A marriage is the coming together of two people to become one, but each of them has their own individuality and in order to make the marriage a success compromises need to be made. This is also true for mergers and acquisitions. When two companies come together both of them have their individual work cultures and identities but in order to work together successfully they have to make some changes. Only then can a merger or an acquisition be successful. This is very simply put.
However it is not so simple, nor is it just a matter of making changes. In fact there are a lot of things that go into making a merger successful. These are the issues that one needs to take care of while going in for a merger or an acquisition The first chapter of this report seeks to explain what the various terms used to classify the coming together of two corporations means. There can be various types of mergers namely horizontal, vertical, conglomerate, concentric and consolidation mergers.
There are certain terms that are peculiar to mergers and acquisitions like golden parachutes, greenmail and so on. These terms are explained in the chapter. There are some problems that are likely to occur at every stage in the merger or acquisition process, an overview of most of the problems is given. Now we move onto the important issues that one needs to look at in order to be successful or in order to carry out a merger. It is imperative to carry out a due diligence process before the merger takes place since this helps the merging or acquiring company to assess the value of the target company. The due diligence must be thorough, only if the result is positive then one should continue the merger process. Synergy is extremely crucial to a merger or an acquisition because that is what will ensure that the merger is a success.
Synergy means that 2+2 > 4, which is to say that the companies must create a higher value together than they create when they are functioning on a standalone basis.. It is important that after the merger or acquisition process is complete, the firm reviews its price structures in view of the benefits that are now available to the customers. Failure to align the prices with the benefits may prove to be fatal for the organization. During the merger or acquisition process the company is most prone to attacks from competitors, since the firm is concentrating on its merging efforts and is not able to respond to the competitors campaign. How does one determine the value of the target firm? In practice two methods are used the Discounted Cash Flow Method and the Trading Multiples.
However the chapter explains a few more methods of valuation. After looking at all these issues it is important to study the success of mergers and what they are related to and the three main factors that one needs to consider in addition to the ones mentioned above. After having talked about mergers and acquisitions in general, I move onto giving an idea of why mergers and acquisitions are growing in India and the opportunities that are available for value creation. Companies may merge worldwide but when it comes to India, very often they do not get the same benefits that they get in other countries. This is due to various factors like size of the companies, legislation in India and so on. The Indian environment is not as merger friendly as it can be; a few ways in which to make India more merger friendly are given. For any deal there is always a law governing it, I have explained the take over code, which governs mergers and acquisitions in India in brief.