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Strategic Transactions – Assets, Shares, Companies & What Not

Apohan Corporate Consultants Pvt. Ltd. > Mergers & acquisitions > Strategic Transactions – Assets, Shares, Companies & What Not

Classifications of strategic transactions based on what is being sold or transferred: 

Terminology – Strategic transactions (Mergers & Acquisitions):

The phrase mergers and acquisitions (M&A) has very limited meaning in literal & legal sense. Even if we ignore the difference between mergers and acquisitions for the time being, they largely imply only amalgamations or coming together of two or more different corporate entities. The world of business transactions is far more complex than simply buying, making and selling products. Business transactions include buying and selling large assets, new large scale initiatives, buying and selling shares, putting more money in business, withdrawal of money from business, combining and dividing companies, bringing together different companies, restructuring business model, restructuring the capital, etc. In the life of a business of medium and midsize, these transactions do not happen everyday. They are complex, they can have shoes risk implications to the business if they go wrong. It is wiser to hire consultants to carry out these transactions. These consultants are called transaction Advisors for merger and acquisition consultants. Since these strategic transactions of all these times involve financial models and business contracts, they are perceived to be one and the same set of skills by a layman. Hence the terms are interchangeably used.

If you want to fathom the depth of complexity of these transactions, you can have a cursory glance at the following link on Apohan.com.

Detailed classification of all types of business transactions

Alternatively you can search the term on our homepage, and you will find a dedicated page for the concept.

You can have the overview of all the types of transactions in the simple picture below:

Types of strategic transactions:

Types of strategic transactions

Deal structure:

A business person typically knows the final objective of what you want to do in the business. Selecting a specific type of transaction for achievement of a business objective is called deal type. Selecting the parameters of permutations and combinations of configurations of deals is called deal structure.

Deal structure equity funding MSME SMB

Share transfers:

Share transfers:

What is transacted? Shares of company! Who does the transaction? The shareholders of the company and not the company itself. The proceeds of sale of shares through a share transfer shall accrue to the shareholder and not to the company.

Transactions related to to purchase of Major control, 100% buyout, employee stock option plans (ESOPs), sweat equity, block deals on stock exchanges, etc are interesting cases.

See:

Share transfer

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

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!

Mergers and acquisitions (this is the correct use of the term) is the business of buying and selling companies themselves!
In mergers and acquisitions, the registered and incorporated legal entities are purchased, sold, transferred, combined into a few or divided into many. There are several variants of mergers and acquisitions. The type is decided depending upon the relative size of the companies, which legal entity remains and which legal entity gets dissolved, whether a altogether new entity is created or not, and whether the post-deal on-ground integration is carried out or not, whether the legal entities are divided into more or combined into a few, whether any shareholders are exiting from business permanently, what is the mode of compensation, whether the purchase is full or partial, etc. Broadly, these activities are divided into combinations and divisions.

Demerger, divestiture, disinvestment, hive-offs, spin-offs refer to divisions of companies into third party owned companies or own subsidiaries.

Restructuring:

This involves a major overhaul of the way the company is formed and its functioning. A business may choose to change its business model. It may change its role in the value chain. It may restructure its capital or the way it is funds are composed. Through financial restructuring it may change a specific financial instrument. The word which structuring also is referred in recovery regulations. It may involve a replacement or substitution of the existing promoters. It may involve substantial haircut in the liabilities to the lenders or change of lending terms. We can also consider insolvency, bankruptcy and liquidation transactions in this category.

Capital transactions:

In this type of transactions, typically, the company issues shares or other instruments of fundraising. The funds could be raised from the existing stakeholders true events such as rights issue in an equitable manner, or through preferential allotment in a differential manner, or through private placement to internal or external identified target investors in limited numbers (which cannot be called as general public).

When a company is ready to do higher number of disclosure and undergo more number of compliances, it can raise capital from general public to initial public offer. Listing on SME exchange does not need rigorous eligibility criteria and makes available QIB equity.

Joint ventures:

These include incorporated and unincorporated joint ventures through contracts. In joint venture formats, the legal structure and the management or the capital of the existing companies are not changed. Companies under take a new project for a new initiative through an elaborate contract or by acting as promoter of a new third company specifically providing roles of the each of the promoters.

Operational model transactions:

Licensing of brand, technology, know-how, intellectual property, trademark, design, etc for royalty one time lump sum payment or a recurring payment. Financial and operational lease business adequate liquidity helping them pay the rent of the equipment than putting a lot of money in buying them.

Tenders and bids:

Certain tenders orbits are very very important for companies. Companies are required to do to detail and serious risk analysis of these opportunities. There are also supposed to study the competition and prepare a financial model to balance the chances of winning and profitability of the project. Even as a buyer of a project, for a new company are for expansion, a business has to exercise a lot of caution. Any such project or initiative above a certain threshold limit as a potential to make a very serious negative impact on the working capital of a company.


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