1. How does product life cycle affect merger decisions?

M&A activity can vary depending on the acquirer and/or target’s phase in the industry lifecycle.

Pioneering Phase: start-up founders may opt to “cash out” of their promising ventures by selling to larger
companies that are seeking growth opportunities. Horizontal and conglomerate mergers.

Accelerating Growth Phase: highly profitable and fast-growing companies in new industries may sell themselves to
more established companies in order to access capital for business expansion. Horizontal and conglomerate
mergers.

Mature Growth Phase: larger companies with slowing growth rates may look for targets with value potential or
targets that can facilitate economies of scale. Horizontal and vertical mergers.

Industry Maturity Phase: an acquiring company is now growing around the same pace as that of the economy; it
will look for targets that can increase economies of scale or invest in small growing concerns that provide return
opportunities for shareholders. Horizontal mergers.

Decline Phase: overall industry is shrinking; an acquirer may look for synergies, to buy profitability of younger
firms, or to simply survive. Horizontal, conglomerate, and/or vertical mergers.

2. What are the five rules for successful merger enunciated by Peter F Drucker?

1. Acquire a company with a ‘common core of unity’-either a common technology or

markets or in some situations production processes. Financial ties alone are insufficient.
2. Think through your firm’s potential contributions of skills to the acquired company. There must be a
contribution and it must be more than money.
3. Respect the products, markets and customers of the acquired company. There must be a
‘temperamental fit’.
 4. Within approximately a year, you must be able to provide top management for the acquired
company.
5. Within the first year of a merger, many managers of both companies should receive substantial
promotions from one of the former companies to the other.

3. Describe the laws that govern mergers and acquisition

Laws governing Mergers and Acquisitions in India

Mergers and Acquisitions in India are governed by the Indian Companies Act, 1956, under Sections 391 to
394. Although mergers and acquisitions may be instigated through mutual agreements between the two
firms, the procedure remains chiefly court driven. The approval of the High Court is highly desirable for
the commencement of any such process and the proposal for any merger or acquisition should be
sanctioned by a 3/4th of the shareholders or creditors present at the General Board Meetings of the
concerned firm.

Indian antagonism law permits the utmost time of 210 days for the companies for going ahead with the
process of merger or acquisition. The allotted time is clearly different from the minimum obligatory stay
period for claimants. According to the law, the obligatory time frame for claimants can either be 210 days
commencing from the filing of the notice or acknowledgment of the Commission's order.

The entry limits for companies merging under the Indian law are considerably high. The entry limits are
allocated in context of asset worth or in context of the company's annual incomes. The entry limits in
India are higher than the European Union and are twofold as compared to the United Kingdom.

The Indian M&A laws also permit the combination of any Indian firm with its international counterparts,
providing the cross-border firm has its set up in India.

There have been recent modifications in the Competition Act, 2002. It has replaced the voluntary
announcement system with a mandatory one. Out of 106 nations which have formulated competition
laws, only 9 are acclaimed with a voluntary announcement system. Voluntary announcement systems are
often correlated with business ambiguities and if the companies are identified for practicing monopoly
after merging, the law strictly order them opt for de-merging of the business identity.

Provisions under Mergers and Acquisitions Laws in India

Provision for tax allowances for mergers or de-mergers between two business identities is allocated under
the Indian Income Tax Act. To qualify the allocation, these mergers or de-mergers are required to full the
requirements related to section 2(19AA) and section 2(1B) of the Indian Income Tax Act as per the
pertinent.

Under the “Indian I-T Tax Act”, the firm, either Indian or foreign, qualifies for certain tax exemptions from
the capital profits during the transfers of shares.

In case of “foreign company mergers”, a situation where two foreign firms are merged, and the new
formed identity is owned by an Indian firm, a different set of guidelines are allotted. Hence the share
allocation in the targeted foreign business identity would be acknowledged as a transfer and would be
chargeable under the Indian tax law.
 As per the clauses mentioned under section 5(1) of the Indian Income Tax Act, the international earnings
by an Indian firm would fall under the category of 'scope of income' for the Indian firm.

5. What are entry barriers and how does it affect the decision of acquisition?

The problems an organization faces due to merger and acquisition can be relatively minor, involving
structural and cultural adjustments that don’t feel seismic. But sometimes, the results are devastating.

The loss of team mentality

Today’s employees care a great deal about company culture. When you work at a relatively small startup,
that culture is usually about a sense of being a team. That mentality keeps you going as you do the hard
work of building the brand. If your organization becomes attractive enough to be acquired, it’s usually
because you’ve spent years pouring heart and soul into it.

Acquisitions change all that. In a buyout, it’s generally just the owners who become rich. Despite common
misconceptions, most employees don’t receive a life-changing amount of money.

So acquisition talks can erase the team mentality almost overnight. You no longer feel that you’re working
for something you all have a stake in. Now, you’re working to make your founders rich.

The dangers of inflating value

This gets worse if your business looks to quickly ramp up sales and erase expenses to an unrealistic extent.
Doing so can inflate the perceived value, making the organization look like it’s worth more than it really is.
But inside your organization, that means exhaustive, stressful extra work for all your employees -- with no
end to it in sight.

As VP of sales, I was told to push extra hard on all our metrics. Our teams started working around the
clock. Formerly happy, engaged employees were quickly becoming miserable. They wanted out.

Triggering dishonesty in relationships

Honesty is important in the workplace. It can make or break relationships. But our bosses instructed us to
pretend our suddenly higher metrics were accurate projections for the long-term future. As head of sales, I
was to take the lead in conveying that message.

So when I met with a top official at the corporation looking to buy us out, I stuck to the script. My body
language probably made clear how uncomfortable I was. The executive later told my founders that he
didn’t have a good feeling about me. When that news was then passed on to me, I felt like a casualty and
started to grow a chip on my shoulder. That was the beginning of the end for me.

Ignoring integration

The biggest problem many organizations face in mergers and acquisitions is a lack of planning around
integration.

When our buyout went through, I was tasked with integrating our sales operations with those of the larger
company. That’s when I discovered that in all the behind-the-scenes negotiations, no one had even
considered what it would actually take to mesh these two very different business operations.
We used different technologies, and there was no plan to merge them. There was no centralized database
of information for us to access. The corporation didn’t even have accurate client lists available. I worked
hard to create systems we could all follow, but I was operating alone with no support.

The bigger problems with integration were cultural. We operated at a different pace. Our startup got
projects done and out the door in days; the larger corporation took months. Their longtime employees
also had no incentive to coordinate with us.

When the early post-acquisition sales results weren’t impressive, I was blamed. I was offered a demotion
but turned it down. I had to accept that the startup I had loved didn’t exist anymore. Driving home, I
pulled over to cry in a parking lot.

Ultimately, for me it worked out for the best. A great new opportunity came right up, and I kicked off
a new career as a sales trainer. But the acquisition did not work out well for our startup or for the
corporation.

For leaders of startups and enterprises who are considering acquisitions, some advice: Always have a
point person on each end who is involved in the process and focused on integration. These two people
together must be empowered with the authority to get things done.

Also, top officials at both companies must get frequent updates about the challenges they’re facing. And
amid the process, be sure to keep your employees -- your team -- updated and in the know. Listen to their
concerns. Work with them. In short, don’t forget the people who got you there.

Communication challenges

In 2010, PWC conducted a survey on companies that had completed mergers and acquisitions.
Communication challenges came out as one of the top factors that caused company synergies to fail.
Communicating with employees, empowering them and creating a culture for them to thrive are all
fundamental parts to integration. When mergers and acquisitions occur, employees and management
are generally left in the dark. Fear and lack of answers deter top management from providing the
information that employees need to redirect their actions in the merged company. Rumors fill mystery and
vacuums, and employees are left asking questions like: “Why is the organisation merging?”; “How will the
merger affect my work?”; and “What support will I receive during the merging process?” This lack of
communication creates distrust and uncertainty in the workplace, leading to lower employee engagement
levels. Communicating is a skill that should come naturally, however it can be the hardest skill to learn.
When managing any key project, such as mergers and acquisitions, it’s important to keep the employees
from both parties informed at all times. Inform the employees of the progress of the integration through
different communication channels (emails, intranet, etc). Being aware of the questions, concerns and
fears that employees might have, and, proactively communicating answers, will build transparency and
trust, and lead to a successful merger.

Employee retention challenges

During mergers and acquisitions, employee retention can be a challenge, as many believe it can be a
threat. Inherently, many mergers and acquisitions (M&As) deals have retention issues, which result from
negative attitudes felt by employees. This can include uncertainty about the future of the organization's
direction, job security, perceptions of lack of leadership credibility and feelings of confusion due to lack of
communication. In essence, employees often lose trust in their organisation and feel betrayed by their
leadership. During this delicate process, it's essential to keep employee turnover low because business
continuity is key to realizing the benefits of the merger. there can be also large financial implications from
the cost of hiring new employees. What's more, employee turnover can result in loss of knowledge and
customer relationships.

Cultural Challenges

Mergers and acquisitions usually occur because financial and business rationale add up, but fail to realise
the cultural implications that may occur. Various studiesconducted on the outcome of M&A’s show that
30% of them fail within three years, the majority due to the disparities in organizational culture. During the
process, it's easy to treat a prospective transaction as purely mechanical and scientific process. However,
the people aspect of any deal is always critical. Culture fits can provide the assurance that combining two
companies makes sense.

Culture is the long standing implicitly shared values, beliefs and assumptions that influence the
behaviour, attitudes and meaning in an organisation. It’s difficult for a merged company to carry the
culture of the previous organisations, because employees seldom replace their underlying values and
beliefs in the long run. Generally, when mergers and acquisitions occur, they bring shifts in management
practices and strategies, which can have negative implications on the people at the organisation. A
sudden shift in these practices, brings disruption and unease to a company..

Solutions

For whatever reason mergers and acquisitions occur, it's vital that the decision makers take the intangible
factors into account. It’s difficult to quantify the human side to mergers, and they are often overlooked.
Typically, CEOs would overlook this aspect because of the notion of being able to rehire employees and
managers. However, in the long term this is detrimental to the outcome of the merged organization. In
order for CEOs, executives and managers to fully understand the extent to which the merger will affect
the culture, they must develop a culture strategy. Impraise, has developed a product which measures the
overall cultural values, habits and skills of the organization. Through continuous feedback, managers will
be able to understand their employees concerns and issues before they are a threat to the company in
the long run. By implementing such a strategy, the merging company can understand where the cultural
differences are, engage with employees throughout the merging period and carry out a successful culture
shift.

10. steps involved in an M&A process

The mergers and acquisitions (M&A) process has many steps and can often take anywhere from 6
months to several years to complete.

A typical 10-step M&A deal process includes:

Develop an acquisition strategy – Developing a good acquisition strategy revolves around the acquirer
having a clear idea of what they expect to gain from making the acquisition – what their business
purpose is for acquiring the target company (e.g., expand product lines or gain access to new markets)

Set the M&A search criteria – Determining the key criteria for identifying potential target companies
(e.g., profit margins, geographic location, or customer base)

Search for potential acquisition targets – The acquirer uses their identified search criteria to look for and
then evaluate potential target companies

Begin acquisition planning – The acquirer makes contact with one or more companies that meet its
search criteria and appear to offer good value; the purpose of initial conversations is to get more
information and to see how amenable to a merger or acquisition the target company is
Perform valuation analysis – Assuming initial contact and conversations go well, the acquirer asks the
target company to provide substantial information (current financials, etc.) that will enable the acquirer
to further evaluate the target, both as a business on its own and as a suitable acquisition target

Negotiations – After producing several valuation models of the target company, the acquirer should
have sufficient information to enable it to construct a reasonable offer; Once the initial offer has been
presented, the two companies can negotiate terms in more detail

M&A due diligence – Due diligence is an exhaustive process that begins when the offer has been
accepted; due diligence aims to confirm or correct the acquirer’s assessment of the value of the target
company by conducting a detailed examination and analysis of every aspect of the target company’s
operations – its financial metrics, assets and liabilities, customers, human resources, etc.

Purchase and sale contracts – Assuming due diligence is completed with no major problems or concerns
arising, the next step forward is executing a final contract for sale; the parties will make a final decision
on the type of purchase agreement, whether it is to be an asset purchase or share purchase

Financing strategy for the acquisition – The acquirer will, of course, have explored financing options for
the deal earlier, but the details of financing typically come together after the purchase and sale
agreement has been signed.

Closing and integration of the acquisition – The acquisition deal closes, and management teams of the
target and acquirer work together on the process of merging the two firms

12. What do you mean by synergy. How does synergy occur in a merger?

Synergy is the concept that the value and performance of two companies combined will be greater than
the sum of the separate individual parts. Synergy is a term that is most commonly used in the context of
mergers and acquisitions (M&A). Synergy, or the potential financial benefit achieved through the
combining of companies, is often a driving force behind a merger.

Mergers and acquisitions (M&A) are made with the goal of improving the company's financial
performance for the shareholders. Two businesses can merge to form one company that is capable of
producing more revenue than either could have been able to independently, or to create one company
that is able to eliminate or streamline redundant processes, resulting in significant cost reduction.
Because of this principle, the potential synergy is examined during the merger and acquisition process. If
two companies can merge to create greater efficiency or scale, the result is what is sometimes referred
to as a synergy merge.

Shareholders will benefit if a company's post-merger share price increases due to the synergistic effect
of the deal. The expected synergy achieved through the merger can be attributed to various factors,
such as increased revenues, combined talent and technology, or cost reduction.

In addition to merging with another company, a company may also attempt to create synergy by
combining products or markets. For example, a retail business that sells clothes may decide to cross-sell
products by offering accessories, such as jewelry or belts, to increase revenue.
Synergy can also be negative. Negative synergy is derived when the value of the combined entities is less
than the value of each entity if it operated alone. This could result if the merged firms experience
problems caused by vastly different leadership styles and company cultures.

Synergy is reflected on a company's balance sheet through its goodwill account. Goodwill is an
intangible asset that represents the portion of the business value that cannot be attributed to other
business assets. Synergies may not necessarily have a monetary value, but could reduce the costs of
sales and increase profit margin or future growth. In order for a synergy to have an effect on value, it
must produce higher cash flows from existing assets, higher expected growth rates, longer growth
period, or lower cost of capital.