Mergers and acquisitions (M&A) are characterized as solidification of organizations. Separating the two terms, Mergers is the blend of two organizations to shape one, while Acquisitions is one organization taken over by the other. M&A is one of the significant parts of corporate money world. The thinking behind M&A by and large given is that two separate organizations together make more worth contrasted with being on an individual stand. With the goal of riches augmentation, organizations continue assessing various open doors through the course of merger or securing.
Mergers and acquisitions are considered as one of the courses by which associations can extend their quality into new markets across geologies or item portions. Basically these types of development are outer in nature in that they all have a component of unfamiliar nearness appended to them. These strategies for extension of business have the upsides of diminishing dangers as there is another nearby information or ability which is included onto the association. There is potential for the obtained association to acquire new information and collaborations to all out of association which might be significant in working in the new economic situations. Be that as it may, alongside the focal points to the association there are likewise related burdens additionally of falling into obligation because of the utilized idea of the obtaining and higher danger of liquidation of the association. These elements have been broken down beneath because of insolvency and the bankruptcy.
IMPORTANCE OF M&A FOR COMPANIES BEING BANKRUPT OR INSOLVENT
The Insolvency and Bankruptcy Code(IBC) was sanctioned in 2016 with an intend to solidify then current liquidation law into a solitary law. Preceding the IBC, wrapping up course was followed under the Companies Act, wherein there was no push to resuscitate the organization. The past chapter 11 law focused on liquidation of the organization by selling its advantages and paying the loan bosses. Further, such issues moved at an agonizingly slow clip because of broad inclusion of courts at each stage.
As opposed to the past chapter 11 law, the IBC followed an alternate methodology directly since its origin and further advanced in the last 4-5 years. Different changes were presented remembering different legal proclamations and new turns of events. The primary qualities of the IBC are:
- Time bound goal: The IBC gives exacting courses of events to finish of different phases of procedure. The greatest timeframe for goal is 9 months (counting the effortlessness time of 90 days). In spite of the fact that, the procedure once in a while surpasses the above courses of events yet it’s still more powerful than the court driven procedure.
- COC driven procedure: Under the IBC, a board of trustees of banks are selected which have wide powers to support goals and the procedures are run/overseen by the Resolution Professionals. The job of the settling authority is just restricted to checking the procedure with the help of RP as and when required.
- Endeavors for goal: In the prior chapter 11 procedure, it was not centered around sparing the organization from going down the way of twisting up. As an outcome of the equivalent, the bank needed to endure bigger shots on their and unstable leasers were at more prominent misfortune. Notwithstanding, in IBC, there is an endeavor to resuscitate the organization by welcoming goal recommendations from industry. These goal recommendations offer a superior recuperation bundle to banks and furthermore spare the substance from going into the liquidation procedure.
As called attention to above, IBC procedures are planned for giving a goal to corporate account holders as against the liquidation. Because of these reasons, it has opened new entryways in M&A and M&A of troubled resources have advanced as a whole new practice for law offices.
The IBC is going about as a separating specialist for the economy by tidying up the troubled resources and making them beneficial (as effectively expressed previously). Notwithstanding the abovementioned, it is additionally teaching the organizations/advertisers to make determined moves regarding their obtaining and causing liabilities. Additionally, the banks/money related organizations are likewise more cautious considering their previous history and rising NPA which has additionally prompted total update in the financial framework, for example, merger of PSU banks. The IBC achievement can likewise be credited to the proactive job the legislature has played in executing the equivalent and concurrent help from the legal executive. Further, with some large goal effectively embraced through IBC course and snappy change to cull the escape clauses has additionally put confidence on its viability.
Merging a company which is on the pathway to bankruptcy comes with an unimaginable risk of successful execution of a merger. Mergers and Acquisition require careful consideration of certain things which is crucial for long term viability of company.
A merger is a triggering strategic decision which requires a lot more than just an execution. Many researches have been performed which time and again suggests that expected synergies are mostly failed to achieve if some of important thread lines are not dealt with care . Performing due diligence i.e. valuation of company’s assets and liabilities is the first and foremost crucial step before any merger. Sorting out legal issues and execution risks is another important step towards successful outcome. M&A process requires due analysis and valuation of acquisition targets which involves various steps in the process-
- Building an acquisition strategy- A good strategy involves having an unambiguous idea of all the expectations from the acquisition. Developing a good acquisition strategy broadly focuses on gaining access to new product lines and to new markets.
- Setting up a key search criterion- Next step involves determining the main criteria for looking into the potential target companies. Geographic location, customer base, profit margins are the few search criterions which are a part of analysis process.
- Finalizing potential targets- The acquirer utilizes different criterions to look for the potential targets and then analyze them with due satisfaction to finalize the tareget.
- Acquisition planning- Acquisition planning involves building up the contracts with several companies and sort out an offer with good value. The main purpose of acquisition planning is to get required information of target companies and check the required perquisites.
- Valuation of target company- Thorough valuation of the target company aims to provide an insight details of current financials etc. valuation process enables the acquiring company to evaluate the financial position of its suitable acquisition target.
- Negotiations – Negotiations is the process of constructing a reasonable offer. After the initial offer is presented, both the companies negotiate as per their terms and requirements.
- Due diligence of target company- Thorough legal diligence involves assessment of the details of the company and objects of the company. In depth examination and analysis of target companies’ operation includes valuation of assets, liabilities, and all the financial metrics of the target company.
- Contract- Purchase and sale contract is the next major step after due diligence is completed with no concerns and ambiguity. For the execution of final contract of sale, the involved parties make a contract and decide whether it is to be an asset purchase or share purchase.
- Acquisition strategy- The acquirer in this stage explores the different financing options after the sale and purchase agreement is signed and verified.
- Closing clause- The acquisition deal closes with the transfer of shares or asset and the companies work together on the process of merging the two firms.
In the vast growing world mergers and acquisitions for the distressed companies is a blessing in disguise. M&A not only reduce the operation cost of companies, but it is an opportunity for capability upgrade for the sinking companies and it ensures survival with elimination of direct competition. The only key is to cherry pick and then make the procedural moves for fruitful and fresh beginnings. India has long way to accelerate mergers and acquisition through various transformations in the recent enactment ‘IBC’. The coming sunrises will be a hope and attempt to give more and more opportunities to the investors to acquire and merge with companies at cheaper and best deals.
In the current prevailing situation of pandemic various companies are under major stress and some of them has completely sunk which may not be able to regain its identity without recovering from the piles of losses. Government shall closely watch this hue and IBC is the only rescue which will turn the present opportunities of mergers and acquisitions.