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Merger and Acquisition

Mergers and acquisitions (M&A) are characterized as company consolidation. Mergers are the merger of two companies to become one, differentiating the two words, whereas Acquisitions is one company that is taken over by the other. M&A is one of the most im

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Mergers and acquisitions (M&A) are characterized as company consolidation. Mergers are the merger of two companies to become one, differentiating the two words, whereas Acquisitions is one company that is taken over by the other. M&A is one of the most important areas of corporate finance. Generally speaking, the logic behind M&A is that two independent companies together generate more value than they are on an individual stand. With the goal of optimizing capital, businesses continue to analyze numerous opportunities along the mergers or acquisitions path.

When it comes to organizational restructuring, the cycle of mergers and acquisitions is the most complex and important. Really, one wrong decision or one wrong action will reverse the results in an incredible way. This should definitely be done in such a way that a firm will achieve full advantages with the contract.

Important Steps in Merger

➲  Valuation of business

Company valuation or appraisal is the first mergers and acquisitions method. This move involves evaluating and determining the target firm's current and potential market value. A detailed review is carried out into the company's past with respect to capital gains, organizational structure, market share, distribution channel, corporate culture, unique business strengths, and market reputation. There are also other things that should be weighed in order to determine whether or not a proposed firm is correct for a successful merger.

➲  Proposal Phase

The planning phase is a process in which the company sends a plan for a merger or acquisition with full details of the transaction including the plans, number, and commitments. This proposal is most often sent through

➲  Business dealing structure

If the merger and exit plans are finalized, the new organization or the acquisition company must take strategic campaigns and establish creative strategies to boost business and its reputation. The entire process stresses the structuring of the business agreement

➲  Integration stage

Each stage involves each of the companies getting their own criteria together. This covers the whole process of writing the contract, signing the agreement and negotiating the deal. It also describes the possible relationship parameters between the two.

➲  Operating Venture

It is equally necessary to operate the venture after the signing of the agreement and entering into the venture. This operation is attributed to meet the standards of all the companies involved in the process, both said and predefined. The post-deal M&A agreement requires all the necessary steps and activities that work to meet the requirements and wishes of the companies involved

Reasons for Mergers and Acquisitions:

➲  Economic leverage for lower capital costs

➲  Improving business efficiency and increasing development

➲  Diversification of goods or markets for higher growth

➲  The market share and preparing for wider consumer access

➲  Competitive realignment and technical change

➲  Tax considerations (while making a profit in merger and acquisition that profit is not treated as capital gain as it is exempted under the act)

Process of Merger:

Step1 – Draft scheme of compromise and arrangement and call for a board meeting for approving this draft

Step2- Company will submit the application of Compromise and arrangement to NCLT under form NCLT-1 along with NCLT-2 & NCLT-6 (NCLT-2 is a form of admission and NCLT-6 is affidavit) and declaration of latest financial statement, Auditors report, Pending investigation and other relevant declaration

Step3- After receiving the application NCLT may call for meeting between company and creditor or any class of them or between company and member or any class of them or as per the case.

Step4- the company will provide notice of meeting to every creditor and member as the case may be and notice is send individually in form CAA-2 at least one month before the date of the meeting. Along with this notice of the meeting must be advertised in two newspapers, one in vernacular language and the other one in English. The company should provide notice to the stock exchange and to SEBI if the securities are listed.

Step5- Company should also forward notice to regulatory authorities like RBI, Income Tax, SEBI, etc and seek their representation in form CAA-3

Step6- Scheme of compromise or arrangement may get approved in the meeting by in favor of voting should:

  • Majority in number
  • 3/4th in value

Step7-person or group of the person holding 10% of the voting power or creditor having 5% or more outstanding debt can raise objection for such compromise or arrangement

Step8- Result of the meeting should be forwarded to NCLT in form CAA-4

Step9- In within 7 days from the date of submission of the conclusion of meeting company should apply a petition for approval of the scheme to NCLT in form CAA-5

Step-10 NCLT will fox date for hearing and this hearing date should be advertised by company in the newspaper at least ten days before the date of hearing

Step11- On the `hearing date, NCLT may approve the Scheme or may reject it. if approves then it will approve in CAA-6, and after approval in within 30 days company should file approve a scheme to respective ROC in form CAA-7

Post Merger Approval:

NCLT will review whether the approved scheme is complying properly or not, if not then NCLT may make modifications in such an approved scheme after modification scheme is not applicable then NCLT will pass an order of winding up.

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