07 July, 2014

Dynamics of Arranged Marr… Mergers and Acquisitions

Dynamics of Arranged Marr Mergers and Acquisitions

10 steps on how Merger and Acquisition deals are arranged in our country. I hope this article proves useful to all the uninitiated, i.e. the novice managers and the hopeful bachelors.

Step 1: Identification

This is the simplest step. Once you realize that it’s time to grow, the first step is identification. You may go out in networking events to find the suitable match or might set up I-Bankers who live and breed for such needs. Another part of this step is to convince your family company to approve of the Merger. Mostly, if the contract is initiated by an I-Banker, the company would be more than willing. If the senior executives of the company realize that it’s you who is deciding which company to acquire, eyebrows are raised. Basically, it’s okay to trust a company suggested by a stranger rather than the future manager of that company.

Step 2: Expression

Here comes the tricky part. You need to tell the other party that you’re interested. But you can’t be too direct or sound too needy or look unappealing or answer questions or be in a position of a trade whatsoever. So you leave it to the pros. The ones who don’t mind doing the dirty talk. After all, why would you want to reveal yourself to a stranger you want to build a relationship with? You’d rather tell your situation to another stranger and let that stranger chalk out the finer points of the deal. You don’t mind what part of your message has been mistranslated or left unspoken. Your only concern is, if the expression of interest is expressed. Rest can be sorted later.

Step 3: Dating

Here comes the part when you get the (only) chance to do what you will. It includes completing minor projects together and getting to know each other’s working style. Of course this is after the deal has been more-or-less formalized. Breaking apart now raises questions, by people who need not be answered. Yet, we wouldn’t like to be on the receiving end of those questions. So we present the best of ourselves to the adversary and try to adjust to the differences. After all, a Merger is about some amount of compromise. Isn’t it? There’s very little which can go on in this phase. And if it does, the next prospective Merger would want to know what went wrong.

Step 4: Due Diligence

While the dating period continues, one needs to do a thorough background check. Of corpses in the closets such as unpaid debts and list of creditors. A life-history of the backgrounds of all the Directors of the companies is scrutinized to find the tiniest bit of red ink to store in mind. It would come in handy when the negotiations phase arrives. But such due-diligence is done in the strictest of NDAs (Non-Disclosure Agreements). Such information is never for sale, unless the price is high enough.

Until now the break from the deal wouldn’t have been as bad. Only a social frown would be incurred of those who really didn’t have much else to do. Hereon, a break up would mean a break-up fee incurred in cold hard monetary terms. Hereon, the I-Banker is content that it’s only a matter of time before he gets his commission.

Step 5: Advisory

Now we start to talk about the terms of the Merger. The financial, marketing and HR positions of the 2 companies before and after the Merger. Note that this phase is carefully kept after the Due Diligence phase. You do like to look at the product before you buy it. But these people just forget that you prefer to buy from a shop which tags the products’ MRPs rather than the one where the shopkeeper is the sole decider of the amount according to his whims.

Anyways, we now discuss on the monetary issues. How much would the company be sold for and what would be the gains of each side. “A trade cannot occur unless both parties see unequal value in the trade.” True; but only when the buyer and seller are the owners of the product and the money. In case of Mergers, the deciders are not the owners. And so the liability of squandering assets is not theirs. The Managers and I-Bankers craft all necessary papers to show that the transaction has been fair in all respects except one – the understanding of the owners of the company.

Step 6: Visit

This is the day when the office is cleaned and the desks are cleared. When no one is absent and everyone wears the brightest colors. The day of the visit. The most important (and one of the last) days in the Company’s life as we know it. It’s accompanied with food and jibber-jabber. There’s very little which could happen to upset either party in this phase yet its one of the most important phases before the Merger. This is the phase which sets the post-Merging expectations. This phase is the reason why most Mergers fail to integrate in the culture of the parent company.

Step 7: Verification

So we’re all set to do the Merger. But we’re not convinced. The I-Bankers seem positive and there’s just too much white to be seen. The negotiation times are coming close and you wonder if you have enough dirt on the opposite party to squiggle them into your terms. You grow desperate. And now you call the vendors, lenders and suppliers of the other company. Anyone from the IT guy to the liftman of their building. Anyone carrying that tit-bit of information to change the game. These calls do little but add spice to otherwise dull lives. Sometimes, the liftman would be trained to utter the right words. After all, both parties know how the game is played. And once both parties realize it, they smile in admiration and realize that the Merger will be of 2 equals.

Step 8: Negotiations

While the 2 parties have been busy in their scrutiny’s, the I-Bankers have been busy tabulating the price of the Merger. Who is to pay what? Each side employs an I-Banker of their own who represent the 2 opposing parties. Each party tells their I-Banker to gain more and pay less. Each party wants more value for the amount they pay. But who decides value? The I-Banker ofcourse! They collude and decide on the price bands they’ll show to their clients leaving them with practically little option. The parties are busy trying to determine the price bands of the other side to offer them the lowest possible value. While the I-Bankers are the ones who know precisely how the game will be played. The negotiation is as real as an IPL match after that. It’s the 3rd parties, not the owners, who make the real profits out of the deal. Even if the Merging entities are not compatible, the Merger would be pushed. Because the I-Banker knows best. And what does he want? In the words of the great Matthew McConaughey, “Commission Baby!”

Step 9: Creating Synergy

It does not matter if the companies were compatible or not. The fact remains, they have been Merged at the profit of 3rd parties who really don’t care if the marriage deal works out. The 2 companies try to co-exist and soon learn a way to cooperate. This is usually done by creating a synergy which depends on the cooperation of both the companies. For the sake of that synergy, the deal continues. Now the new question arises, who capitalizes more on the synergy? Which side gains more out of it? And till that question remains, the “Merging” is still in progress, but the I-Bankers have vanished. Until…

Step 10: Divorce

This is a rare case of Mergers. Once the 2 parties are sure that no amount of synergy can keep them together and unforeseen circumstances are functioning to fail the deal, they decide to leave each other back to their own ways. But they’ve been changed forever now. Specially the one who owes the alimony. In view of respect for one-another and the deal, they didn’t sign a pre-nuptial agreement and now the terms of the divorce need to be negotiated. The secrets have been told and all considerations have been taken in account. The repercussions will be worst than a break-up. Yet someone says that a divorce is the only way out. Who? Another set of I-Bankers. Why? Commission Baby!