Holistic View for M&A

By Prof. Samie

Part 1 Pre M&A Review

The first step for any company would be to assess its
own situation and determine if a M&A strategy should
be implemented.
The most critical question in this phase for a company
would be:
Can we use M&A to give our shareholders better
value for their investments?
A complete rough plan should be developed on how an
M&A can help achieve the desired results (synergies).
Take the case of Bharti MTN.
This stage could either be performed by investment
bankers or the buying company itself.

Part 2- Search & Screen

Targets
The second phase within the M&A process is to search
for possible targets.
Target company must fulfill a set of criteria to make it
a strategic fit.
Compatibility and fit of the target should be assessed
across a range of criteria relative size, type of
business, capital structure, organizational strengths,
core competencies, distribution network and so on.
Investment bankers are generally extensively involved
in this process.

Part 3 Investigation and Valuation

The third phase of M&A is to perform a more detailed
analysis of the target company.
The buyer will perform a thorough due diligence of
the target company with respect to various aspects
of the target including strategies, operations,
financials, and other aspects.
With the help of investment bankers, the buyer will
perform a DCF and Comparable Company Analysis /
Comparable Transaction Analysis to decide the
valuation of the target.

Part 4 Finalizing M&A

Key questions to address in this stage:
How much resistance will we encounter from the
Target Company?
What are the eventual benefits of the M&A for the
Target Company?
What will be our bidding strategy?
How much do we offer in the first round of bidding?
The most common and effective approach towards
M&A negotiation is for both companies to reach
agreement concerning the deal. However, this may
not always be the case which may result is a hostile
bid.

Part 5 Integration
If both companies agree on the negotiations in the deal,
the companies involved formally announce the deal.
This phase is the most difficult stage in the M&A
process on account of the differences in the entities
involved with respect to strategy, culture, information
systems, and so on.
Extensive planning and design is required across the
organizations involved.
The success and failure of a M&A deal is generally
decided by this final process of the deal.

Levels of Integration
Full Integration : All functional areas will merged into
one new company. The new company will use the best
practices between the two companies.
Moderate Integration : Certain key functions or
processes will be merged together. Strategic decisions
of the merged entity will be centralized while day to
day operating decisions will remain autonomous.
Minimal Integration : Only selected personnel will be
merged together in order to reduce redundancies.
Both strategic and operating decisions will remain
decentralized and autonomous.

Is the deal a success?

The major reasons for failure of an M&A deal could be :
Poor Strategic Fit
Cultural and Social Differences
Incomplete and Inadequate Due Diligence
Poorly Managed Integration
Overpaying for the deal
Overly Optimistic Buyer
M&A will continue to be an interesting option for
companies for many years to come.
Understanding the M&A process will hold the key to
the success of the deal.

M&A Agreement
As the negotiations continue, both companies will
conduct extensive Phase II Due Diligence in an
effort to identify issues that must be resolved for a
successful merger.
If significant issues can be resolved and both
companies are convinced that a merger will be
beneficial, then a formal merger and acquisition
agreement will be formulated.
The basic outline for the M & A Agreement is rooted
in the Letter of Intent which is signed earlier.
However, Phase II Due Diligence will uncover
several additional issues not covered in the Letter
of Intent. Consequently, the M & A Agreement can
be very lengthy based on the issues exposed
through Phase II Due Diligence.

M&A Agreement
Additionally, both companies need to agree on the
integration process.
For example, a Transition Service Agreement is
executed to cover certain types of services, such as
payroll. The Target Company continues to handle
HR processes up through a certain date and once
the integration process is complete, the acquiring
company takes over HR responsibilities.
Another very important element within the M & A
Agreement is representation by both companies.
Both sides must provide some warranty that what
has been conveyed is complete and accurate.

M&A Agreement
From the buyers viewpoint, full and complete disclosure is
critical if the buyer is to understand what is being
acquired. Discovery of new issues that have been
misrepresented by the seller can prevent the buyer from
proceeding with the merger.
From the seller's point of view, full disclosure requires
extensive time and effort. Additionally, it is difficult to
cover every possible representation as full and accurate.
Therefore, the seller prefers to limit the number of
representations within the M & A Agreement.
Another important element within the M & A Agreement is
indemnification. The M & A Agreement will specify the
nature and extent to which each company can recover
damages should a misrepresentation or breach of contract
occur.

Confidentiality Agreement
It is very important for both sides to keep things
confidential before announcing the merger.
If customers, suppliers, employees, shareholders,
or other parties should find out about the merger
before it is announced, the target company could
lose a lot of value:
Key personnel resign, productivity drops,
customers switch to competing companies,
suppliers decide not to renew contracts, etc.
In an effort to prevent leaks, the two companies
will enter into a Confidentiality Agreement
whereby the acquiring firm agrees to keep
information learned about the Target Company as
confidential.