Takeover is the purchase of one company (the target) by another (the acquiring company or
the acquirer). In this strategy the acquiring company or the acquirer purchases controlling
stake in the targeted company. Through this the acquirer/ acquiring company can exercise
control over board and control business operation. Key feature of Takeover strategy is "total
control over business of target company", this can be advantageous to the acquirer/ acquiring
company for expansion if the target company is selected strategically to complement its
The process of friendly takeover is typically comprises the following list of steps.
Selecting a target entity for a Takeover is a vital task. As success of deal
depends on how you select your target entity for acquisition. It must
comply with the objective of a deal.
Short listing of Target Companies
The Target Companies/ Entities are shortlisted by refining one
objective for acquisition
Analysis of Target Company
It is an analysis and appraisal of an entity on primary level. It helps the
buyer to understand the inner workings of the seller's company. To have
understanding of business gives more realistic expectations and price.
Finalising Target Company
Once the primary due diligence is completed then target company can
be finalized for acquisition if it complies with objective for acquisition.
After selecting target company for acquisition there is need to sign
MoU (Memorandum of understanding) which helps in getting access to
information of target entity 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 a Takeover process as target
company wants maximum valuation for its business whereas acquirer
wants it at lowest end. Valuation of business is mandatory for listed public
Due diligence is a deep analysis of a target entity's business
before Done acquiring it. However statutorily though it is not
mandatory, it is advisable to do Due diligence of the target
before taking final calls for takeover and determine its
valuation. Following are the different elements of due diligence.
A deal should be structured considering agreement between buyer and
seller. It should be time, cost and compliance efficient and as required
under the law.
While structuring a deal following factors must be taken into consideration
Objective of the Deal
This includes the core objective set for deal of takeover while
structuring the deal it must be taken into consideration that objective is getting
Transaction Cost Involved
Transaction cost for takeover majorly involves payment of
professional fees and tax liability created or withdrawal of exemption
deduction and allowances. Transaction costs involved in takeover 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 a takeover deal, should be
discharged by taking in to consideration future financial, legal and strategic
impact on acquirer company. Consideration for takeover can be discharged
through following modes:
- Cash payment to shareholders of target company :
Cash payment is made to the shareholders of target company for
acquisition shares from them.
- Share purchase agreement :
Share purchase agreement is an agreement between shareholders
of target company and acquirer through which share transfer deal is finalized.
Addition to above mentioned modes, following option is available for listed companies :
- Making an open offer :
As per SEBI takeover code it is mandatory for acquirer to make an
open offer to the public shareholders of the company if acquisition is beyond
15% total equity shares.
Post-acquisition integration refers to the aspect of an organizational
takeover that involves combining the original socio-technical systems of
two different entities. As per study 85% of failed/troubled acquisitions are
due weak post acquisition integration.