Indian law refers to mergers as Amalgamation. The purpose of such amalgamation is the strategy towards market share enhancement, reduce competition, geographical outreach, and enhance the profits arising out of patents. In the year 2006, Arcelor and Mittal in the steel production merged as one company. During this merger, there were criticism from French, British and American opposition parties. The Commerce Minister of India warned France not to block the deal. This resulted in the merger of Arcelor-Mittal which pays ten percentage of steel production globally. Flip Kart is the biggest player in the eCommerce industry in India. Flipkart acquired other businesses like Jabong, Myntra, eBay, and Phonepe. Wal-Mart American Retail Corporation acquired Flip Kart to enter into the e-commerce industry of India.
Mergers and acquisitions are sometimes successful and sometimes face failure. The role of the Company secretary during mergers is administrative and also evaluates prompt decisions. Company secretaries collate the documents, arrange for the meetings, and also provide advice to the management and board members. The valuation of assets and liability before entering the M&A requires precautions measures.
How Company secretaries can bring positive changes during M&A?
- Secretaries leverage the communication and knowledge of the board members.
- To satisfy all the board members the FAQs from previous meetings can be used.
- The age group of the board members plays a vital role in the growth plans of the company.
- The fundamentals of the transactions are the same but the value of the acquisition makes the process of the merger as complex.
- The company secretaries and the board members need to have a clear idea about the income stream, technology, people, market position, technical capability, and demand of the new sector. The employees, stakeholders need to understand the rationale for successful integration.
- The reports and minutes should communicate the criteria related to the transactions.
- The company secretary must understand due diligence, representations, warranties, key personnel, and the board member who influence the decisions.
- After completing the transactions, the process of the new business such as the accountability, performance targets, and key areas need to be checked.
- Economic factors like market crashes, supplier issues, economic slowdowns, regulatory changes, and political uncertainty bring changes to the transactions. It is crucial to check these factors and plan accordingly.
Mergers and Acquisitions during an economic downturn
In times of economic downturn, the market capitalizations have gone down to 40 percent to 70 percent. This led to a less entry price which creates greater opportunities for the acquisition. The screening before acquisition must be geographical gaps, skill gaps, and not mere financial analysis. Analyzing the value driver and fundamentals provide an idea about the discontinuities of the business. The goal of the new business would be to retain the customer with incentives and price cuts. So, it is essential to integrate the two businesses to bring business back to normalcy. Customer focus makes the strong companies do business with even more strong growth opportunities.
The Total shareholder return percentage of active acquirers goes as 10.5 percent and 3.3 percent for less active companies. Companies with high TSR have strong liquidity. For excess liquidity and cash on hand companies curtail dividend payments and share buybacks. When thinking about the synergy modeling Company secretaries need to think about the supply chain. Company secretaries need to check the transactional diligence and cybersecurity as it is difficult to do this remotely during a pandemic crisis.
The motives behind the mergers and acquisitions are diverse and many in numbers. In the competitive business, environment Companies try to protect the market share through mergers and acquisitions. Cost reduction and strategic management of business objectives lead to acquisition and merger. One report says that the executives leave the organization maximum of five years after merger and acquisition. As per Krug & Nigh (2001), the five key measures which retain the employees are job satisfaction, autonomy, personal issues, job security, and increased job status.
Merger and Acquisition are perceived as stressful processes as per the research Buono, 2002. This is because the changes take the business to the losses. For example, the acquisition of the largest private bank and the second-largest private bank ended up with conflict between the administrative processes. The administrative process is the work culture of the organization. This work culture must be organized in such a way that the focus towards the customers never departs away. If there is a change in the leadership then expectations from the employees and customers create the commitment to proceed. So, visualizing the change after and before acquisition as commitment makes it practical and less stressful. Leadership brings success to organizations. So, executing the strategies and empowering leadership is possible only with the help of efficient functions of a company secretary.