Compiled by- Sonakshi Tripathi
Everything you should know about Mergers And Acquisitions
Companies across the world use merger and acquisition strategies to succeed in this cutthroat economic climate. M&A is another acronym for mergers and acquisitions.
While the terms “merger” and “acquisition” are often used interchangeably, they have separate legal definitions.
An acquisition is when a larger company acquires a smaller company, thereby absorbing the business of the smaller company. On the other hand, a merger is the coming together of two businesses that are roughly the same size in order to continue forward as one new organisation rather than continuing to be owned and run independently.
Mergers and Acquisitions are employed as tools for significant growth and are progressively being recognised by Indian organisations as essential components of corporate strategy. They are frequently used to gain strength, increase client base, reduce competition, or enter a new market or product area in a variety of industries, including information technology, telecommunications, and business process outsourcing. Mergers and acquisitions may be carried out to obtain entry to the market through an established brand, to gain market share, to eliminate rivalry, to lower tax obligations, to acquire expertise, or to offset the profits of one organization’s losses against those of another entity.
The reason behind Mergers and Acquisitions
Darwin’s theory of “Survival of the Fittest” exhibits that only those organisms will continue to sustain who quickly adapt to their environment, while the other will become extinct. The business world is the same way.
Only businesses that demonstrate a growth potential in the most cutting-edge competition can endure over the long term.
Thus, when competing against huge or global corporations, small businesses or start-ups typically lose. Companies frequently view mergers and acquisitions as the most practical way to improve their position.
Process of Mergers & Acquisitions in India
In India, the mergers and acquisitions process are court-driven, stretched, and so problematic. Although the two parties may have made shared commitments to start the process, this is insufficient to provide it legal protection. To put it into effect, the High Court’s approval is necessary. Companies Act 2013 defines the whole process of mergers and Acquisitions in India.
What is M&A advisory?
A general term used to represent the work that intermediaries conduct in mergers and acquisitions is “M&A advisory.” The majority of this relates to advice given to buy-side and sell-side businesses regarding mergers and acquisitions, but M&A advisors also carry out market research and assist businesses in raising capital for M&A.
Adidas-Reebok Case Study
Adidas-Salomon AG announced in 2005 that it will buy Reebok North America for an estimated $3.78 billion. Adidas made a bid for Reebok that was more than 34% higher than the previous closing price. Given that Reebok was up against stern competition from Nike, Adidas, and Puma, the agreement was tantalising.
With a 36% market share, Nike dominated the footwear market in North America. Therefore, Adidas and Reebok’s aims were very clear: grow market share and cost reduction through synergies. Adidas intended to seize the moment with its high-quality goods and Reebok’s stylistic quotient.
Nike had a 36% market share in August 2005. After Reebok’s acquisition, the market share of Adidas-Reebok in the U.S. catapulted to 21% from 8.9%.
Sales revenue increased by 52% in 2006, representing the highest organic growth of the Adidas group within the last eight years. It was the first time in the group’s history that it crossed the benchmark of EUR 10 billion.
Microsoft-Nokia Merger Case Study
Microsoft combined with Nokia in 2013 as a last-ditch effort to avoid being limited by Apple and Android smartphones. It seemed more practical to partner with an established gadget maker than to start the company from scratch.
The transaction, however, turned out to be a dud. Microsoft cut back on the number of smartphones it produces annually, announced mass layoffs for Nokia employees, and eventually
wrote off the entire acquisition price in a $7.6 billion impairment charge. These actions were taken in response to its $7.5 billion acquisition of Nokia. Despite Microsoft’s backing, Nokia’s market share decreased from a high of 41% to its present level of 3%.
Right reasons for the Merger
1 – Have an eye for risks: Timely identification of weaknesses, risks, and threats, whether internal or external, can save huge M&A costs and efforts. Internal risks can be cultural frictions, layoffs, low productivity, or power struggle at the helm.
2 – Cultural compatibility: Both companies must recognize their similarities and, more importantly, acknowledge their differences. Creating a brand-new identity with employee support leads to a sense of belongingness and persevered efforts towards a shared goal.
3 – Maintaining key leadership: The success of a merger hinges on a seamless transition and effective implementation. Choosing whom to retain and whom to let go is a dicey game. But this is where judgment skills must play a role.
4 – Communication is the base: Effective employee communication and culture integration are most difficult to achieve but have maximum importance in merger success. Conveying the decision to merge at the appropriate time helps reduce a lot of uncertainties both in the pre and post-merger stages.