Mergers & Acquisitions

PART 1
INTRODUCTION
Companies today need to be fast growing, efficient, profitable, flexible, adaptable, future-ready and have a dominant market position. Without these qualities, firms believe that it is virtually impossible to be competitive in today's global economy. Executives have at their disposal a wide range of strategic alternatives for inorganic growth. They may decide to grow incrementally by introducing not only new products but also gain entry into new markets by investing in research and development. However this mode of growth will have a long gestation period i.e. long time to realize the actual growth.

Welcome to the world of mergers & acquisitions (M&A), which has become the most important strategic element driving business growth and excellence. They have become the dominant mode of growth for organizations seeking a competitive advantage in an increasingly complex and global business economy. Therefore, in an era of increasing globalization and competitiveness, they are considered as a strategic driver for market dominance, geographical expansion, leverage in resource and capability acquisition, competence, adjusting to competition.

Mergers and acquisitions (M&As) often refer to the aspect of corporate strategy, and management dealing with the buying, selling and combining of another company. Mergers and acquisitions are often created to expand a current organization or operation aiming for long term profitability and an increase in market power.

Buoyant Indian Economy, extra cash with Indian corporates, Government policies and newly found dynamism in Indian businessmen have all contributed to this new merger & acquisition trend in India. Indian companies are now aggressively looking at American, African and European markets to spread their wings and become the global players. The Indian IT and ITES companies already have a strong presence in foreign markets, however, other sectors are also now growing rapidly. The increasing engagement of the Indian companies in the world markets, and particularly in the US, is not only an indication of the maturity reached by Indian Industry but also the extent of their participation in the overall globalization process..

MERGERS AND ACQUISITIONS
"It is clear that you cannot stay in the top league if you only grow internally. You cannot catch up just by internal growth. If you want to stay in the top league, you must combine."
                        Daniel Vasella, Chief Executive Officer, Novartis

Although they are often uttered in the same breath and used as though they were synonymous, the terms merger and acquisition mean slightly different things.

When one company takes over another and clearly established itself as the new owner, the purchase is called an Acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. An acquisition may be friendly or hostile. In the former case, the companies cooperate in negotiations; in the latter case, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer.

A Merger is a combination of two companies into one larger company. In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. A merger may be of following types: -

(i) Horizontal Merger - Two companies that are in direct competition and share similar product lines and markets.
(ii) Vertical Merger - Vertical mergers occur between firms in different stages of production operation. In a vertical merger two or more companies which are complementary to each join together.
(iii) Market-Extension Merger - Two companies that sell the same products in different markets.
(iv) Product-Extension Merger - Two companies selling different but related products in the same market.
(v) Conglomeration - Two companies that have no common business areas. It means their businesses or services, are neither horizontally nor vertically related to each other.
(vi) Concentric Mergers - Two merging firms are in the same general industry, but they have no mutual buyer/customer or supplier relationship.

CONTINUED IN PART 2 ..................