Mergers and Acquisitions Process Archives | Imarticus

2016 M&A Round Up – II

indian-ma

Continuing Part I

Goldman Sachs remains top dog.

Despite missing out on the two largest deals of the year- the $108 billion AT&T deal for Time Warner and Bayer’s $66.3 billion deal for Monsanto, Goldman Sachs still managed to lead the global M&A Volume ranking in 2016 and worked on $919.7 billion of deal activity accounting for 25% market share. This means it was still part of six of the eight biggest deals.

Record five year high for India M&A
While Global performance was lack luster, Indian M&A rebounded with a bang and Mergers and acquisitions deals in the country hit a record 5-year high at $61.44 billion, around Rs 4 trillion, according to news reports. News CorpVCCEdge reports that volume remained high at 1,002 up from 995 deals in 2015. But the kicker was the value which was up 159 percent from$23.71 billion in 2015. Even more interesting was that Indian Domestic M&A contributed to more than half of the value and more than 67 percent of volume as 633 domestic M&A deals accounted for $32.77 billion. Once you drill down, however, you see that three deals accounted for this massive jump – Essar Oil Ltd, Max Life Insurance Co Ltd and Reliance Communications. Private equity investors exited a total of 239 investments and pocketed $6.79 billion, which is almost 17 per cent more in value terms year on year and also the highest in the last five years. And after what feels like an infinite rut for IPO’s, the Equity Capital Markets bounced back with a five year high and $4.12 billion was raised across 93 IPOs.

Indian Private Equity- More bark than bite

PE deal volume fell by almost 25 percent to 1309 deals, with deal value crashing 44 percent to $12.38 billion. Start up funding contributed to 57 percent of total private equity investments and while bankers expect to see more seed money flowing into sectors like Fin Tec, Healthcare, Education and Travel, early stage investments showed a significant decline of 39 percent to 1.59 billion which shows that most reports were more hype than real action.

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Investment banking fees hit record lows.

It looks like the good days of 2006 might never return for bankers even as M&A deal volumes and values seem to be making a comeback. Investment banking fees fell 7 percent worldwide in 2016, dragged down by a 23 percent fall in equity capital market fees. What’s even more surprising is that despite Indian M&A enjoying a record year in 2016, fees dropped 11 percent and banks earned a measly $440 million in revenue with most of that going to foreign banks.

2017 to be as good or bad as 2016

While capital is available and cheap, bankers fear the consequences of geopolitical events but state that CEO confidence is at a high. With regard to Indian M&A, everything depends on the budget in March, which might see more reforms. We will just have to wait and see. We will analyze forthcoming 2017 trends in the next few posts.

 


 

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  • January, 11th, 2017
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2016 M&A Round Up – I

mergers-and-acquisitions

by Reshma Krishnan.

2016 was a good year, but the glory days are clearly behind us.

‘Remember 2016?’ is going to be a sentence uttered by many in years to come. It was a watershed year for many reasons. There was the UK’s Brexit vote which led to the pound falling significantly in early hours as well as large number of failed deals, and finally, of course, the rise and rise of Donald Trump who assumes the office of the President of the United States on the 20th of this month. It was however a record year for Indian M&A even if Investment Banking fees both globally, and here in India, has witnessed quite a dip.

Global Performance dips after three consecutive year-on-year increases

2016 saw a fall in Global M&A total deal value to $3.84 trillion, a significant drop from the 2015 annual record high of $4.66 trillion. AT&T’s $107.9bn bid for Time Warner – announced in October 2016, was the largest deal of the year, which of course led to October becoming the biggest month on record in terms of value for global M&A with $600.8bn. Volume also fell in tandem with an 18% year-on-year decline. Cross-border M&A was also down 3% globally year-on-year, but China outbound volume hit a record high at $225.4bn, as did US inbound M&A at $486.3 billion. But another standout feature of 2016 was how many deals failed- almost 570 billion, the largest number since the 2008 crisis. This was primarily driven by a increasingly strict regulatory environment, which lead to the breaking down of the $160 billion Pfizer –Allergan deal. Winners curse and buyer-seller disconnect were other reasons cited for M&A failures, showing that companies are rethinking how much they are willing to pay for assets.

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Technology led the way for the second year in a row.

Clocking in $612.9bn in deal value, 2016 was hot on the heels of previous year but didn’t quite manage to catch up to the 2015 record of $691.6bn. The $ 47bn Qualcomm –NXP Semi conductor deal was not only among the largest deals of the year, but the largest ever deal in the chip industry. At a decent second came Softbank’s acquisition of ARM holdings at $31.6 billion followed by Microsoft acquisition of Linked In at $26.2 billion, which came in third and was the largest acquisition in social media platform. An interesting outcome of the top eleven deals of the year showed that while the two largest, in terms of value, belonged to actual hardware technology, seven out of the eleven were software services including Quintiles Transactions buying IMS Health and Oracle buying Netsuite. Bankers expect this trend of convergence to continue in 2017 as large firms hanker after AI, Security, Big Data and Cloud technologies to expand their reach.

  • January, 7th, 2017
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Investment Banking – Understanding the Deal – The Deal Process (III)

Financial Graph

As we discussed in

Investment Banking- Why do Sellers use an Investment Banker (I)
Investment Banking- Understanding the Deal: The Pitch Process (II)

So now that the banks have pitched for the deal by showcasing their industry knowledge, negotiation and deal prowess and asset valuation, one bank is chosen to exclusively market the asset and execute the deal. The business of developing relationship and signing mandates by going to meetings, researching the industry and pitching is called origination. It is often done by the business development team in large bulge bracket investment banks like Goldman Sachs and JP Morgan. Once the deal has been mandated and a Client Agreement has been signed, the execution team takes over. In a boutique bank like Avendus or Mape, same teams often specializing in an industry handle both origination and execution.

The deal process for buying and selling are slightly different and today we will be focusing on selling an asset. A typical advisory structure.

Investment Banking Deal Process
This is the usual process of a deal

1. Preparation –Diagnostics and Consolidation of information- this is where the execution team visits the site and spends time understanding deal nuances, strategic considerations like potential valuation and transaction process once they look at all the information.
•Review The Business, Financial Results & Prospects
•Develop & Refine Financial Forecast
•Gather Financial & Legal Due Diligence Material
•Analyze Structural Considerations, Including Tax & Accounting Issues
•Review Tactical & Strategic Considerations
•Analyze Structural & Timing Considerations
• Create deal Collateral including Information Memorandum, Financial Model and Teaser

2. Planning– Establish Valuation Based On Standard Valuation Techniques
a. Review Strategic Options In Light Of Valuation & Structural Goals
b. Analyze Transaction Structure Alternatives
c. Assist In Development Of Appropriate Acquisition Contract

3. Marketing– Use deal collateral and contacts to
a. Position Company To Appeal To Specific Buyers
b. Identify & Screen Potential Buyers
c. Prepare Management Presentation
d. Develop Data Room and coordinate site visits
e. Conduct Marketing Process With Strict Time Guidelines
f. Minimize Business Disruption

4. Due Diligence and Bid Evaluation
a. Compare & Analyze Bids & Considerations
b. Evaluate Company’s Options
c. Due Diligence by Buyers
d. Analyze Tax & Structural Impact Of Proposed Transaction

5. Negotiation- Negotiate pricing through auction rounds. There are different ways in which you sell or buy a company (See box below) but all of it involves a fair amount of negotiation and many rounds of it. A couple before the due diligence and a few after.

M & A process
a. Negotiate Price
b. Negotiate terms of sale or SHA and SPA terms
c. Negotiate R & W terms
6. Documentation and closure- A primary legal process but also important for bankers as they coordinate everything. This is one of the reasons why bankers wear many hats. A salesperson, a lawyer, an accountant and sometimes even the local errand boy.

Every part of this process is delved into in detail in FMVC and Diploma in Corporate Finance, India’s leading programs in Financial Modelling and Corporate Finance.


 

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  • October, 12th, 2016
  • Posted in