Merger and Acquisitions Services
| June 16
THE SEVEN STEPS TO A SUCCESSFUL MERGER
In an increasingly competitive market, it is imperative for
companies to strike the right deal at the right time to pursue growth
opportunities and strengthen financial performance. These growth strategies
entail expansion of existing services, developing new service lines or markets
by entering joint ventures or by acquiring companies of the competitors or
It is a proven fact that an acquisition can dramatically shift the
position of an organization to a more advantageous one. This makes acquisition
one of the most favourable tools to expand ones’ business as the advantages of
this process often exceed those of other growth strategies. We outline some
1. Advantage on access: Acquiring a company with new attractive
markets and improved client accessibility is one of the best ways for enhancing
access in the existing as well as new markets;
2. Leveraged Competitive Position: Acquisition leverages the company’s
competitive position in the market, for instance, a company previously being in
a subordinate competitive position may achieve a more dominant position after
merging with a competitor company.
3. Improved capacity without capital expenditure: Acquisition helps
to get access to improved technology, talent pool, operational capacity for
services at a lower cost and faster otherwise it has proven to be more costly
and time-consuming if they were to be imported.
A successful merger is the pre-requisite to achieve these
advantages and for a merger to be successful, there can be no substitute for a
full proof strategy and proper assessment and planning.
We, at Findoc, believe in this seven-step process for a successful
merger and we have an impeccable track record of being successful in
The seven steps:
1. Determination of growth and market services: The company management contemplates the acquisition process when
there seems to be a growth opportunity for the company with improved market
services. However, the superficial idea of growth is not helpful, rather it has
to be a thorough analysis of the growth potential. The company leaders should
collect and analyze data extensively which should include the area of business,
demographics, client base, profitability, competitive position, costs, consumer
Market Example: Recently we saw a merger between Bank of Rajasthan
and ICICI Bank. So we can infer that when ICICI planned to acquire Bank of
Rajasthan in the year 2010, it must have seen a host of growth opportunities
especially in enhancing branch networks. In northern and western India. This
deal is a perfect example of a merger between an entity with a sturdy franchise
base with a company with a strong capital base.
2. Identification of target candidates: The
second most important step in the process of merger is the identification of
the potential candidate for the merger. The identification should be based on
the analysis of whether the target candidate can meet the strategic and
financial growth objective of the acquiring company. This involves the
calculation of risk and devising ways to minimize them while maximizing
Market Example: The best example in this step is the Axis-Enam
merger. When Axis wanted to start investment banking, they would have taken a
lot more money and time in setting up a system of their own. So Enam who is
involved in this field was the best choice to meet the strategic and financial
growth objective of Axis.
3. Assessing the strategic and financial position: This
is the assessment stage just before the decision-making process. AT this stage
it is important to ask certain questions like:
What will be the benefits after
What are the potential risks?
What is the stance of the decided
target company compared to the other target companies?
This step entails a holistic assessment of the financial condition
of the company along with its credit position. This assessment mainly focuses
on the revenue of the company and a comprehensive study of its balance sheet.
Market example: When iGate acquired Patni Computer along with a
private equity firm Apax Partners, the success of that deal was based on the
assessment of the ‘strategic financial position’ and a sustainability test of
the deal. iGate was ready to finance the deal consideration value of 1.22
billion dollars through debt and equity financing, cash in hand, and through a
public offering of up to 10 million shares. Viscaria Limited is backed by funds
and advised by Apax Partners who will invest in iGate in order to acquire the
majority stake in Patni Computers.
4. Decision making: After the previous steps of
identification and analysis it is now time for the Board to take a call for a
go or a no-go decision. While taking this decision, the Board deliberates on
the fact that whether the strategic value addition is an interesting factor to
proceed with the transaction.
Market Example: When the Satyam Mahindra merger was in talks, it
was a situation of the dilemma for the Mahindra leaders after the Satyam scam.
However, after an analysis of strengths and weaknesses, the leaders took a bold
decision to proceed with the proposed merger because they concluded that the
benefits will outweigh the drawbacks and risks.
5. Valuation: The fifth and most important step
is the assessment of the value of the target. This step involves evaluation and
selection for alternative structures for the process of merger. Suitability
check of the merger plan and structure along with the valuation is the crux of
this test. The valuation process should be practical and realistic
Market Example: In 2020, the most talked-about deal of Reliance
Infratel and GTL Infrastructure was called off on valuations. It was said that
R-com was the larger company with the dominant driver for valuation. When it
did not find the cash-swap ration was favourable for them, they called off the
deal. This implies that the companies have an implied obligation of not
underestimating their value also at the same time should not fall prey to the
6. Due Diligence, Negotiation and
Execution: Once the deal is proposed and accepted, it becomes
an indispensable step to carry out a thorough due diligence process of the
target company to assess fully the issues, risks and opportunities linked to
the transaction. Due diligence is a process of review of the target’s
financial, legal, and operational position after which the concerned parties
indulge in negotiating for entering definitive agreements. This step also
involves the assessment of required regulatory compliances.
7. Implementation: This is the ultimate step of
the process of the merger when the performance of the merger is monitored. The
monitor seeks to analyze the following questions:
1. Is the management successful in making
the difficult operational changes for achieving the financial benefits
2. What are the implications of Human
3. What are the legal and regulatory
challenges involved and addressed?
4. What are the risks of failure
(financial, organizational, etc)?
Analysis of all these questions ensures a smooth amalgamation
Market Example: In the Axis-Enam deal, it was decided that for a
smooth implementation of the amalgamation process, Enam Chairman Bhansali will
be an independent director in the Axis Bank’s Board and also director of Enam,
Mr. Chokhani would be the CEO of Axis Securities. The change in the Board of
directors and operational management was expected to help in securing the smooth
implementation of the deal.
is a given fact that most of the deals fall short of their expectation in
reality. The main reason which contributes to this poor performance is the poor
implementation and monitoring process. The Company usually finds the right
target but fail to stick to the planned process of execution. To avoid this,
these 7 steps are a golden rule for a successful merger or amalgamation.