In the various deal structures involved in an M&A deal, there are various benefits and drawbacks of each of them. Here we will discuss some of the strategic considerations that shouldn’t be neglected while planning for either a merger or acquisition.
But before we do that, let’s talk about the different reasons for any merger and acquisition deal.
Why Merger and Acquisition?
- Terminate Competition
One of the main reasons for any company to plan an M&A is to eliminate future competition. By taking over the immediate competition, not only do they remove the risk of being overshadowed but also acquire a larger share in the market.
- Diversification
At certain times, companies operating in different industries enter an M&A deal. They may choose to diversify their business reach to a broader range of consumers, enter new markets or to simply diversify their risks.
- Synergy
When two companies merge as one, they share their resources which create synergy. Be it in terms of revenue or cost, assets or liabilities, all the resources produce combined results.
So now that we’ve seen why mergers and acquisitions happen, let us take a look at the different strategic considerations that should be kept in mind before acting upon the deal.
The Strategic Considerations
- Confidentiality
During the initial stages of an M&A deal, it is essentially important to keep the deal and the details under wraps. An untimely announcement or divulgence to employees, competing buyers may lead to the deal falling through. Both the parties need to be careful of leaks, whether intentional or not, it may lead to ramifications that may cause damage to both.
- Due Diligence
It is better to proceed knowing the perils that lie on the path rather than be unaware of them. This helps us to take necessary measures to overcome them. Before entering into the deal with the seller, the buyer must do due diligence on the financial status, financial records and the total assets and liabilities. With all cards on deck, the buyer can make an informed decision.
- Asset-Liability Disclosure
After the deal, the two separate entities are to unite as one. And all the assets and liabilities are also to belong to one unified entity. So both parties must know the assets and liabilities that are at their disposal. Right from the tangibles to the intellectual properties, all should be appraised as diligently as possible. This helps arrive at an inclusive valuation of the selling company.
- External Counsel
An external counsel to aid with the merger and acquisition deal will help look at certain aspects which otherwise would be missed by the in-house team. External M&A counsel will be experts at carrying forward the deal. And their expertise in the various areas that are part of the deal will guide you better along the complex affair.
Case Study
Mehra Eyetech, one of the largest family-owned Indian eyecare equipment distributors, was approached for a merger by Topcon, a Japanese medical equipment company. Since the company was wholly family-owned, the challenge was to ensure a smooth transition for the family and have an adequate stakeholding ratio.
Mantraa helped Mehra Eyetech with understanding the intent of the Topcon and the structuring of the company. Along with communicating with the Japanese counterpart, we guided Mehra Eyetech with the Due Diligence process, Valuation based on profits, Closing and True-up requirements of the RBI, requirements of the foreign parties, Agreement Structuring and Tax Payments.
In the end, we had a successful deal at hand, with Topcon acquiring a 51% stake in Mehra Eyetech.
We at Mantraa offer mergers and acquisitions services under the umbrella of Corporate Finance. With our partners having worked for some of the most successful alliances in India, we are well-equipped to assist you with your upcoming M&A deal. Whether you are an MSME or a large enterprise we provide end-to-end solutions for making the right decisions. Contact us today!
