Mergers and Acquisitions - SwaritAdvisors

MERGERS & ACQUISITIONS

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MEANING OF MERGER & ACQUISITION There exists confusion between the meaning of merger and acquisition and a lot many times, both are considered the same. However, there is a considerable difference between these two terms.

Merger involves combining or coming together of two entities and formation of the two into a single entity. Acquisition takes place when one entity buys another entity and the buyer entity combines the other entity with itself. Both, merger and acquisition, represent organic growth process.

FOR ESTABLISHING A BIGGER MARKET SHARE;

TO ELIMINATE COMPETITION

Reasons for Mergers and Acquisitions CREATING A POWERFUL BRAND;

SETTING OFF THE LOSSES OF ONE COMPANY WITH THE PROFIT OF THE OTHER.

BENEFITS OF M&A

AD VAN T AG ES OF MER G ER S AN D ACQUISIT ION S

INCREASE IN SIZE

CO N ST AN T L Y IN N OVAT IN G AN D CR E AT IN G ID E AS Via merger or acquisition, companies can increase their size manifold, which otherwise could have taken years.

These strategic tools are quicker way of increasing the company size ad operations.

REDUCED COMPETITION Mergers and acquisitions are a quick way for reducing the competition as they allow for combining strengths with one’s own competitors. This way the company taps the consumer base of the other. The mergers and acquisitions aim at winning more consumers by synergizing their strengths and cutting the competition.

INCREASED POWER

CU S T O ME R S E N G AG E ME N T When two companies combine their power, they become dominant players in the market. This way they can dominate the other players as they now have a bigger market share. Attracting more customers also becomes easier.

TAX BENEFITS

Mergers and Acquisitions also have the tax benefits.

The losses of one company can be written off against the profit of the other, thereby reducing the net taxable income. Also, foreign entities with high corporate tax can use its overseas merged/acquired company’s domestic tax payment system in order to pay lower amount of tax.

BETTER RESEARCH AND VISIBILITY

Since mergers and acquisitions make two market players come together, their resources of research and market visibility combine. This way they can come up with better and more innovative ideas of attracting consumers and increasing their market share.

TYPES OF MERGERS

HORIZONTAL MERGER This occurs when two or more companies which are in direct

competition and indulge in identical products and markets bases, merge.

VERTICAL MERGER This is the merger between a company and its supplier or a company and its customer.

CONGENERIC MERGER: This is the merger between companies that offer complimentary products to the same consumer base. This way the new company is the expanded version of the merged companies.

CONGLOMERATE This is the merger of companies that have completely different business fields and have no common ground

MARKET-EXTENSION MERGER This is the merger of the companies that sell similar products in different markets.

PRODUCT-EXTENSION MERGER This is the merger between companies that sell related products in different markets.

APPLICABILITY OF COMPANY LAW WHAT'S IN STORE?

ME R G E R S The strategic arrangement of merger between the company, the shareholders and the creditors are governed by Sections 390 to 394 of the Companies Act, 1956 and Sections 230-234 of the Companies Act, 2013.

ACQUISIT ION S As per the provisions of the Indian law, acquisition can take place in the following two forms: • Acquisition of existing shares of the target company • Subscription to new shares of the target company

PROCEDURE FOR MERGERS AND ACQUISITIONS IN INDIA

EXAMINE THE MOA OF THE COMPANY

INFORM THE STOCK EXCHANGE

The very first step to M&A is to scrutinize the

Secondly, when you are going to enter mergers

Memorandum of Association (MOA) of the

and acquisitions, you must inform the stock

company properly to conduct a search and

exchange of the same. Further, you need to

verify whether the power of merger is bestowed

send copies of resolutions, orders, and notices

on or not.

DRAFTING OF MERGER PROPOSAL The Board of the Director of both the involved companies needs to submit a confirmation on

the draft of the merger proposal. Besides, it is also required to pass the resolution to authorize its key managerial personnel to carry on the

matter.

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to the stock exchange on a timely basis.

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FILING APPLICATION TO THE HIGH COURT Once the Board of Directors have confirmed, the merger company needs to send an application

to the High Court of the concerned state where the company has its headquarter.

PROCEDURE FOR MERGERS AND ACQUISITIONS IN INDIA

FILE ORDERS WITH THE ROC

NOTICE TO CREDITORS AND SHAREHOLDERS

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If the High Court has granted the approval, the

The company needs to file a truly certified copy

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of the order from the High Court with the

company must send a notice to all the creditors

Registrar of Companies within the prescribed

and shareholders regarding the meeting to be

limit as specified by the High Court.

held 21 days prior.

ISSUANCE OF SHARES AND DEBENTURES Lastly, when the companies have been merged

MERGING OF ASSETS AND LIABILITIES

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Next, the process of merging of assets and liabilities of both company will take place

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and got the status of a separate legal entity, then the company is eligible to issue its shares and debentures on the stock exchange after

listing

CONCLUSION Mergers and Acquisitions are strategic tools used by companies for immediate tremendous growth. The companies use the strengths of each other for getting a larger consumer base and entering more markets. The legal aspects of getting into a merger or acquisition are quite complicated. These processes are usually undertaken by professionals who hold years of expertise in the field. Our team of experts is well-versed with the entire procedure of

mergers and acquisitions.

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info@swaritadvisors.com

Noida, UP

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