MERGERS &
ACQUISITIONS
Strategic perspective
Strategic approaches to M&A
Buyers are primarily driven by commercial
considerations rather than financial considerations
Financial acquisitions are often opportunistic deals
that do not fit into any broad plan for developing
business
Combined resources and capabilities should create
a stronger competitive advantage
Reliance 5 G dreams……
https://www.financialexpress.com/industry/mukesh-ambani-digs-into-modis-make-in-india-reliance-to-make-electronics-in-jv-with-sanmina-of-us/2449578/
Reliance 5 G dreams……
The joint venture will create a world-class electronic
manufacturing hub in India
The companies will manufacture electronics
hardware with a priority on high technology
infrastructure hardware
The JV will also manufacture goods across industries
such cloud infrastructure, medical and healthcare
systems, and defense and aerospace
https://www.financialexpress.com/industry/mukesh-ambani-digs-into-modis-make-in-india-reliance-to-make-electronics-in-jv-with-sanmina-of-us/2449578/
Reliance 5 G dreams……
The announcement of a new JV comes at the backdrop
of Narendra Modi government’s flagship PLI
(Production-Linked incentive)
Scheme encouraging domestic as well as foreign
companies to manufacture in India by offering incentives
Electronics manufacturing, one of the 14 listed industries
under the PLI scheme, forms a substantial chunk
https://www.financialexpress.com/industry/mukesh-ambani-digs-into-modis-make-in-india-reliance-to-make-electronics-in-jv-with-sanmina-of-us/2449578/
Reliance 5 G dreams……
In February, the government said it expects investment
of Rs 34,090 crore under the PLI scheme for large-scale
electronics manufacturing by 2025
Reliance was listed as one of the beneficiaries in the
government’s PLI scheme for solar panel manufacturing
RIL’s unit Reliance New Energy Solar is expected to get
PLI benefits worth Rs 1,190 crore
https://www.financialexpress.com/industry/mukesh-ambani-digs-into-modis-make-in-india-reliance-to-make-electronics-in-jv-with-sanmina-of-us/2449578/
Reliance 5 G dreams……
For both growth and security, it is essential for India to
be more self-reliant in electronics manufacturing in
Telecom, IT, Data Centers, Cloud, 5G, New Energy
and other industries as we chart our path in the new
digital economy.
Through this partnership we plan to boost innovation
and talent in India, meeting both Indian and global
demand,” Akash Ambani, Director, Reliance Jio
https://www.financialexpress.com/industry/mukesh-ambani-digs-into-modis-make-in-india-reliance-to-make-electronics-in-jv-with-sanmina-of-us/2449578/
Strategic approaches to M&A
Reckitt & Sons started in 1840
The Reckitt & Coleman, UK
in 1938
Benckiser, Netherlands
Joined hands to form ‘Reckitt-Benckiser’ in 1999
To get complementary products and geographical penetration
Strategy?
Strategies define the vision, mission, plan,
objectives, and policies of a firm
Long-term horizon strategies carve out the design
and structure of the company
It enables firm to achieve its vision
Strategic approach gained importance in 1960s
Strategy?
Necessitated by the change happening to the
economies, industries, financial markets, corporations
and consumers
Emerging new businesses
Role of factors of production and knowledge economy
Strategic function emerged as “must for survival”
Strategy?
Strategy refers to plans made and actions taken for making
companies realize their intended objectives
Strategy help in dealing with uncertainty
Strategies are not static and are reassessed and reevaluate
continuously
Strategy is aimed at cost leadership, differentiation and
focus – Michael Porter
Strategic planning
Strategic planning process evolve with
Organizational culture
Structure
Value system
It creates the future of the firm and generally taken by care
by the top management
To be right for M&A……
Vision Mission
What is our basic purpose?
Core ideology
What is unique to our
Envisioned future organization?
What are principal
goods/services, present
and future?
Mission-vision-strategy…..
How to How do we
Why do
energize perform
we exist? and Vision Strategy
Mission better than
For whom motivate to statement formulation
statement competitio
do we stakeholder n?
exist? s?
“To be” Differentiation
“To do” Aspirational for competitive
Short Inspirational advantage
crisp Measurable Creating value
Annual plans
Leadership
Strategy
implementatio
Balance score n
card
Monitoring,
control &
corrective action
To be right for M&A……
Purpose: an articulation of functions through which a company intends to fulfill
its business
Value: a set cherished notions and beliefs that guides every move that a company
makes
Goals: the business targets into which a company’s vision, mission, and purpose
are translated
Strategy: a unified, comprehensive and integrated plan that relates the strategic
advantages of firm to the environmental challenge
Strategic management: it is a stream of decisions and actions, led to
development of effective strategy to help achieving corporate objective
Successful strategies (Robert Shirley)
Basic purpose or mission
Customer mix
Product mix
Service areas
Goals and objectives
Competitive advantage
Outside relationships
Strategic analysis for M&A
External analysis
Industry or competitors analysis
Internal analysis
SA: External analysis
Economic factors
Political and legal factors
Social trend and demographics
Technology
Geography
External analysis framework
SWOT PEST
Strength
Political
Economical
Weakness
Social
Opportunities Technological
Threats
PESTLE
Legal
Environmental
SA: Competitor analysis
framework
https://strategyforexecs.com/porters-five-forces-model/
SA: Internal analysis framework
https://www.business-to-you.com/value-chain/
Need to create competitive advantage?
To remain
Contextually relevant
Competitive
Culturally relevant
Companies need to invent sources of sustainable
competitive advantage
Contextually relevant
It means providing your customer, and prospect for
that matter, with content that is relevant to them.“
Relevance is a table stake across the entire lifecycle
of a seller-buyer relationship
As buyers move through on their journey, what is
relevant to them changes
https://blogs.oracle.com/marketingcloud/post/why-contextual-relevance-is-everything-marketers
https://www.forbes.com/sites/christinecrandell/2014/02/11/being-contextually-relevant-increasing-customer-loyalty/?sh=2b05e6c742fd
Contextually relevant
Relevance is defined by the situation, pressures and
feelings the buyer has at each step; in other words
it’s contextual
Understanding what is contextually relevant for
each buyer at any point in time is a major challenge
for vendors.
It’s not like you can constantly ask them.
Contextually relevant
There is a rise of software vendors that capture and
analyze buyers’ digital actions and turn them into
actionable behavioral patterns.
Coupling these behavioral patterns with in-depth buyers’
journeys, vendors can decipher each buyer’s context.
The result is actionable data to more effectively
personalize content, landing pages, search results, emails,
social communications, and sales and support calls, as
well as products to meet evolving customer expectations
If not ready for competitive advantage
Thomas and cook
Atlas cycles
Ramington Rand global leader for typewriters
Kodak camera
Strategy to create competitive advantage
Generic/business level strategy
Cooperative strategies
Corporate level strategies
Generic/business level strategies
Differentiation strategy
Low cost strategy
Focus
Quick response
Enough focus on cost and differentiation strategies since 1970. Japanese
started referring to this term as “atarimae hinshitsu” which means
“value is taken for granted”
Cooperative strategies
Collusion
Airtel and Escotel shared their towers
Maruti Suzuki and Toyota joined hands to cross sell
Strategic alliance
Value chain partnerships
Licensing agreement
Joint venture
Mutual service consortia
Corporate level strategies
Firm’s directional strategy
Firm’s portfolio strategy
Firm’s parenting strategy
Firm’s directional strategy
Growth strategies
Concentration
Vertical growth
Horizontal growth
Diversification
Concentric (related) diversification
Conglomerate diversification
Firm’s directional strategy
Stability strategies
Retrenchment strategies
Turnaround strategy
Contraction
Consolidation
Captive company strategy
Divestment/sell out strategy
Liquidation strategy
Captive strategy
https://economictimes.indiatimes.com/tech/ites/indian-it-eyes-captives-as-global-companies-rejig-operations/articleshow/76085011.cms
Axis bank and Citi bank
https://www.moneycontrol.com/news/business/companies/axis-bank-to-acquire-citibanks-india-consumer-business-for-1-6-billion-8295561.html
Axis bank and Citi bank
Axis Bank Ltd., India's third largest private sector lender,
has purchased Citi India's consumer business for Rs
12,325 crore or roughly $1.6 billion
Axis Bank will also purchase the consumer business of
Citicorp Finance (India) Ltd., a non-bank financial
company under Citi
The acquisition will give Axis Bank access to the best
affluent customers in India
https://www.bloombergquint.com/business/axis-bank-buys-citibanks-india-retail-portfolio-for-16-billion
Axis bank and Citi bank
The transaction will also include approximately
3,600 Citi employees supporting the consumer
businesses in India, who will transfer to Axis upon
completion of the proposed transaction
https://www.bloombergquint.com/business/axis-bank-buys-citibanks-india-retail-portfolio-for-16-billion
What deal includes?
An interest earning advances portfolio of Rs 27,400
crore. This includes credit cards, mortgage, personal
loans, asset backed finance, small business banking.
A credit card portfolio of 25 lakh cards.
Deposits of Rs 50,200 crore.
Wealth management assets worth Rs 1.1 lakh crore.
Seven offices, 21 branches and 499 ATMs.
https://www.bloombergquint.com/business/axis-bank-buys-citibanks-india-retail-portfolio-for-16-billion
Axis bank and Citi bank
https://www.bloombergquint.com/business/axis-bank-buys-citibanks-india-retail-portfolio-for-16-billion
Axis bank and Citi bank
"If you look at the AUM-wise growth in the wealth
management sector that we get, under Burgundy, it is a
clear 40-45% uptick that we get.
There is a clear substantial chunk of the business which
is coming from the very well developed Citi franchise,"
Ravi Narayanan, group executive- branch banking, retail
liabilities and products at Axis Bank.
https://www.bloombergquint.com/business/axis-bank-buys-citibanks-india-retail-portfolio-for-16-billion
Firm’s portfolio strategy
BCG growth share matrix
The growth share
matrix is a portfolio
framework
It helps companies
to decide to
prioritize their
different businesses
by their degree of
profitability
Firm’s portfolio strategy
Firm’s portfolio strategy
Firm’s portfolio strategy
Firm’s portfolio strategy
Ansoff matrix
https://corporatefinanceinstitute.com/resources/knowledge/strategy/ansoff-matrix/
Strategy implementation
Programs to implement strategy
Roles assignment to people
Setting priorities and time table
Mechanism to evaluate the effectiveness
Strategy implementation framework
Mckinsey and company developed 7-s model in 1970s
https://corporatefinanceinstitute.com/resources/knowledge/strategy/mckinsey-7s-model/
Strategy implementation framework
Balance
score card
https://www.professionalacademy.com/blogs/marketing-theories-balanced-scorecard/
Strategic fit
Why M&A
Explores the basic tenets of whether the merge is required
When M&A
Answers the possible reason for doing the merger
If not ‘strategic fit’
America Online and Time Warner (2001): US$65 billion
A year after the deal, the company reported a write-down
of US$99 billion - the largest annual net loss ever
reported.
Daiichi and Ranbaxy in 2008
After 6 years in 2014 company has sold off to sun
pharma
4 Cs model and resources
Resources
Complimentary
Supplementary
4 Cs
Capability
Compatibility
Commitment
Control
Strategic fit and synergy gain
Assets, both tangible and intangible
Firm processes
Firm attributes
Knowledge and information a company has and
controls
Strategic fit and synergy gain
Sales revenue – variable cost = contribution = fixed cost + profit
DOL = EBIT/ Sales
Synergy gain and added value
Value of new company = Vt + Vb + SG
Where Vt is the value of target,
Vb is the value of buyer, SG is synergy gain
SG is added value minus cost of M&A
Net NPV value of buyer = - C + Vt + SG
Where C is consideration paid
and is equal to Vt + AP (acquisition premium). Hence
Net NPV value of buyer = SG + AP
Operating synergy
Revenue enhancement
Cost reductions also termed as efficiency gains
Both
Efficiency gains are evident and possible in vertical
and horizontal mergers
Financial synergy
Reduction in COC
Lowering tax payments
Enhancement of cash surplus
Reduce the dependence on debt financing
Help in improving the credit ratings of the firm
M&A tool for corporate growth strategy
Market expansion
Enhancing product/service or brand offerings
Vertical integration to fill gaps or strengthen the
existing value chain
HDFC and HDFC Bank Merger
https://indianexpress.com/article/business/banking-and-finance/india-incs-biggest-merger-hdfc-bank-hdfc-ltd-will-be-one-7853114/
HDFC and HDFC Bank Merger
Mortgage lender HDFC will merge with HDFC Bank to create
India’s third-biggest financial entity in terms of market
capitalization
The proposed merger will enable HDFC Bank to build its
housing loan portfolio and enhance its existing customer base
Post the merger, HDFC Bank will be 100 per cent owned by
public shareholders and existing shareholders of HDFC will own
41 percent of HDFC bank
https://timesofindia.indiatimes.com/business/india-business/explained-why-did-hdfc-merge-with-hdfc-bank-and-what-this-deal-means-for-investors/articleshow/90635301.cms
HDFC and HDFC Bank Merger
HDFC said that its shareholders will get 42 shares of
HDFC Bank for every 25 shares of the non-banking
lender held by them
The proposed transaction would create meaningful value
for various stakeholders including respective
shareholders, customers, employees, as the combined
business would benefit from
increased scale,
https://timesofindia.indiatimes.com/business/india-business/explained-why-did-hdfc-merge-with-hdfc-bank-and-what-this-deal-means-for-investors/articleshow/90635301.cms
HDFC and HDFC Bank Merger
Comprehensive product offering
Balance sheet resiliency
Ability to drive synergies across revenue
opportunities
https://timesofindia.indiatimes.com/business/india-business/explained-why-did-hdfc-merge-with-hdfc-bank-and-what-this-deal-means-for-investors/articleshow/90635301.cms
HDFC and HDFC Bank Merger
Comprehensive product offering
Balance sheet resiliency
Ability to drive synergies across revenue
opportunities
https://timesofindia.indiatimes.com/business/india-business/explained-why-did-hdfc-merge-with-hdfc-bank-and-what-this-deal-means-for-investors/articleshow/90635301.cms
What it means for HDFC?
Brings many cross-selling opportunities
70% HDFC’s customers do not bank with HDFC bank
Nearly 70% HDFC bank customers are without mortgage products
HDFC Bank has a large customer base of 6.8 crore
Help to leverage their distribution across urban, semi-urban and
rural geographies
What it means for HDFC?
Access to low-cost funding franchise of HDFC bank
Bank’s loan book is expected to be up by 40% to Rs.
18 trillion after the merger
The mix of mortgage portfolios from 11% to more
than 30%
Room for foreign shareholding as it is now 65 to 70%
Some other strategic perspective…
Over the last few years, regulatory developments and reforms including
Higher regulatory standards for the non-banking financial companies
(NBFCs) narrowing the gap with the banking regulatory framework,
Reduction in SLR rates,
Deepening of affordable housing bond market
Creation and deepening of Priority Sector Lending certificates market
It has created a conducive environment for amalgamation of the two
entities, leading to a “win-win” situation for all stakeholders, HDFC said.
https://indianexpress.com/article/business/banking-and-finance/india-incs-biggest-merger-hdfc-bank-hdfc-ltd-will-be-one-7853114/
Some other strategic perspective…
Earlier non-banking financial corporations used to
enjoy regulatory arbitrage vis-à-vis banks,
but the regulatory authorities have harmonized the
same
thus making this merger necessary and creating a
competitive advantage over its peers
https://timesofindia.indiatimes.com/business/india-business/explained-why-did-hdfc-merge-with-hdfc-bank-and-what-this-deal-means-for-investors/articleshow/90635301.cms
Why consolidation???
Private sector banks in India need scale to cater to
the latent demand for credit in the economy, in the
coming decade
In some cases it maybe the merger of banks with
NBFCs having complimentary credit profile
The merger of HDFC and HDFC Bank was long
expected as it gives the entities access to cheaper
funds and franchise repectively
https://timesofindia.indiatimes.com/business/india-business/explained-why-did-hdfc-merge-with-hdfc-bank-and-what-this-deal-means-for-investors/articleshow/90635301.cms
Thank You
