All You Want To Know About Mergers & Acquisitions

by Cindy Guerra 10+ Years Experienced Blogger

When the news on big- ticket mergers & acquisitions (M&A) or stake sale involving billion dollars hit the headlines, a curious mind begins to probe how do the parties involved in such a deal agree on pricing and terms? The answer to such process of building consensus among the Businessmen and investors involved in a deal is managed by a team of professionals termed as M&A experts orinvestment bankers.

M&A can be broadly defined as the consolidation of companies, operations, or assets through variedtypes of financial transactions to create an entity that is better positioned to leverage the market opportunities. These transactions are termed as mergers, acquisitions, consolidations, tender offers, purchase of assets, and management acquisitions. Mergers and acquisitions revolve around finding the right opportunity for the client, organising capital for the business in one form or the other, and help the client complete the process. A merger takes place when two individual companies join forces together and Acquisition happens when a company takes over or buys out the majority of shares of another company.

Successful mergers and acquisitions deals underline the role of Mergers & Acquisitions companies. Mergers and acquisitions are basically big-ticket investments and therefore, attract media attention. The media coverage on such deals provides immense publicity to the investment banks or M&A advisory firms. Investment banking firms are a key entity in mergers and acquisitions. Besides them, there are legal advisory firms and valuation firms to facilitate a deal.

When a big merger is announced, it impacts the stakeholders of the companies involved. In an all-stock deal, there is little exchange of cash. But in an all-cash deal or a cash and stock deal, investors see cash flows. After such successful transactions, we come across development like repayment of loans or more loans on the consolidated balance sheet. An M&A advisory firm plays an active role in such transactions too. Sometimes these firms advise consolidated entities on the synergies of company mergers. During the merger and acquisition process, investment bankers may play the role of a consultant to the business owners.

Investment banking firms are also known for the knowledge pool they have and their ability to attract investors. Some investment banking firms specialise in specific sectors – such as organised retail, infrastructure, utilities, etc. Some focus on new-age businesses involving digital technology, artificial intelligence, machine learning, etc.

In the Indian context, the investment banking space has multiple segments or classifications. First is the ‘grade A investment bankers’ who manage large deals. The second segment includes the grade B investment banking firms primarily focused on mid-sized transactions involving debt as a primary means of funding. There is a large outsourcing pool of investment banking in India, which makes the third segment of the investment banking business. These are back offices of large global investment banking businesses. They provide back-office support and research services to their global parents. There are a few large Indian Information technology companies that also offer ‘Knowledge Process Outsourcing’– KPO solutions for their financial services clients in developed markets.

As global markets integrate more, the role of investment banking is expected to become paramount in most financial transactions.