Globally, in the last two years, there has been a flurry of activity in the Mergers and Acquisitions (M&A) space. Industry experts have put it down to the fact that as multinationals have the funds, they want to expand their current businesses and hence, there has been an acceleration in M&A deals.
In 2015, the Walgreens buyout of Alliance Boots set the tone and what followed was Unilever, wellknown for its brands, such as Dove and Axe, acquiring Dermalogica, yet another reputed brand in the professional skin care space. Pop went the weasel when Coty bought out Proctor & Gamble for a whopping $12.5 billion for its perfume, hair care and make-up businesses, which includes brands, such as Wella and Clairol.
This has laid the foundation for the perfume maker to be one of the world’s largest beauty companies.
The practice of mergers and acquisitions has attained considerable significance in the contemporary corporate landscape, which is broadly used for reorganising business entities. Post the introduction of economic reforms in 1991, Indian industries faced several challenges, both nationally and internationally. The cut-throat competition from international markets forced the Indian companies to opt for merger and acquisition strategies, making it vital for survival.
Hence, it comes as no surprise that India was one of the strongest markets for M&As in the first half of 2014, according to consulting firm KPMG’s Global M&A Predictor report.
Says Head Transactions & Restructuring and National Leader Private Equity at KPMG India, Vikram Hosangady, “Confidence that the new government will strive to revive the investment cycle and focus on policy and fiscal reforms is expected to keep India very active on the global radar.”
Ajay Gehi, a business consultant with Mergers and Acquisitions, a legal firm dealing in M&As in Mumbai, is a formidable entity in the business consulting space, especially M&As. An MBA, Cost and Management Accountant and well-versed in Corporate Law, he explains, “There are many types of mergers and acquisitions that redefine the business world with new strategic alliances and improved corporate philosophies. From the business structure perspective, some of the most common and significant types of mergers are Horizontal, Vertical, Co-Generic and Conglomerate. For the uninitiated, a merger is considered to be a process when two or more companies come together to expand their business operations. In such a case, the deal gets finalised on friendly terms and both the companies share equal profits in the newly created entity.”
“When one company takes over the other and rules all its business operations, it is known as an acquisition. In this process of restructuring, one company overpowers the other company and the decision is mainly taken during downturns in economy or during declining profit margins. Among the two, the one that is financially stronger and bigger in every way, establishes its power. The combined operations, then, run under the name of the powerful entity, who also takes over the existing stocks of the other company,” he adds.
M&A STRATEGIES THAT WORK
- Determine business plan drivers. It is very important to convert business strategies to set of drivers or a source of motivation to help the merger succeed in all possible ways.
- There should be a strong understanding of the intended business market, market share, the technological requirements and geographic location of the business. The company should also understand and evaluate all the risks involved and the relative impact on the business.
- Then there is an important need to assess the market by deciding the growth factors through future market opportunities, recent trends and customer’s feedback. The integration process should have the consent of the management from both the companies venturing into the merger.
- Restructuring plans and future parameters should be decided with exchange of information and knowledge from both ends. This involves considering the work culture, employee selection and the working environment, as well.
- Ensure that all those involved in the merger, including, the management of the merger companies, stakeholders, board members, and investors agree on the defined strategies. Once approved, the merger can be taken forward to finalising a deal.
– By Ajay Gehi
Mergers and Acquisitions, Mumbai