen as favourable for mergers and acquisitions. This stage now spans the years 2015 through 2019. The Insolvency and Bankruptcy Code's introduction has increased attention on the distressed assets of businesses.
More than 3000 transactions totalling more than USD 300 billion have been a result of M&A activity globally. The Walmart acquisition of Flipkart, which enhanced the latter company's storage capabilities, is one instance of a top-notch merger and Acquisition.
Types of Mergers
Based on categorisation, mergers may be separated into the following categories:
The parties to this merger are engaged in a transaction at various stages of the manufacturing cycle. In this type of merger, companies are involved in many industries. The merging of a beverage firm with a manufacturer of bottles is a classic example. Their combined resources can result in a variety of synergies for the newly created firm.
Companies that are present on the same production cycle line are said to have merged horizontally. The firms would offer comparable goods and services. For instance, if two legal companies merged, they would provide clients with comparable services.
The participants in this type of transaction are engaged in completely unrelated industries and cycles of production. The firms' offered goods and services have no connection to one another. A common illustration of this is when a company that makes cars joins with a company that makes software.
Although the production procedures may change in this type of transaction, the final consumer would be the same. A merger between a mobile phone business and a hardware provider of touch screens for mobile phones would be a classic illustration of this.
Congeneric mergers resemble horizontal mergers in several ways. The parties involved in congeneric mergers are connected to one another.
In a cash merger, the promoters or shareholders of the firm receive a cash payment in exchange for the merger.
In a reverse merger, the company merges with a company that supplies raw materials or capital goods.
Types of Acquisitions
Following are the types of Acquisition:
The exchange of shares for the target firm by the buyer and seller is known as a share sale. In a normal share sale deal, the target company's whole share base is bought. The buyer receives all of the company's resources, employees, intellectual property rights, and other assets.
The buyer would only purchase a certain asset from the seller or the target firm in an asset sale deal. Due to the buying company's cherry-picking advantage, this benefits the buyer. The asset may be left alone if the buyer does not desire a certain item in the target.
Objectives of Mergers and Acquisitions Services
The following justifications are used to carry out mergers and acquisitions services:
- Competitors today want to unite in order to gain from the merger rather than risk a chance.
- Economies of Scale.
- Economies of Scope.
- Due diligence is carried out less frequently because of merger and acquisition services. A third-party organization or an external consultant often conducts the due diligence survey. A company must spend their time and money hiring an internal staff to perform due diligence. An external consultant, such as an accounting firm, consulting firm, legal firm, or investment bank, therefore, performs due diligence on the target company.
- Complex merger-related transactions necessitate cooperation between several stakeholders. Government agencies, law companies, investment banks, consulting firms, technology businesses, and audit firms are some of the stakeholders engaged in mergers and acquisitions. As a result, businesses need mergers and acquisitions services.
- Before completing a merger or acquisition deal, professional counsel is necessary.
The significance of providing merger and acquisition services
Services for mergers and acquisitions are performed to give businesses the extra benefit of service assurance. Businesses that combine must be certain that the deal is advantageous. Additionally, they must coordinate the transaction with the company's long-term objectives and ambitions. A number of stakeholders are engaged in the intricate M&A process. Therefore, it is essential to hire qualified experts to do mergers and acquisitions services.
Law that Applies to Services for Mergers and Acquisitions
Different regulatory regulations would be applicable for a merger because M&A is a complicated process.
The laws listed below would be applicable in a normal M&A scenario:
In India, mergers and acquisitions are governed under the Companies Act 2013.
Recognized stock exchanges list companies. The Securities Exchange Board of India must get registration from every firm wishing to list its securities on the stock exchange (SEBI). The SEBI Takeover Code (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, is the securities regulation that oversees mergers and acquisitions.
Income Tax Law
Asset sales would be governed by income tax legislation, including capital gains tax that is due when assets are transferred from one corporation to another. Income tax laws would be relevant even for the transfer of shares between companies. For all M&A transactions in India, the Income Tax Act 1961 would be in effect.
The relevant competition authorities will make sure that the combination doesn't hurt existing Indian enterprises. India's regulating agency for problems pertaining to competition is the Competition Commission of India (CCI). The Competition Act of 2002 is the law in India that governs antitrust.
Foreign Exchange Law
The requirements of foreign exchange legislation would also apply if the transaction was international.
Procedure for Mergers and Acquisitions
The following is the normal merger and acquisition procedure:
Drafting Term Sheet
In a standard merger and acquisition procedure, this is the first phase. The letter of intent is another name for the term sheet. This term sheet, also known as a letter of intent, only states the parties' intention to proceed with the merger and acquisition transaction. It is comparable to the rules and regulations of a certain procedure. Term papers must be exchanged between the buyer and seller of the merger transaction. The parties would talk about their aim and main goal.
Recruiting Third-Party Consultants
The parties must retain professionals to help them with merger and acquisition services.
Purchase Price of the Transaction
The parties to a private acquisition transaction—where the buyer and seller must agree on a purchase price—would be involved in this. The parties would also consider the payment method (cash or shares). The parties would also discuss the price method. The following pricing mechanisms are available to the parties in a merger and acquisition deal:
- Lock Box Method
- Completion Accounts Methods
Negotiation of Employee Contracts
Employees of the combined firm or the target company may have contracts, depending on the kind of transaction in mergers and acquisitions services. Directors' service contracts would also be present. Employee contracts and non-compete terms should be revised and altered, according to the expert offering mergers and acquisitions services.
Warranties and Guarantees
The buyer should confirm that the target company or seller has provided warranties in a challenging merger and acquisition deal. The parties must agree during the first consultation session that all guarantees are truthful and accurate to the seller's knowledge. The buyer may bring a breach of contract claim against the seller if there is any misrepresentation or violation.
Clauses on Exclusivity
The exclusivity provision in the merger agreement forbids the seller from soliciting further Acquisition or merger bids. It is a remedy that the buyer may utilise if the seller continues to invite more offers.
Terms of Confidentiality
Information is shared between parties in a complicated merger transaction. The seller must provide the buyer with all pertinent information in the Initial Information Questionnaire. In addition, confidentiality agreements between the buyer and seller must be signed to prevent the disclosure of customer and personnel information.
A third-party consultant's due diligence involves researching the target or merging firms. The third-party consultant must give the buyer a detailed due diligence report on the merger or acquisition deal.
Post Completion Work
The independent consultant will see to it that the parties follow through after completion.
Our Mergers and Acquisitions Service will handle all the processes and deliver the best service to the entity to enable a smooth transition to the targeted company. The service will include providing relevant advice and handling
Documents Required for Mergers and Acquisitions Services
Our Mergers and Acquisitions services will handle all the documentation process and draft the following documents required for M & A arrangement:
- Incorporation documents- Buyer and Seller- Memorandum and Articles of Association.
- Term Sheet.
- Process Letter.
- Due Diligence Questionnaire.
- Employment Contracts.
- Non-Disclosure Agreements.
- Any other relevant documents
Services for mergers and acquisitions offered by Enterslice
- A reputable management consultant in offering Mergers and Acquisitions services is Enterslice.
- Mergers and Acquisitions Services have been carried out by Enterslice professionals with the main goal of enhancing the value of your company.
- We have multifaceted teams of experts, including attorneys, company secretaries, Chartered Accountants, and IT specialists.
- We have a great deal of expertise with merger-related, tax-related, and accounting-related issues in India.