What does Mergers and Acquisitions of the company mean?
Mergers and Acquisitions are often referred to as M&A in a shorter form. Organizations are increasingly embracing such approaches to expand and succeed in a competitive market. The merger is described in the Companies Act 2013 as a fusion of two or more business entities to form a new company. The sale, on the other side, entails one group selling out to another, in which the buying party incorporates the two entities to create it a new company.
In layman's words, the merger is an arrangement that is focused on the two existing businesses that aim to form an all-new company. Broadly, an acquisition was made for the purpose of expanding the business unit and broadening the hands in every part of the market, making it possible to enter new markets and achieve market strength.
When an existing company or a new company acquires another company with a legal agreement, the sale is referred to as the acquisition.
What are the reasons for initiating Mergers and Acquisitions?
Merger and Acquisition are key instruments that are regarded by businesses for the purpose of introducing their products globally and also for sustainable development. Below mentioned are the objectives behind the mergers and acquisitions-
- Curtailing the competition
- Establish a bigger market share
- Create a stronger brand
- Reduction in tax liabilities
- Set off the losses of one entity against the profit of the other.
How many types of mergers and acquisition are there?
Below mentioned points categorizes the types of Mergers and Acquisitions in India–
- Horizontal mergers – Merger between enterprises dealing with the same or similar goods or services.
- Vertical mergers – Merger of companies delivering complementary goods or services.
- Co-generic mergers – Merger of companies that are connected to each other
- Conglomerate mergers – Merger between entities that are running the different types of business
- Cash mergers – Is a merger in which investors receive cash rather than shares of the merged entity.
- Forward mergers – Merger of an entity with its buyer
- Reverse mergers – Merger of an entity with its supplier who supplies raw materials
These are also known as takeovers involving the sale and purchase of entire business between the parties involved. It might be friendly or aggressive. Usually, the method comprises either the purchase of assets and liabilities of the target company or the transfer of shares in the company. The demerger is also a type of acquisition where a single organization is separated into two or more entities.
C. Joint Ventures
If two or more parties work together for a defined purpose – either entering a new sector or a new business or for a particular skill – the adjacent organization is called the Joint Venture. Such venture might be for a limited or unlimited period of time / duration.
What steps are involved for Mergers and Acquisitions in India?
The entire merger and sale process is done under the Companies Act, 2013. In the context of mergers and acquisitions, we focus on analyzes and perspectives and access knowledge and findings on how better mergers and acquisitions can be done throughout India. Full execution is carried out for Merger and Acquisition with a technique to maximize the advantages while keeping transaction risks to a minimum level.
Below mentioned you need to keep in mind while going for Mergers and Acquisitions in India-
1. Checking the Object Clause of Memorandum of Association
Initially, you must verify the Memorandum of Association (MOA) of both the companies which are going to merge in order to determine whether power of merger is vested in MOA or not. The only purpose of evaluating the MOA of both organizations is to decide what all actions are allowed.
2. Share a word with Stock Exchange
It is necessary to notify the stock exchange regarding the proposed merger and acquisition and to send all copies of the agreements, notices and instructions to the stock exchange in a reasonable time.
3. Framing of a Merger Proposal
Confirmation on the draft of the merger shall be presented by the Board of the Director of both the companies and who shall also pass the resolution in which the key managerial personnel and other executives are authorized to pursue the matter further.
4. Filing an Application with the High Courts
Upon receiving approval on a proposal from the Board of Directors, the merging firms must submit an application to the High Court of Hon'ble of the respective State where the company's headquarters is located.
5. Dispatching notices to Shareholders and Creditors
With the prior approval of the High court, a notice should be sent to all the With the prior consent of the High Court, all investors and lenders of the firms should be informed of the meeting to be held and 21 days notice is needed. The notification shall be issued in two newspapers, one in the vernacular language of the State and the other in the English language.
6. Orders filing with the Registrar of the Companies (ROC)
High Court's order's certified copy of the State must be registered with the registrar of the firms within the limits laid down by the High Court.
7. Merging Assets and Liabilities of both the Company
Both the firm’s assets and liabilities should be passed on to the merged entity.
8. The issue of Shares and Debentures for subscription
Once the merging entities come into existence as a separate legal entity, the corporation can issue securities and bonds on a stock exchange listing.
Following mentioned steps are also required to cover for Mergers and Acquisitions:
- Target company’s market valuation by the acquiring company.
- Contacting with the target company by the acquiring company.
- Signing of the NDA (Non-disclosure Agreement) by both the parties.
- According to the due diligence list which is sent by the acquiring company, all documents and related information is transferred to the acquiring company as well as the Letter of Intent is signed.
- At last final bargaining is carried out and the Definitive Purchase Agreement is finalized.
What is the requirement of Merger & Acquisition Advisory Services?
Mergers and Acquisitions are a good means of achieving success for an organization, yet they require complicated measures and procedures to be taken by the entities involved in forming a new entity. The Companies Act, 1956 and 2013 needs to be followed for M&A to get through, with involvement from Court, SEBI (Securities Exchange Board of India) in case of listed companies, the Central Government in the form of an Official Liquidator (OL) and the Regional Director of the Ministry of Corporate Affairs etc. Since there are different parties involved, the system is time-consuming, time-consuming and sometimes troublesome.
It is therefore best to contact a consultant on mergers and acquisitions or to take advice on mergers and acquisitions, as the process involves the stringent intervention with laws and regulations and the violation of which will cause trouble in the future. There are a range of Mergers and Acquisitions consulting firms that consult their customers through this transformation process including complex financial, legal and accounting concerns.