M&A is a loose term. The actual term would be “Strategic Transactions” or “Corporate Transactions” or “Strategic Business Transactions.”
Instead, directly proceed to:
Apohan’s main business – M&A
Apohan’s frontal business is providing consultancy services for making available adequate equity capital to small and medium enterprises in India for business growth & financial turnaround. It fills in all the gaps in terms of availability of time & expertise in the SME businesses in terms of Identification of exact problem, formulation of the strategy, analysis of the business model, analysis of its funding requirements, identification of an appropriate investor, negotiation with the investor, documentation, deal structuring, investment contracts, hand-holding and allied services.
Our services are targetted at a specific audience:
1. Indian companies with revenue between INR 25 crore to INR 500 crore looking for equity for growth
2. Indian small-cap listed companies seeking growth or turnaround equity funding
3. Indian mid-cap listed companies seeking growth or turnaround equity funding
4. Companies seeking financial turnaround through equity funding that had past peak revenue of at least INR 25 crore.
5. Start-up that can afford pay retention fees & also have the potential to grow to revenue of INR 25 Crore in one year.
6. Private limited or public limited companies, other legal forms, holding companies.
7. Large companies seeking equity funding for financial turnaround or growth.
Nature of Services:
End-to-end customized services:
Apohan provides all the services in the entire spectrum of mergers and acquisitions, strategic transactions, equity funding, business restructuring, capital restructuring and also those strategic business activities that should be undertaken to take maximum advantage from mergers and acquisitions. We provide end-to-end, customized consultancy for all the strategic transactions that a business should explore from time to time to secure adequate capital, to prevent or manage or overcome the situation of financial distress, to turnaround business from financial defaults, to undertake new projects and initiatives, to ensure stability and sustainability of the business, to substitute the existing sources of capital with better ones, etc.
Part II: Comprehensive Classification of M&A Transactions
Please find below the classification of M&A transactions on various bases. There are around 15 ways in which we have classified the M&A transactions. We have used the word Merger (M&A) for simplicity. It refers to most types of non-operational strategic corporate transactions as important as M&A.
The language used is highly simplified so that a businessman from a non-financial background can understand.
There are links at the end of each classification which elaborate the concepts, definitions, descriptions, aspects, advantages, disadvantages and the application.
The classifications on different bases are separated by a separator line.
Classifications of strategic transactions based on what is being transferred:
The broadest classification of mergers and acquisitions (the term used in the broadest sense) is based on what is being transacted, sold or transferred and between whom.
1. Share transfers:
What is transacted? Shares of company!
See: Share transfer
2. Asset transfers:
What is transacted? The long-term producing assets (not the usual products) of the company!
There are two types of asset transactions:
- Asset sale
- Slump sale
See more: Asset sale & slump sale
3. Mergers & Acquisitions (M&A) or Business Transfers (BT):
What is being sold, purchased, transacted, transferred, combined or divided in M&A?
The companies or the body corporates or the legal entities!
Types of Mergers:
When two or more companies are combined, the term used is mergers and acquisitions. The other terms used are amalgamation, combination, absorption, acquisition, takeover, etc. The usage of these terms changes with the perspective and the context. Many time terms are used alternatively.
1. Types of mergers based on the relative size of merging companies
2. Types of mergers based on role in the value chain:
Depending upon the role of the two companies involved in merger and acquisition in the supply chain or value chain, mergers and acquisitions are classified in the following manner:
- Vertical mergers
- Horizontal merger
- Lateral merger
- Co-generic mergers
- Concentric mergers
- Forward merger
- Reverse Merger
- Conglomerate mergers
- Triangular Merger
3. Classification of mergers based on the type of integration:
- Statutory Merger
- Subsidiary Merger
- Consolidation Merger
See all details: Consultancy services for mergers
Types of Acquisitions:
The word acquisition could be an acquisition of control by the purchase of the “existing” shares of the company from the existing shareholder or it could be an issue of additional equity resulting in the dilution of the control of the existing shareholder and gain of control for the new shareholders. In simple terms, the acquisition means buying a company. What happens in an acquisition? All the assets, liabilities, rights and obligations of the target company are transferred to the acquiring company and the target company loses its legal existence. Acquisitions are also called takeovers.
1. Types based on modes of acquisition
- Acquisition by the dissolution of the target company (acquisition by merger)
- Acquisition by acquisition of controlling shareholding in the target company
Critical stages of ownership in an Indian company
2. Types of Acquisitions: Amity & hostility between managements:
Among the acquisition by acquisition of controlling shareholding in the target company, there are various types of based on what was the nature of the relationship (friendliness or resistance) between the companies that were undergoing acquisition.
- Friendly acquisition
- Hostile acquisition
- Corporate Raiders
- Bail-out acquisition
Types of Divisions of Companies:
The way companies can be combined, a company can also be divided into more than one legal entities. The divisions of the company are referred to with different terms such as demerger, spin off, split off, split-up, carve out, divestment, divestiture, etc.
Following are the types:
- Split off
- Equity carve-out
See details: Consulting services for demergers.
Types of Equities Issued
Latest look into what all types of equity instruments are available for a company to raise funds:
- Common equity
- Differential voting right shares(DVR)
- Complex equity /Mixed equity / Mezzanine equity types
- Preference equity
- Convertible debt type instruments:
Foreign currency convertible bonds (FCCB):
Types of Modes of Placement of Equity Shares:
In private limited companies, public limited companies (listed or not), anyone who wants to raise the money in a company cannot take it without a proper corporate process. The choice of corporate process is called the mode of placement of new equity.
1. Types of issues
Following are the various modes of issue of new securities to raise equity capital:
- Rights issue
- Preferential allotment
- Private placement
- Employee stock option plan (ESOP)
- Bonus Issue
2. Public offers:
- Initial public offer (IPO)
Qualified institutional buyer (QIB) Route
- Follow-on public offer (FPO)
3. Depository receipts (ADR GDR SDR):
Companies can raise funds via different methods/modes listed above. Apohan carries out professional, end-to-end, customized consultancy services for the above classification of modes of issue of equities to achieve the objectives of the client business. Apohan carries out all these equity transactions, right from the problem identification phase, to the closure of the deal with perfection.
Types of Financial Benefits for Shareholders:
We have used this word corporate transactions here only for convenience to describe the transactions between a company and its “existing” shareholders or a select few stakeholders. All the transactions listed here are one or other way the company rewards the shareholders.
- Payment of Salaries & benefits
- Payment of Dividend
- Buyback of shares
- Capital withdrawal
- Bonus share issue
- Appreciation of share price
All the above are means how are company returns the original investment amount it is the profit made using them. Apohan carries out professional, end-to-end, customized consultancy services under the above classification of corporate activities to achieve the objectives of the business.
Classification of M&A Deals by the Financial Circumstances of a Company:
The company benefits that do the merger and acquisition activity in good times. The company suffers huge financial losses that do merger and acquisition activity in haste and tough financial times.
Three types of circumstances of a company:
1. Equity funding for business growth:
Equity funding for growth is necessary and desirable but it, not emergent and exigency. The company has time to explore the right kind of investor. The company has the highest bargaining power and can get the highest premium when it is in a growth phase or is seeking funds for growth projects.
2. Equity finance in financial distress for turnaround:
A company has the least bargaining power and minimum time available to turnaround through equity funding. Turnaround is the most difficult kind of equity funding initiatives. Apohan has Special expertise in the turnaround of financially distressed companies. The investors are highly sceptical about the very viability of a business in the financial district. They are more so when it comes to a private limited company in which the compliance requirement and transparency is very less. Generally, investors do not go to the root cause of financial distress. If the business is intrinsically viable, profitable, able to generate an expected rate of return, if the management is ethical, and if the offer made to the investors is attractive, it is not very difficult to achieve a financial turnaround through equity investment.
3. Equity funding for or by opportunistic businesses:
The companies that are neither aspiring growth not having any kind of financial problem also engage in merger and acquisition activities depending upon the quality of the opportunity available & their mood.
Companies can be in any of the circumstances mentioned above. Apohan carries out professional, end-to-end, customized consultancy services for the above classification of circumstances of the company to achieve the objectives of the client business. Apohan carries out all these equity transactions, right from the problem identification phase, to the closure of the deal with perfection.
Strategic & Financial Investors
There are basically two types of investors that are looking for buying a private limited business depending upon whether the equity investor is a business itself or a financial fund.
- Strategic investors
- Financial investors
Apohan very well understands the difference in the approach of strategic investors and financial investors. Apohan carries out professional, end-to-end, customized consultancy services by approaching the right kind of investor to achieve the objectives of the client business. Apohan carries out all types of equity transactions, right from the problem identification phase, to the closure of the deal with perfection.
M&A Types Based on the Operational Objectives:
In the business world, it is said that one requires everything to grow and the absence of only one thing is sufficient to hold you down or fail. Many companies have many advantages, capabilities, cash, good management, etc but they lack one or the other critical resource that they cannot develop in-house or purchase in the open market. This precious resource, however, may be easily available with a small time company around them. It is in benefit of both of these parties to associate together and complement each other’s strengths.
Following are the objectives on the operational front of the companies why they come together by department:
1. Human resources:
- Recruitment of high-quality talent pool
- Entry into new product segments
- Market segment access
- New geographical markets
- Market share
- Eligibility for participation in the large tenders
- Sharing of marketing infrastructure
- Reduction in competition
- Association with the famous brand
3. Operations management:
- Increase in scale of operation
- Acquisition of unique operational capabilities
- Business expansion through new projects
- Bulk buying discount in procurement
- Intellectual property for premium production
- Access to hi-tech research and development (R&D)
4. Financial management:
- Working capital
- Saving of overhead expenses
- Credit rating
- Tax saving
- Benefits from government schemes
- Becoming a listed company
- Financial turnaround
5. Strategic management:
- Synergies in operations, technology, marketing and corporate matters
- Diversification for risk mitigation
- Transformation into a professional company
Apohan very well understands all the benefits of the activities of strategic nature such as mergers and acquisitions. Apohan carries out professional, end-to-end, customized consultancy services by understanding the operational objectives of a business. Apohan carries out all types of equity transactions, right from the problem identification phase, to the closure of the deal with perfection.
Types of Investment Funds by Objective:
The term fund does not name or type of any legal entity. A fund might be organised in any legal form. The funds are constituted with a particular investment objective.
Following are the types of funds classified on the basis of their objective:
- Growth funds
- Distress asset funds
- Restructuring funds
- SME funds
- Start-up funds
(Apohan engages with any stage of a startup provided that they are able to pay retention fees we charge, they have a reasonable expectation of the evaluation from the investors, etc. Apohan does not entertain a startup with “an idea in a mind” nature without a tail or a head, without any investment of own stakes or own money, without concrete efforts for the development of the final product, etc.)
- Impact funds or Social Venture Fund
- Charity funds
- India Funds
- Emerging market funds
- Sector funds
- New-age technology funds
- Conventional sector funds
- Microfinance funds
Apohan very well understands the orientation of all these kinds of funds in making the investment through mergers and acquisitions. Apohan helps a small and medium enterprise, in the identification of the funds that might be most interested in them and add more value. Apohan carries out professional, end-to-end, customized consultancy services by understanding how to successfully approach and obtain investment from these funds. Apohan can manage the transaction right from the problem identification phase to the closure of the deal with perfection.
Types of Payments of Consideration:
The payment (or consideration) for the acquisition of share for acquisition of the corporate entity can be done in various ways. Following is the list of the ways in which the mergers and acquisition payments are made:
- Cash deal
- Equity deal or stock deal
- Any other instrument or security
Apohan very well understands the cash constraints of the acquired and cash requirements of the sellers in the mergers and acquisitions. Apohan helps a small and medium enterprise, in deciding the correct mode of realisation of the consideration of M&A deal. Apohan carries out professional, end-to-end, customized consultancy services by understanding how to successfully realised the M&A payments. Apohan manages the transaction right from the problem identification phase, to the closure of the deal with perfection.
Classification Based on the Size of the M&A Deal:
The newspaper statistics describing the M&A activity in India speak of only large deals. See more in the link below.
- Large deals
- Small deals
- Micro deals
(Apohan considers any merger and acquisition deal where the net transaction consideration is less than rupees 10 crores as a micro deal. Apohan is not in the business of micro deals.)
(Apohan very well understands the different degrees of complexities and other sensitivities in the different sizes of M&A deals. Apohan helps a small and medium enterprise in approaching the investors of appropriate ticket sizes for the M&A deal.)
Types of M&A Deals based on the Extent of Control Acquisition:
The functioning of the board of directors and the General Body of members (shareholders) requires a specific percentage of the ownership or the control to be able to take a specific type of decisions. On one side, the importance of the ability to lead the decisions (or importance of the power and authority to be able to take important company decisions without the interference of the other shareholders) is very critical and on the other side, the available cash for the purchase of an adequate percentage of total holding is a serious limitation.
Following is the classification of the merger and acquisition activity based on the extent of acquisition of control:
- Buyout or sellout deals
- Absolute majority deals
- Control deals
- Minority stake deals
- Representation stake deals
- Material stake deals
- Marginal stake deals
- Cross-holding deals
- Differential voting rights (DVR)
Apohan very well understands the various sensitivities around control management in the M&A deals. Apohan helps its clients in the proper management of the control of the merged entity in the right hands so that no destruction of value happens. Apohan carries out professional, end-to-end, customized consultancy services by understanding how to allocate various control functions in the board of directors. Apohan manages the transaction right from the problem identification phase, to the closure of the deal with perfection.
Types of Equity Sale/Issue Processes:
In the way various tools, technologies, methods and processes are used for procurement of goods or works, equity control of a company can also be procured or sold in the same ways.
Following is the list of different kinds of ways in which equity is sold:
- Open offer
- Book building
- Public Issue
Apohan very well understands the advantages and disadvantages of these processes. Apohan understands the minute details of all these processes. Apohan helps its clients in the proper management of the issues. Apohan carries out professional, end-to-end, customized consultancy services through efficient implementation of these processes. Apohan manages the transaction right from the problem identification phase, to the closure of the deal with perfection.
Types of Business Restructuring:
With the onset of insolvency and bankruptcy code, the protection framework for the financial creditors and the operational creditors of a business has entered into a new paradigm. This has a very big adverse effect on the shareholders of the insolvent companies. See more in the link below.
Following are the types of strategic restructuring exercises:
- Corporate restructuring
- Business restructuring
- Contract restructuring
- Financial restructuring
Also, Apohan helps in the acquisition of assets under IBC.
Acquisition of distressed assets through NCLT’s CIRP process under IBC code:
Apohan is aware that there are around 7000 companies under CIRP and more are on the way. Apohan helps the financially distressed companies in the early stages to overcome the problems through restructuring. Apohan carries out professional, end-to-end, customized consultancy services in this domain. Apohan also helps the companies that want to acquire the companies under CRPC true or competitive acceptable resolution plan. Apohan manages the transaction right from the problem identification phase, to the closure of the deal with perfection.
Classification of M&A Deals Based on Nationalities of Companies:
The feasibility and applicable legal and regulatory framework changes drastically depending upon the nationality of the involved companies. Nationality of a company is the nation of its registration irrespective of where the owners stay.
Following are the types of deals based on the nationality:
- Domestic deals
- Foreign deals
- Cross-border deals
Inward M&A deals (FDI)
Outward Deals (ODI)
Apohan management has experts understanding of international merger and acquisition deals. Apohan carries out professional, end-to-end, customized consultancy services in these domains. Apohan manages the international transaction right from the problem identification phase, to the closure of the deal with perfection.
See more: Cross-border M&A deals
Type of Financial Investors:
The main classification of investors is strategic investors who are businesses themselves and are not any finance companies or organisations. The rest are the financial investors. However, financial investors come in a wide variety. It depends upon what is the legal nature of the organisation, what is their governing regulation, from whom they collect (and can collect) the money, what is their selection criteria for a target, what is their investment criteria, what is their risk appetite, what is their expected rate of return on the investment, how much they want to interfere they in (or assist) the management, what is the complexity of their investment process, how long they want to keep invested, etc.
Following is the classification of various types of financial investors.
- Friends, relatives & family
- Sweat equity (executive directors and key professionals)
- ESOPs (employees)
- Seed investors
- Angle investors
- Simple agreement for future equity (SAFE) investors
- The unknown, unmet general citizen investor (Crowdfunding)
Debt Crowdfunding (P2P lending)
Equity based Crowdfunding
- Venture capital fund (VC Investors)
- Private equity fund (PE investors)
- Family offices (The rich family investors)
Single family office (SFO):
Multi-family office (MFO):
- High net worth individual (HNI) Investors
Ultra-high net worth individuals (UHNIs)
- Non-resident Indian (NRI) Investors
- Asset Management Companies (Mutual Funds)
Equity mutual funds
Hybrid Mutual Funds
- The various taxpayers as Investors
- Investment trusts as Investors (REITs & InvITs)
Real estate investment trusts (REITs)
Infrastructure investment trusts (InvITs)
- Investment bankers as the Investors
Firm Commitment Underwriting
Best Efforts Underwriting
- Qualified institutional buyers (QIBs) as Investors
- NBFC core investment company (CIC) Investor
- Hedge Fund Investors
- Sovereign wealth fund (SWF)
NIIF Master Fund:
NIIF Fund of Funds
NIIF Strategic Investment Fund
- Pension Funds
- Fund of Funds
- Alternative investment funds (AIF)
Category I AIF:
Following are the types of category I AIF:
Venture Capital Fund (VCF)
Infrastructure Fund (IF)
Social Venture Fund
Category II AIF:
Following are the types of category II AIF:
Private Equity (PE) Fund
Fund of Funds
Category III AIF:
Private Investment in Public Equity Fund (PIPE)
- Foreign direct investor (FDI)
There is a specific reason why Apohan has listed all these type of investors exhaustively here. A typical small and medium enterprise owner always thinks that there is a great shortage of capital. He is in despair after not getting good quality response from the bank. Apohan believes that a technocrat businessman should prepare a viable business plan without an assumption of capital constraints. They should focus on the core business of generating value. There is a wide variety of investors in the market to Cater to almost all kinds of needs. Apohan carries out professional, end-to-end, customized consultancy services as it understands the investment philosophy & process of all of these types of investor M&A deals. Apohan manages the transaction right from the problem identification phase, to the closure of deal with perfection.
See details: Types of equity investors in the business
Types of Government Approvals for M&A:
- Fast track merger
- Specific acts
Apohan carries out professional, end-to-end, customized consultancy services as it understands the internal and external legal and regulatory framework of all the kinds of M&A deals. Apohan manages the transaction right from the problem identification phase, to the closure of deal with perfection.
Classification of M&A deals by the terms of equity contract:
The equity contracts lay the elaborate framework for the rights, obligations, assets, liabilities, risks, control, financial benefits, etc. of the parties.
Following are the key terms:
Participation in excess profit
Accumulation of dividend
First right of refusal
Apohan understands the terms of the contracts of all the varieties of M&A deals in depth. Apohan drafts full proof, a practical and exhaustive contract without causing any interpretation for understanding issues between the investor and the businesses. Apohan manages the transaction right from the problem identification phase, to the closure of the deal with perfection.
Types of Regulatory Forums of Acquisition of Distressed Assets:
- Asset reconstruction companies (ARCs)
- Bank auction
- Lok Adalat
- Debt recovery Tribunal (DRT)
- SARFAESI Act
- CIRP under IBC process /NCLT
- High Court/ Supreme Court
Apohan understands the jurisdiction of various corporate forums. Apohan assists its client in management of the proceedings going on there in terms of strategic advisory. Apohan manages the transaction right from the problem identification phase, to the closure of deal with perfection.
M&A Deals at Various Stages of Development of the Business:
M&A at different business cycle phase has different implication & objectives.
Following are the various stages of development of a business:
- Proof of concept
- Before break-even
- After break-even
- Exponential growth phase
- Stable growth
- No growth
- Decline phase
- Revamping or refurbishment
- Business Turnaround
Apohan understands the phases of the business in its life cycle very well. Apohan assists its client in securing equity fund at every stage of its life as it has experts’ understanding of the specific issues in each phase. Apohan manages the transaction right from the problem identification phase, to the closure of deal with perfection.
See more: M&A at different business cycle stages
M&A Deals at Various Life Stages of a Businessperson
As the Businessman reaches retirement age, being the central person of the company, and many cases being the face of the company, he needs to plan his retirement picture of the company in his absence.
Following are the main strategic decisions in this direction:
- Management outsourcing
- Succession planning
- Writing a will
Apohan understands the importance of appropriate decisions when a businessman grows older. Apohan assists the businessmen whose sons and daughters are somehow not able to run the business further in succession planning for sellout of the business. Apohan manages the transaction right from the problem identification phase, to the closure of deal with perfection.
Classification on the Basis of Who is Doing Major Work:
Apohan understands the expertise, lack of expertise, mechanism of engagement, etc each of these types of entities. Apohan assists the businesses appropriately integrating the services of all these agencies. Apohan manages the transaction right from the problem identification phase, to the closure of deal with perfection.
Premium & Discounted Valuation:
Following are the two cases of relative pricing.
See details: Premium & discounted equity sale
The perspective of M&A Consultants:
Who is looking at the merger and acquisition activity in the capacity of consultant, the following is the classification of consultancies:
The M&A Consultants call it by side advisory when they advice the investors in equity.
The M&A advisors call it a sell side advisory when they advise the selling businessman or selling the company or selling investor of the equity sellers
Apohan has immense experience both in the sell side advisory and the by side advisory.
Types of Strategic Business Associations:
None of the following activities can be called as merger and acquisition activity. However, they are highly important strategic business activities which can give an effect which may seem as good as the effect of a merger or of an acquisition.
Following is the list of such strategic relations, associations and contracts:
- Business alliance through MOU
- Business alliance through Contract
- Joint venture
India entry strategy
Overseas direct investment
Public Private Partnership (Special Purpose Vehicles)
Apohan has an expert level understanding of all the available avenues for achieving a business objective. Apohan ensures that its client chooses an appropriate strategic path in the formulation of a business alliance – equity or non-equity. Apohan manages the transaction right from the problem identification phase, to the closure of the deal with perfection.
See more about all: Strategic activities of similar importance & nature as M&As