M & A is a generic term used to
mean many different types of corporate restructuring exercises. The
various form of Corporate restructuring can be summarised under three
Two companies are independent. Within past 2 years one company
cannot have owned 50% of another The acquisition should be a
single step transaction. The consideration should be in shares.
90% of shareholders of the target company should remain. No
disposal of significant part of business within 2 years.
Gaining control of the utilisation of corporate assets and
resources. This can be done either by taking control through share
holding or by purchase of the asset itself. The accounting
treatment differs depending upon the method of takeover.
A Company distributes all the shares it owns in a subsidiary to
its own shareholders implying creation of two separate public
companies with same proportional equity ownership. Sometimes, a
division is set up as a separate company.
Parent company has many 100% or near 100% subsidiaries. Each of
them is spun off as a public company.
A parent has substantial
holding in a subsidiary. It sells part of that holding to
the public. "Public" does not necessarily mean
shareholders of the parent company. Thus the asset item
"Subsidiary Investment" in the balance-sheet of the
parent company is replaced with cash.
Parent company keeps control of the subsidiary but gets cash. This
may be the first stage of a two-stage divestment transaction.
back of shares
A party is interested
in buying out the stake in a company but lacks financial resources
It forms a team of banks who are willing to fund the idea. The
team structures the deal after discussions with the company. The
deal structure involves the following steps:
The sponsor of the idea forms a shell company. The only asset is
cash. The debt-equity ratio is high. It is not listed. Shell
Company purchases the shares from existing shareholders of the
target mostly paying for in cash. Target and shell company merge.
Target is thus de-listed. The merged company is tightly managed
for cash. All debts are repaid in short period of, say, 1-5 years.
Sponsor takes the company public again, sells his stakes at a
profit and exits.