What are the reasons behind Mergers and Acquisitions?
Following are the reasons behind mergers and acquisitions-
1. To eliminate competition
2. To establish a bigger market share
3. To create a stronger brand
4. To reduce tax liabilities
5. Set off the losses of one entity against the profit of the other.
What are the types of Mergers and Acquisitions in India?
Mergers are categorized into following types-
1.Horizontal Merger- A merger between the companies that deal with the same or similar product and services.
2.Vertical mergers- this happens between companies that provide complementary goods or services.
3.Co-generic mergers- this is a merger between entities that are related to each other.
4.Conglomerate mergers- this is a merger between entities that have a different types of businesses.
5.Cash mergers- this is a type of merger where shareholders receives cash instead of the shares of the merged entities.
6.Reverse mergers- when the entity merges with its supplier of raw materials.
This is also known as takeover of a company. This can be friendly or hostile. Typically the process involves either acquisitions of assets and liabilities of the target company or acquisitions of the shares of the company. Demerger is also a form of acquisition where a single entity splits into two entities.
When two or more companies come together for a defined purpose- it could be entering into a new market or for a specific skill, that adjoining is called a joint venture. It could be a for a limited period or for unlimited duration.
What is the process of Mergers and Acquisitions in India?
The whole process of mergers and acquisitions takes place according to the Companies Act, 2013. Following are the steps you need to cover while going for mergers and acquisitions in India-
Dig into memorandum to examine the object clause
The very first step in order to get M&A in India is to examine the memorandum of association of the companies to conduct a search and check whether a power of merger is vested in it or not. The purpose of examining the MOA of both the companies is to check on what all activities are permitted.
Share a word with stock exchange
It is prominent to inform the stock exchange about the M&A that is about to happen and submit all the documents including copies of resolutions, notices and orders in a timely manner.
Draft a Merger Proposal
The Board of Directors of both the companies will present a confirmation of the draft of the merger proposal and will also pass a resolution authorizing its key managerial personnel and other executives to further pursue the matter.
File an Application to the High court
After getting confirmation on a proposal by the Board of Directors, the merger companies should file an application in the Hon’ble High court of the particular state where the company’s headquarter is situated.
Notice dispatched to shareholders and creditors
With the prior approval of the High court, notice should be sent to all the shareholders and creditors of the companies about the meeting to be held and 21 days advance notice is required. The notice shall be published in two newspapers one in vernacular language of the State and the other one in English newspaper.
Filing of the orders with the registrar of the companies
The rue certified copies of the order of Hon’ble High court of the State must be filed with the registrar of the companies within the limit as specified by the High court.
Assets and liabilities of the both the companies should be merged
The assets and liabilities of both the companies should be merged.
The issue for subscription of shares and debentures
Oce the merged companies come to the existence as a separate legal entity then the companies can issue shares and debentures after listing on stock exchange.
Some more steps to cover on M&A
1. Market valuation by the acquiring company of the target company
2.The acquiring company contacts the target company
3.A Non-Disclosure Agreement (NDA) should be signed by both the companies.
4.All the documents and related information is transferred to the acquiring company as per the due diligence list sent by the acquiring company and a letter of intent is signed.
5.The final bargain happens and a definitive purchase agreement is made.
Mergers and acquisitions services are provided by different firms
M&A involves very complex processes. Therefore, it is always advisable to choose a service provider who can help you with this with ease. There are a number of M&A advisory firms who guide their clients through this transformation process involving complicated financial, legal and accounting issues.
Following are the firms which provides M&A services-
1.Investment banks that act as financial advisor to their clients.
2.Law firm- leading international and domestic law firms to provide M&A consulting services especially of business entities that are being merged or acquired cross boredrs.
3.Audit and accounting firms
4.Consulting and M&A advisory firms.