Sell Business through Demerging the Business Undertaking
This popularly known as spin-off strategy, this is advised when the transferor wants to divest
one or more business undertaking out of total consortium businesses.
This strategy is useful when the transferor wants to hive-off or divest his non-core business/
undertaking or part thereof. This is advantageous for both transferor and the acquirer as it helps
increase business focus.
Strategic Demerger is typically carried out through following steps:
Analyse shortlisted acquirer company considering
objectives, structuring and cost and time efficiency.
OR
Analysis of shortlisted acquirer company; should consider
objective of the deal, cost and time involved in execution
and structure of the deal. This helps to get a better idea
about the deal before finalisation.
Once the acquiring company is selected there is need to
sign MoU (Memorandum of understanding) which helps
acquiring company to get access of target companies
information for making due diligence, valuation etc.
Valuation is a process of determining the value of an asset or business. It is one of the most important aspects
of Demerger process as target Company wants maximum
valuation for its business whereas acquirer wants it at
lowest end. Valuation of business is mandatory for listed
company.
A deal should be structured considering agreement
between acquirer and the company divesting. It should be
time, cost and compliance effective.
While structuring the deal following factors must be taken
into consideration:
Objective of the deal
This includes the core objective set for deal of
demerger while structuring the deal it must be
taken into consideration that objective is getting
achieved fully. As post deal factors such as
ownership and control, financial impact are
decided on the basis of deal structuring.
Transaction cost involved
Transaction cost for demerger majorly involves
payment of professional fees and tax liability
created or withdrawal of tax exemption deduction
and allowances. Transaction costs involved in
demerger can go up to 5-10% of transaction size.
However if transaction is structured well then the
cost can be reduced to great extent.
Discharge of consideration
Consideration being imperative aspect of
demerger. The Deal should be discharged by
taking in to consideration future financial, legal
and strategically impact on acquirer company.
Consideration for demerger can be discharged through following modes.
Shares of buyer company as per swap ration decided
Once the structure is decided, scheme of arrangement is
drafted; Scheme is a legal document which contains all
the arrangements agreed and entered between
companies.
The drafted scheme of arrangement has to be approved
by hon'ble high court of that particular state in India. This
includes a detailed court procedure. Also there are
various other government authorities to get the scheme
approved.
Objective of the deal
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