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Way back in the 80's when Swraj Paul, an NRI, bought a minority stake in DCM and Escorts there was a big noise that people will come from outside and will acquire leading Indian entities. At that time selling a company was considered like selling a family jewel. Things have changed a lot since then and today M&A transactions have become extremely common and a “Good Exit” is considered rather a sign of success.
The M&A market in India and globally is expanding fast and consequently it presents an excellent professional opportunity for CA’s to play a productive role in the entire process. Chartered Accountants need to equip themselves with the relevant skills to lead M&A transactions.
Key drivers of M&A transactions
The recent high growth seen in M&A transactions is largely driven by following reasons:
Deploying surplus funds to diversify business risk in different industries.
Consolidation and market expansion at a speed faster than a greenfield project.
To acquire new technologies or customers.
Geographical expansion
Succession issues
Desire to cash out at right stage
Give exit to financial or strategic investors
The process in a classic M&A transaction
A normal M&A transaction would involve the following basic steps:
Identification of a right counter party either a buyer or seller
Negotiate confidentiality agreement to exchange business information
Agreeing on basic structure of the transaction and negotiating non-binding offer
Due diligence
Arranging external funding, if required
Negotiating implications of due diligences findings
Drafting and negotiating definitive documents
Completion of conditions precedent
Closure of the transaction
Integration
Role Chartered Accountants can play
For whatever reasons, historically the MBA community dominated M&A advisory landscape. However, in the entire process Chartered Accountants can play a significant role if they proactively try to get involved in this profession. The key areas where a Chartered Accountant can add value are:-
Finding the right fit
Chartered Accountants with their analytical skills and financial background can play a very important role in ensuring that the target buyer or seller is the right fit for their clients.
In the initial evaluation, Chartered Accountants can analyze the financial statements to understand if there are any red flags. Also Chartered Accountants are in a position to do a background check from the corporate and tax compliance point of view.
Valuation
A Chartered Accountant is skilled and professionally qualified to arrive at commercially justified value for a potential transaction.
Transaction structuring
Chartered Accountants can suggest innovative transaction structures with the right mix of financing instruments optimising cost of money and tax implications.
Due Diligence
Probably no one else would be better equipped than a Chartered Accountant to carry out financial, commercial and compliance due diligence.
Regulatory Compliance
Any M&A process would require compliance with the Companies Act, FEMA, Income Tax, Competition Law, Law of Contracts and various other applicable regulations related to a particular industry. A professionally qualified Chartered Accountant can guide the clients navigating through all the compliances.
Post Merger Integration
A Chartered Accountant will play a very critical role in the post-merger integration of various business processes, mainly accounting, financial management, treasury operations and compliances.
Chartered Accountants are integral to a successful M&A process. Their expertise in financial evaluation, carrying out valuation and due diligence, structuring the deal and integration planning will ensure that M&A transactions are strategically right, financially sound and efficiently executed. By identifying the right opportunities, mitigating avoidable risks and facilitating integrations, CAs contribute significantly to growth and value creation in the M&A strategy. As the complexities in M&A transactions continue to evolve, the role of a Chartered Accountant remains extremely important in handling these challenges and completing successful transactions.
