{"id":30929,"date":"2020-04-17T15:32:08","date_gmt":"2020-04-17T10:02:08","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=30929"},"modified":"2020-11-19T18:29:07","modified_gmt":"2020-11-19T12:59:07","slug":"analysis-of-mergers-and-acquisitions","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/analysis-of-mergers-and-acquisitions\/","title":{"rendered":"Analysis of Mergers and Acquisitions"},"content":{"rendered":"

A merger can be understood as a combination of two or more\nentities.<\/strong>  This term is synonymous\nwith the other terms that are used in day to day business. Some of the terms used in the business world are amalgamations,\narrangements, and combinations.<\/strong> Though these terms are used in business,\nthe meaning which they bring about is the same. Mergers take part in everyday\nbusiness and are not just limited to companies that are private and public.\nThey happen in partnerships, trusts, and even proprietorship concerns. Therefore, the merger market<\/a> is not only\nlimited to companies, but also apply to all forms of business structures.<\/strong> <\/p>\n\n\n\n

Companies merge to combine their collective strengths to compete in the market. Hence a merger is beneficial for a business. However, there can be various issues related to a merger. Such issues can arise in the pre-completion phase of the merger or post-completion phase of the merger. The parties that are involved in a merger transaction have to keep in mind various factors that affect the transaction. Some of these factors may be legal, financial, market, pricing, and competition factors.  <\/strong>During a merger transaction, there has to be proper coordination between government authorities, financial institutions, lawyers, accountants, and the benefactors of the merger. Hence before there is a merger or acquisition, there has to be proper broad-based understanding of the analysis of mergers and acquisitions<\/em><\/a><\/strong>.<\/p>\n\n\n\n

History of Mergers and Acquisitions in India: Analysis of\nMergers and Acquisitions<\/strong><\/h2>\n\n\n\n

Before going to\nthe analysis of mergers and acquisitions, it is significant to understand the\nhistory of Mergers and Acquisitions in India. \nIn the colonial era, there was the establishment of the East India\nCompany, which had monopoly and control in the Indian markets. There was a\nrequirement of taking permission during this time for forming companies. After\nthe Second World War and post-independence, the merger market has evolved.  The Indian government has brought out various\nlaws and regulations that required the nationalization of multiple companies.\nThis step brought out a reduction in the number of public companies that were\noperating in India.<\/p>\n\n\n\n

Some of the sectors, such as Insurance, had more than\nfifty such insurers. All these insurers were brought under the control of a\nsingle Insurer, the Life Insurance Corporation of India.<\/strong> However, during the pre liberalised period, the Indian government brought\nout various regulations in order to restrict situations such as monopoly and\noligarchy. Some of the regulations\nbrought out were the Foreign Exchange Regulation Act, 1973 (FERA) and the\nMonopoly and Restrictive Trade Practices (MRTP Act). <\/strong>These regulations have\nrestricted the amount of economic activity in India and concentrated more on\nthe national businesses for Indian growth. <\/p>\n\n\n\n

Foreign\ncompanies were not allowed to conduct business in India because of various\nregulations under FERA, and companies that take part in a merger transaction\nwere not allowed to control markets under MRTP law. From the above analysis of\nmergers and acquisitions, it is understood that though the regulations brought\nout by the government were beneficial for the economy; it would not allow\naccess to the development of the economy. Due\nto constant government intervention, some regulations were repealed as they\nwould be a deterrent to the Indian economy<\/strong>. Due to the effect of this,\nthere was a requirement to relax the markets for entry of foreign competitors.<\/p>\n\n\n\n

Liberalization\ntook part in 1990, which eased the markets in India. This led to many\ninternational firms, setting their footprint in India. This indirectly affected\nthe competitiveness of Indian companies. To\ncompete with multinational giants, companies came up with strategies and\npriorities to survive in the market<\/strong>. Therefore\nfor companies to benefit from economies of scale and economies of scope, they\nconsidered alternatives to engage the competition. The options related to mergers\nand acquisitions were available to them.<\/strong><\/p>\n\n\n\n

From the\nAnalysis of Mergers and Acquisitions in India, it is understood that the\ndevelopment of the merger markets in India is due to wide-scale regulation.  However, not only law developed the merger\nmarkets in India. International factors also contributed to the development of\nthe merger market before the year 2000. <\/p>\n\n\n\n

Difference between a\nMerger, Acquisition and Joint Venture – Analysis of Mergers and Acquisitions<\/h2>\n\n\n\n

In a Merger<\/strong>, there is a combination of two or\nmore entities. Both the companies and the respective business structures are\nmerging their strengths to compete against the competition. The literal meaning\nof the merger has not been defined under any law in India. From the analysis of mergers and acquisitions in India, the meaning is\nnot provided in the Companies Act 1956 or the law related to Income Tax 1961.<\/strong><\/p>\n\n\n\n

However, according to the Companies Act 2013<\/a>, a merger can be understood as a combination of two or more entities to improve the position of their overall assets and liabilities.<\/strong>  Many advantages are obtained from a merger, such as- access to new information, research and development, technologies, and product benefits. The outcome of the merger is that the formed entity is treated as a new entity in the eyes of the law<\/strong>. The merging parties are not existence post merger.<\/p>\n\n\n\n

An Acquisition, on the other hand, means to\nhave control over another entity<\/strong>. The\nliteral meaning of an acquisition is to take over the business or shares of a\ncompany. <\/strong>There are significant differences between a merger and an\nacquisition.  An acquisition can be defined as the process where a company takes over\nthe share capital of another company or acquires the business of another\ncompany.<\/strong>  In the acquisition process,\nthe concerned parties are called as the following:<\/p>\n\n\n\n

Selling Company-<\/strong>\nThis is the party that sells the company owned by it or controlled by it.<\/p>\n\n\n\n

Target Company-<\/strong>\nThis is the company that is a wholly-owned subsidiary of the Selling Company.\nWholly owned subsidiary of the selling company means that the selling company\nowns a hundred percent shares of the target company.<\/p>\n\n\n\n

Buyer\/ Acquiring Company-<\/strong> The Company that acquires the Target Company is called the Buyer or\nthe Acquiring Company.<\/p>\n\n\n\n

In an\nacquisition transaction, the buyer will either acquire the shares of the Target\nCompany or the assets of the Target Company. Therefore an acquisition or a\ntakeover is a process where all the share capital is acquired of the company. The\nanalysis of mergers and acquisitions provides a difference between a merger and\nan acquisition.<\/p>\n\n\n\n

Read, More:<\/b> Merger and Acquisition Process India<\/a><\/mark>.<\/p><\/div>\n\n\n\n

Joint Venture (JV)<\/h2>\n\n\n\n

In a joint venture process, the parties of the\narrangement will enter into a specific agreement to fulfil a particular purpose\nor particular project.<\/strong> Usually, there will be a\ndefinite period for the Joint Venture. Once the particular purpose of the JV\nhas been established, the JV agreement would come to an end.<\/p>\n\n\n\n

Companies\nconsider taking the Joint Venture route, as it would only be for a particular\npurpose and the period is limited. Apart\nfrom this, the challenges and risk faced by the parties in a JV are also\nlimited. Apart from the above considerations, the parties consider getting new\nskills and technologies from the JV.<\/strong><\/p>\n\n\n\n

Though the JV is another form where there is a shared\nbenefit of the business, companies prefer to opt for this form of venture as\nthere is a lesser amount of risks. From the perspective of the analysis of\nmergers and acquisitions, the risk and challenges faced by a Joint Venture are\nlower.<\/strong><\/p>\n\n\n\n

Analysis of Mergers and\nAcquisitions- Types of Mergers<\/h2>\n\n\n\n

From the\nperspective of a Competition Law<\/strong> for\nanalysis of Mergers and Acquisitions, mergers can be divided into the\nfollowing:<\/p>\n\n\n\n