What are Features/ Future of Mergers And Acquisition In Pakistan???

An Overview:
Definition
Aim of Merger or Acquisition
Types
Synergy
Benefits of Merger or Acquisition
Examples of Merging Companies in Pakistan
Why Mergers Fail???
Conclusion
Merger:
Merger is a statutory combination of two or more companies, in which two
approximately equal sized companies merge to combine forces. Merger includes combination,
amalgamation, consolidation or joint venture of one corporation with another.
An Acquisition:
An acquisition is when one company acquires another company. It includes take over of
management control1 and purchase of assets or common stock of an enterprise by another
undertaking.

Aim of Merger or Acquisition:
Mergers and acquisitions (M&A) usually aim at creating shareholder value over and
above that of the sum of the two (or more) companies. This aim is achieved through synergy of
merging companies that takes the form of revenue enhancement and cost savings of the new
business.

Types of Merger and Acquisition:
Types of M&A Purpose

Vertical M&A

Forward M&A to control distribution
Backward M&A to control supply chain
Horizontal M&A To increase market power
Conglomerate M&A Diversification
Synergy:
Synergy is the magic force that allows for enhanced cost efficiencies of the new business.
Synergy takes the form of revenue enhancement and cost savings. By merging, the companies
hope to benefit from the following:
Staff reductions - As every employee knows, mergers tend to mean job losses. Consider
all the money saved from reducing the number of staff members from accounting,
marketing and other departments.

Economies of scale - Mergers also translate into improved purchasing power to buy
equipment or office supplies - when placing larger orders, companies have a greater
ability to negotiate prices with their suppliers.

Acquiring new technology - To stay competitive, companies need to stay on top of
technological developments and their business applications. By buying a smaller
company with unique technologies, a large company can maintain or develop a
competitive edge.

Improved market reach and industry visibility- A merge may expand two companies'
marketing and distribution, giving them new sales opportunities. A merger can also
improve a company's standing in the investment community: bigger firms often have an
easier time raising capital than smaller ones.

Benefits of M&A:

M&A results in a number of benefits including revenue enhancement, cost reductions,
diversification of business activities, access to a wider range of markets, transfer of talents and
resources as well as the following:

Tax Benefits:

M&A result in following tax benefits:

The Income Tax Ordinance, 2001 allows amalgamating companies to set off their
business losses against the profits of the other company, provided that the amalgamating
companies continue their operations for at least five years from the date of amalgamation.

Any unabsorbed depreciation of the amalgamating companies is also treated as an
allowable expense of the merged entity.

Similarly, group companies have the option to be taxed as one unit. The group companies
can also surrender their assessed losses for the year (except the capital loss), which may
be claimed by a company in the group for set off against its income in the tax year and
the next two tax years.

The finance bill 2008 has also proposed to allow banking companies, nonbanking
financial companies, Modarabas and insurance companies to adjust accumulated losses
against the income of the group during a tax year. Any un-used loss will also be allowed
to be carried forward for six tax years following the tax year in which the loss arises.

Transfer pricing means the pricing of transactions between two or more related parties or
between two or more segments of a company. In Pakistan, income tax authorities can
apportion / allocate income and expenses relating to transactions between group
companies in such a manner which truly reflects the essence of the transaction.


Why Mergers Or Acquisition Fails In Pakistan:
Ignorance While the parties to a merger or acquisition cannot exchange commercially
sensitive information prior to being under common ownership, there is enough crucially
important and legally permissible preparation work to keep an integration team busy for
several months before day one.

No common vision In the absence of a clear statement of what the merged company will
stand for, how the organization will operate, what it will feel like, and what will be
different compared to how things are today, there is no point of the convergence on the
horizon and the organizations will never blend.

Team resourcing Resource requirements are very often underestimated. It can take two
or three months to release the best players from daily business to join the integration
team(s), find a backfill for them, sign up contractors to fill the gaps and set up the teams
infrastructure.

Poor communication Messages too frequently lack relevance to their audience and often
hover at the strategic level when what employees want to know is why the organization is
merging, why a merger is the best course action it could take, in what way the company
will be better after the merger, how it will feel, how the merger will affect their work
and what support they will receive if they are adversely impacted.

Lack of courage Delaying some of the tough decisions that are required to integrate two
organizations can only result in a disappointing outcome. Making those decisions will not
please everyone, but it has the advantage of clarity and honesty, and allows those who do
not find the journey and destination appealing to step off before the train gathers too
much speed.
Conclusion:

If you fail to plan, you plan to fail

This saying seems appropriate for M&A like any other business transaction. Otherwise, history
is full of examples of failed business combinations involving business giants e.g. Mercedes Benz
and Chrysler Corporation. To make a business combination a success, the right balance between
the strengths and weaknesses of the entities needs to be created in terms of their cultures and
intrinsic values.