Overview of Mergers and Acquisitions

Nowadays, Merger and Acquisition is the pathway businesses choose to reach exponential heights and continue to engender attention. The Indian Merger and Acquisition sector works in a similar fashion and has observed various large M&A deals in the past few years in the banking, insurance, and telecom sectors. Hence, over a period, M&A has become an essential part of the Indian Economy.
Further, time and again. M&A are misunderstood as one since both the terms denote consolidation of two or more companies. However, they are complete opposites in terms of their implementation.
The term “merger” means a combination of two or more companies that agree to merge and structure a new company. Moreover, the process of merger is carried out with the intent to boost business growth and increase its goodwill and reach. In contrast, acquisition is an act where an acquirer company acquires a target company by way of a legal agreement.

Advantages of Merger and Acquisition

The advantages of Merger and Acquisition are as follows:
Increased Size
The process of M&A assists companies in increasing their net worth and operations, which may take years otherwise. Moreover, these strategic tools help in boosting the company’s share price.
Reduced Competition
The combined capitals and reserves of the newly formed company help it in reducing competition and gaining a competitive edge.
Increased Power
The synergy formed by the combination of two or more companies is powerful enough to dominate other market players, guarantee better performance, ensure financial gains, etc. Additionally, it simplifies the task of attracting a larger customer base.
Tax Benefits
A also provides various tax benefits to the involved companies. The losses incurred by one entity are set off against the profits generated by another entity, in that way minimising the tax liability.
Creates a New Market
Since M&A makes two companies work together, it provides better sales prospects. Besides this, M&A also assists in increasing the market reach of the business.

Reasons to Choose Mergers and Acquisitions

The process of Mergers and Acquisitions in India is considered by the companies to augment their business at a global level and ensure sustainable development of their business. The following are the reasons why companies choose M&A:
For reducing competition;
For establishing a larger share in the market;
For developing a powerful brand name;
For minimising tax liabilities;
For diversifying risk;
For setting off losses of one entity with the profit of another entity.

Things to consider before undertaking Merger and Acquisition

The following must be considered before undertaking the process of Merger and Acquisition:
Pre-determine Objectives
To simply the process of M&A, it is significant to pre-determine the objectives of the Company. Further, it is also necessary to timely check whether the other company was able to achieve the desired goals or not.
Deal Structuring
It is the most significant part of any M&A deal. Both the acquirer and the target company are required to resolve all the probable differences beforehand, like financial liabilities, price of the deal, sharing of assets, etc.
Due Diligence
Based on the nature of the industry, various types of taxes are levied which involve constant regulatory supervision. By conducting tax due diligence, the acquirer company gets an overview of the target company in terms of transfer pricing, ITR filing and other tax liabilities.
Assessment of Policies
All the insurance policies concerning intellectual property, employee liability and general liability of the target Company must be inspected by the acquirer company to determine whether they will be favourable for the company or not.

Types of Mergers and Acquisition in India

The different types of mergers and acquisition in India are as follows:
Horizontal Merger
The term horizontal merger means the combination of two or more companies dealing in the same type of products. The main aim behind this merger is to expand the market reach, acquire a dominant position, and reduce competition. For example: Mergers of Hindustan Unilever and Patanjali; Brooke Bond and Lipton India.
Vertical Merger
The purpose of a vertical merger is to combine two companies dealing with similar products. However, the stages of production at which they are functioning are different. For example: Reliance and FLAG Telecom group.
Co-Centric Mergers
A co-centric merger takes place between the companies serving the same type of customers. In this case, the products of both companies complement each other even if the products are completely different. For Example: Citi Group acquiring Salomon Smith Barney; Axis Bank acquiring Freecharge; Flipkart acquiring Walmart.
Conglomerate Mergers
When two unrelated industries/ companies combine with each other, it is known as conglomerate mergers. The goals and purposes of both companies are entirely different from each other. However, the main objective of this merger is to increase business in terms of size and operations. For example: L&T and Voltas Ltd.
Cash Mergers
In cash mergers, shareholders are offered cash instead of the shares of the merger company.
Forward Mergersv In forward mergers, a company decides to merge with its customer. For example: ICICI Bank acquired Bank of Mathura.
Reverse Mergers
When a business establishment decides to merge with its raw material suppliers. For example: merger of the Godrej soap with the Gujarat Godrej Innovative Chemicals.

Governing Laws for Merger and Acquisition

In India, the concept of Merger and Acquisition is primarily governed by the provisions of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, and section 230 read with section 232 of the Companies Act, 2013. However, the following key legislation also regulate the activities of Merger and Acquisition in India:
Securities Regulations:
Securities Exchange Board of India, 1992;
The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;
The SEBI (Delisting of Equity Shares) Regulations, 2009.
Foreign Exchange Management Act, 1999;
Competition Act, 2002;
Income Tax Act, 1961;
Insolvency and Bankruptcy Code, 2016.

Procedure for Merger and Acquisition in India

The steps involved in the procedure of merger and acquisition are as follows:
Examine MOA of the Company
The first and the foremost step in an M&A deal is to duly examine the company’s MOA (Memorandum of Association). The same is done to confirm whether the object clause of the company grants the power of merger or not.

Notify the Stock Exchange
In the next step, the companies which are going to enter in an M&A deal, must inform the recognised stock exchange about the same. Moreover, they need to send copies of orders, notices, and resolutions to the stock exchange within a prescribed period.
Drafting of Merger Proposal
After that, the Boards of the Director (BOD) of both the companies need to confirm the drafting of the merger proposal. Moreover, they are also required to pass a special resolution (SR) to authorise its KMP (Key Managerial Personnel) to carry out the matter.
Filing of Application to the High Court
After obtaining the confirmation from the Boards of Directors, both the companies are required to apply to the High Court of the respective state, where the company’s registered office is located.
Dispatching of Notice to Stakeholders
If the High Court approves the application, the company is required to send a notice regarding a meeting to all the stakeholders, i.e., shareholders and creditors. The notice must be sent at least twenty-one days before the date of the meeting. Moreover, the notice must also be published in two newspapers, i.e., in English and Vernacular newspapers.
Filing of orders with the ROC
Thereafter, the company needs to file a certified copy of the order passed by the High Court with the ROC (Registrar of Companies) within the stipulated period as prescribed by the High Court.
Merging of Assets and Liabilities
The concerned companies can then combine their assets and liabilities as per the stipulations mentioned in the merger proposal to complete the process of merger.
Listing of Shares
Lastly, when both the companies have been combined as one and received the status of a separate legal entity, the company formed is qualified to list its shares on the recognised stock exchange.

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