The document outlines a five stage model for mergers and acquisitions: 1) corporate strategy development to determine strategic fit and synergies, 2) organizing acquisition capabilities, 3) deal structuring and negotiation to avoid pitfalls like overvaluation, 4) post-acquisition integration through change management and communication, and 5) post-acquisition audit and learning. It also discusses the importance of thorough due diligence across commercial, operational, financial, legal, human resources, organizational, and information systems aspects of the target company.
4. SudiSudarsanam’s 5-S Model Five Stages Stage I Corporate Strategy Development Stage II Organising for Acquisition Stage III Deal Structuring & Negotiation Stage IV Post-Acquisition Integration Stage V Post-Acquisition Audit & Organisational Learning
5. I Corporate Strategy Development M&A is a part of Corporate Strategy Enhancing competitive advantage Optimising Current portfolio of business Gaining Economies of Scale Searching for Partners with Matching Resources -continued……….
6. Con…I Corporate Strategy Development Difficulty of Quantifying competitive advantage of M& A High Risk of Integration Failure Related Mergers likely to bring in better operating performance, shareholder value and innovation than unrelated mergers - contd………….
7. Con..I Corporate Strategy Development Industry Structure Driven view of Competition like gaining market power, cost leadership through vertical integration and product differentiation Resource based View of Competition like financial, human, intangibles, physical, organisational and technological gains
8. Stage II: Organising for Acquisition M&A may be a separate function or a part of the normal functions Acquirer must develop capability and core competence Arrange for obtaining additional resources Prepare a Road Map for Post Merger Scenario of each department and functions Standardise & internalise early warning signals
9. Stage III: Deal Structuring & Negotiation Major Pitfalls in Deal Structuring & Negotiation - Overvaluation of target company (Hubris/Winner’s Curse) - Conflict of Interest of Advisors such as Investment Bankers, lawyers, accountants and environmental consultants - Obtaining insufficient data - Defective due diligence - not determining the range of negotiation parameters -lack of clear negotiation regarding the positions of the senior managers of both the firms - not developing defense strategies regarding regulatory agencies -continued……..
10. Contd III Deal Structuring & Negotiation For avoiding the pitfalls, the corporate should - do proper valuation of the target - conduct in advance a thorough investigation of conflict of interest of the advisors - conduct an elaborate due diligence even by more than one agency - negotiate clearly the absorption of the HR and their designations
11. Stage IV: Post Acquisition Integration Change Management Project management capabilities Communication Plans Deadlines for execution of plans Performance benchmarks Reward for achievements Merger of information systems - continued………..
12. Contd.. IV Post Acquisition integration HR Problems - detailed meeting and discussion with HR - reduce anxiety - assuring retention - no cultural shock - no downgrading of designations - no superior-inferior treatment
13. Due Diligence “ A thorough investigation about the target company and its operations is called due diligence”
14. Areas covered by due diligence [a] Commercial Aspects [b] Operational Aspects [c] Financial Aspects [d] Legal Aspects [e] HR Aspects [f] Organisational Aspects [g] Aspects of Information Systems
16. [b] Operational Aspects Production Processes Technology used Production Systems Channels of Distribution Outsourced Operations Sub-contracting
17. [c] Financial Aspects Capital Structure Lending Agencies Accounting Systems Audit Systems Tax Liability
18. [d] Legal Aspects Contractual Obligations Product Liability Class Action Suits Environmental Liability Cases Pending with Regulatory Agencies like RBI, SEBI, and other Government Departments
