FACTORS IN POST MERGER REORGANISATION

1. Change of Name and Logo :- If the restructure is going to result in change of name or where the
Board of Directors decide to change the name of the entity post restructuring, the company will
need to plan implementation of change of name on all name boards, letterheads, all
branches/locations where name of the Company has been posted/displayed, including company’s
website/internet. Similarly, actions need to be taken to modify the corporate logo, if the same is
going to change as well.
2. Revised organisation Chart :- The company will need to work on updating it’s organisation chart at
all levels. It will need to reflect the new vision/ mission, new thinking post restructure. In case of
takeover, the organisation chart may not change significantly; however the acquired entity may need
to align its organisation structure with the acquiring entity. Also, changes may be necessitated by
vertical/horizontal structures in the organisation.
3. Communication :- The company should provide proper and timely communication about the
restructuring in the organization to all its employees, which would provide updated status, bring
clarity on what’s happening at the organisational level and avoid miscommunication. Also, it would
be useful to send a communication regarding changes in company policies as well. The company
should also consider sending appropriate communication to bankers, auditors, advisors, etc. upon
formal completion of the restructuring activity.
4. Employee compensation, benefits and welfare activities :- Companies need to be sensitive with regard
to terms and conditions of employment. Usually, courts would uphold terms of employment to be no
less favourable than existing terms and conditions. Post acquisition, the parent company may want the
acquired company to adopt compensation structure of the parent entity. It would result in re-aligning
the structure as well as pay scales of existing employees. The company will have to carefully handle such
sensitive areas to ensure employee satisfaction and comfort, which pays in the long run in building an
image apart from preventing or reducing low employee turnout. Additionally, company would need to
consider any prevailing fringe benefits and amenities provided to employees and the feasibility of
continuing the same in the new set up (post restructure).
5. Aligning company policies :- The company would need to align/amend its internal policies to reflect the
organization in the post restructure scenario. This may not apply in all types of restructuring. Particularly
in case of takeover, the acquiring entity to bring consistency in the group’s policies. Specific changes to
group policies may be needed depending on nature and size of business, location, applicability of
relevant State laws. The challenge continues further in terms of implementing changes in the policies.
6. Aligning accounting and internal database management systems:- Besides passing appropriate
accounting entries to capture the merger/acquisition/financial structure, the company may need to
adopt accounting policies, practices based on those followed by its new parent organization post
acquisition. The company needs to understand any reporting and database requirements of acquiring
company or merged entity to provide relevant data to the new management and to align existing system
with those of the parent/merged entity. This may involve providing suitable training to concerned
personnel and understanding issues, if any, to avoid incorrect reporting.
7. Re-visiting internal processes:- The company which is subjected to restructuring will need to align its internal
processes with that of the merged entity/acquired entity e.g. domestic travel process reimbursement of
expenses process. Company’s current process may involve issue of cheques to employees against expenses
claimed; whereas merged/acquiring entity credits its employee claims to a bank account maintained for the
purpose. Accordingly, the company will need to open bank account (expense reimbursement account) for all
its employees for merging entity and ensure access to their previous data as well. In case of acquisition,
acquiring company may insist on changing the mail ids of acquired entity to ensure consistency with its
internal requirements.
8. Re-allocation of people :- Restructuring typically would entail reallocation of person operating on various
positions/grades in similar functions. At times, allocation in support functions becomes a challenge as now
two person handle the similar profile e.g. personnel in HR, finance , administration etc. this would require
reallocation of responsibilities or re-defining the responsibilities to specific geography/line of business/
business units. In addition, a situation may arise where new positions get created to fit into the new
organisation structure post restructure. A careful planning is needed to avoid overlapping, underutilization of
staff and to take care of career progression.
9. Engagement with statutory authorities :- This is one of the important areas that deals with legal
requirements and is close to the company secretary. It is essential to identify government authorities that
need to be intimated formally about the merger/amalgamation/takeover e.g. SEBI, stock exchange……. Etc.
Restructuring is also likely to require reflection of the changes to various government permission, licenses,
approvals granted in the past e.g. under labour and industrial laws, sales tax and service tax registrations,
permission under SEZ/STPI requirements where a unit of a merging entity now becomes part of the merged
entity. Appropriate steps need to be carried out for updating registration of vehicles owned by merging entity
prior to merger.
10. Record Keeping :- Maintenance of records of merging entity and making suitable entriesin the records
(e.g. registers under Companies Act reflecting changes in shareholding, directors etc. as applicable) of
merged entity is a must. One will need to dive deep to ensure maintenance of all past records including
statutory and non-statutory registers, original copies of various forms, returns, certificates , approvals,
litigation and property records. Company may need o relocate the records to centralized storage
maintained by the merged/new entity
11. Immoveable Property:- A restructuring may cause changes in property records e.g. consequent to merger
if merging entity ceases to exist, merged entity would need to take steps to ensure that property records
are updated to reflect the name of the merged (new) entity. If a company is occupying leased premises,
one should check conditions under the lease agreement and complete necessary formalities such as
intimation to landlord or the like. If a company has borrowed money against mortgage of property, the
company will need to inform bank about the restructure and check if any formalities need to be
completed as per bank’s policies. While the order of the Hon’ble court is sufficient to bring legal effect to a
merger/amalgamation, the bank may require formal intimation in the prescribed form within 7 days or so.
12. Expansion of existing teams to support larger organisation:- A restructuring is likely to put pressure on
support staff, which was supporting employee strength before amalgamation e.g. in-house training
department was probably handling training for 2000 employees. Post amalgamation with another
company, the training function needs to cater to training requirements for 5000 employees. It is further
likely that the amalgamation entity had an independent training department or had a sophisticated
training module to conduct on-line trainings, which the amalgamation entity may not have; which would
require further deliberations t implement better practices in the new organisation.
13. Revised ISO certification and similar other certifications:- Restructuring could lead to changes in
existing certifications such as ISO or similar other certifications. With the addition to locations or
changes in organisation structure, suitable changes needs to be reflected to the certifications
obtained e.g. post acquisition, the acquiring company may decided to close down a branch of
acquired company located in bangalore, since acquiring company may have a large set up in
Bangalore; which would require intimation to concerned bodies and completing necessary
formalities to ensure all locations/functions in new set up are certified.
14. Re-visiting past decisions/government approvals/compliances :- Restructuring is not always
about future decisions or actions. One would need to take a look at past decisions or approvals
which were conditional and insist for re-visiting earlier decisions e.g. assuming that the board of
directors of a company has passed a resolution for not paying any remuneration to non executive
directors. However, acquiring entity pays certain percentage of its profits to non-executive
directors. Post acquisition an to fit into group policy, company would need to pass another
resolution for payment of remuneration to non-executive directors.
15. Contractors:- It is an onerous exercise to check provisions in the existing contacts having
connection to any form of restructuring. While order of the Hon’ble Court would prevail and shall
ensure that the contracts entered by the merging entity shall continue to be transferred in the
name of merged entity as if merged entity was the signing party from the relevant date,
provision contained in a contract with third party may require company to inform about such
merger or may give rise to the other party to terminate the contarct.
A lease agreement having committed period clause (providing for minimum period of lease during
which the lease contract is not terminable by the landlord) ,may release the landlord from such
restriction in the event of a restructure of the lease entity. Likewise, the company may lose the
benefits / concession under existing contract, unless company is able to re-negotiate those terms to
its favour. Or a contract may provide for lifting the restrictions around fixed fees say for a period of
three years, consequent to restructure. It is now imperative for the merged entity to check all such
provision triggering from a restructure rather than criticizing how badly the contract was negotiated
by merging entity.
 Post-Merger Business Management Intergration
During this kind of integration, the following aspects of management ought to be looked at:-
1. Human Resource Management :- In the quest to ensure effective pot-merger business
management integration, it is important that the human resource sphere of management is
fully understood; how it operates and how it can be adjusted to meet the needs of the
acquiring business. Human resource management usually involves how the human workforce is
utilized to attain the goals and ambitions of a business in the market. Therefore, upon a merge,
it is important that the acquiring business understands the human workforce of the acquired
business.
2. General Management Culture :- The post-merger integration process must involve a significant
change in the management culture of the acquired business. There should be signs of change in
management once the new team of managers from the acquiring business takes over. This
change of the management team automatically brings in a shift in how the newly acquired
business will be managed. As such, the management culture must change, and it will be best if
the management culture change is positive and effective.
3. Products and services integration :- Majorly, mergers and acquisitions are sought with an aim of
trying to control the products and services offered by the involved businesses. The acquiring
business, depending on its ability, acquires another business, aiming to control the products and
services it deals with in the market. There is a popular belief that business that decide to marge
deal with the same products. However, there are cases where mergers and acquisitions have
involved businesses with entirely unrelated products and services and operating in entirely
different niches of the market. However, with proper measures it is possible to contain these
differences and maintain od devise new ways to attain business success. The post-merger
integration process as much must ensure that products and services of the acquired firms are
adjusted to meet the needs of the acquiring business. Below is a guide on how this will be
attained.
4. Product and service development:- Upon a merger, the acquiring business becomes responsible
for all the operations of the acquire firm. In other terms, it becomes responsible for all the
products and services that the acquired firm deals with in the market. Therefore, it is upto
acquiring firm to ensure that all the product and services are developed to meet its projected
needs. The development of product and services by the acquiring firm must include all the
necessary steps that will associate it with the products and services once they are out in the
market. To ensure that the acquiring business attains success, it should ensure that it
incorporates innovative tactics on the products and services.
5. Product and service Presentation :- Modern markets tend to identify easily and associate specific
products and services to specific businesses and brands. Shelly Kramer argues that it is important
that the acquiring business in a merger agreement initiates effective strategies with which to use
in their bid to maintain the presence of the acquired business in the market while also claiming
ownership of the products. However, depending on a numbers of factors, instances may arise
which may demand that the acquiring business drops any association of the previous business
(before it was acquired) with the product and services once after the merger is complete.
Assessing Accomplishment Of Post Merger Objectives/Post Merger Success And
Valuation
Factors which are required to measure the success of any merger/post merger success and valuation :-
Every merger is not successful. The factors which are required to measure the success of any merger are
briefly discussed below :-
1. Earning performance:- The earning performance of the merged company cab be measured by
return on total assets and return on net worth. It has been found that the probability of success or
failure in economic benefits was very high among concentric mergers. Simple vertical and horizontal
mergers were found successful whereas the performance of concentric mergers was in between
these two extremes i.e. failure and success.
2. Funds and Returns:- Where the merged company yields larger net profit than before, r a higher
return on total funds employed or the merged company is able to sustain the increase in earnings
affects the success of a merger.
3. Capitalisation :- The capitalisation of the merged company determines its success or failure.
Similarly, dividend rate and payouts also determines its success or failure.
4. Growth :- Whether merged company is creating a larger business organisation which survives and
provides a basis for growth, determines the success of a merger for a company.
5. Performance and Comparison :- Comparison of the performance of the merged company with the
performance of similar sized company in the same business in respect of :-
i) Sales,
ii) Assets,
iii) Net profit
iv) Earning per share
v) Market price of share
In general, growth in profit, dividend payouts, company’s history, increase in size provide base for future
growth and are also the factors which help in determining the success or failure of a merged company.
6. Fair Market Value :- Fair Market Value is one of the valuation criteria for measuring the success of
post merged company. Fair market value is understood as the value in the hands between a willing
buyer and willing seller, each having reasonable knowledge of all pertinent facts and neither being
under pressure or compulsion to buy or sell. Such valuation is generally made in pre-merger cases.
7. Financial and other relevant data :- In valuing the whole enterprise, one must seek financial data of
comparable companies in order to determine ratios that can be used to give an indication of the
company position. The data is analysed to estimate reasonable future earnings for the subject
company.
The following information must be made available and analysed for post merger valuation :-
1. All year-end balance sheets and income statements, preferably audited, for a period of five
years and the remaining period upto the valuation date.
2. All accounting control information relating to the inventory, sales ,cost , and profit contribution
by product line or other segment; property cost and depreciation records; executives and
managerial compensation; and corporate structure.
3. All products of patents, trademarks, contracts, or other agreements.
4. A history of the company, including all subsidiaries.
5. Analysis of these items provides data upon which forecasts of earnings, cash flow, etc. can be
made.
8. Share price :- Gains to shareholders have so far been measured in terms increase or decrease
in share prices of the merged company. However, share prices are influenced by many factors
other than the performance results of a company. Hence, this cannot be taken in isolation as a
single factor to measure the success or failure of a merged company.
9. Resources :- In some mergers there is not only increase in the size of the merged or
amalgamated company in regard to capital base and market segments but also in its sources and
resources which enable it to optimize its and earnings
10. Other Factors :- In addition to the above factors, a more specific consideration is required to be
given to factors like improved debtors realisation, reduction in non-performing assets,
improvement due to economies of large scale production and application of superior
management in sources and resources available relating to finance labour and materials.
 Four possible reasons for business growth and expansion
which is to be achieved by the merged company
1. Operating Economies :- Whenever two or more firms combine, certain economies are likely to be
realised as a result of larger volume of operations resulting in economies of scale. These
economies may arise due to better utilisation of production capacities, distribution network,
engineering services, research and development facilities and so on. The operating economies
(economies of scale) would be the maximum in the case of horizontal mergers where intensive
utilisation of production capacities will result in benefits for the merged firm. On the other hand,
in the case of vertical mergers, the benefits would accrue from better co-ordination of facilities,
both backward and forward, reduction in inventory levels and higher market power of the
combined firms.
2. Financial economies :- Merger of two or more firms brings about the following financial
advantages for the merged firm.
 Relief under the Income Tax Act :- Under Section 72A of the Income Tax Act, 1961 carry forward
and setting off of accumulated losses and unabsorbed depreciation of the amalgamating company
is allowed against the future profits of the amalgamated company in order to encourage revival of
sick units.
 Higher Debt Capacity :- The merged firm would enjoy higher debt capacity because the combination of
two or more firms provide greater stability to the earnings level. This is an important consideration for
the lenders since the possibilities of default in repayment of loan and interest is reduced to a great
extent. A higher debt capacity if utilised, would mean greater tax advantage for the merged firm leading
to higher value of them.
 Reduction in floating costs:- Whenever the merged firm raises funds from the market through public
issue of shares or debentures, it can reduce the floatation costs as compared to the similar amount
being raised independently by the merging firms. Such reduction in the floatation costs represent a real
benefit to the merged firm. Apart from the above, earnings and cash flows are primary financial
outcomes that need to be tracked since valuation are built on them.
3. Growth and Diversification :- As stated earlier, merger/amalgamation of two or more firms has been
used as a dominant business strategy to seek rapid growth and diversification. The merger improves
the competitive position of the merged firm as it can command an increased market share. It also
offers a special advantage because it enables the merged firm to leap several stages in the process of
expansion.
Diversification can be a :-
• Vertical Diversification
• Horizontal Diversification
• Concentric Diversification
4. Managerial Effectiveness :- It has been pointed out by various studies that incompetency of
management has been the most important reason for firms becoming sick. If a sick firm is merged
with another well managed company, it will lead to better co-ordination oh human resources of
both the companies. Managerial effectiveness can also bring substantial gains to the merging
firms if two well managed firms combine together to take advantage of valuable human
resources.