Management Consulting/Strategic management


Q1) Explain the term strategic decision making?

Q2) Explain the process of decision making?

Q3) What is the basic thrust of strategic decision making?

Q4) Explain in detail the issues in strategic decision making?

Q1) Define vision? And explain the benefits of a vision?

Q2) What do you mean by mission?

Q3) How are Mission statements formulated and communicated?

Q4) Explain in detail the characteristics of a Mission statement?

Q1) Explain the concept of Environment?

Q2) Explain in detail the characteristics of Environment?

Q3) Explain Internal Environment?

Q4) Explain External Environment?

Q1) Explain the term mergers and acquisitions?

Q2) What are the types of mergers and acquisitions?

Q3) Explain in detail the reasons for mergers and acquisitions?

Q4) What are the important issues in mergers and acquisitions?

Q1) Explain the term strategic decision making?

. Strategic decision making, or strategic planning, describes the process of creating a company's mission and objectives and deciding upon the courses of action a company should pursue to achieve those goals.
Q2) Explain the process of decision making?

Strategic decision making is an ongoing process that involves creating strategies to achieve goals and altering strategies based on observed outcomes. For example, the managers of a pizza restaurant might have the objective of increasing sales and decide to implement a strategy of offering lower prices on certain products during off hours to attract more customers. After a month of pursuing the new strategy, managers can look at sales data for the month and evaluate whether the strategy resulted in increasing sales and then choose to keep the new price scheme or alter their strategy.
SWOT Analysis
A SWOT analysis is a common strategic planning tool that managers can use to examine internal and external factors that may influence the ability to achieve goals. A SWOT analysis involves creating a list of a businesses strengths and weaknesses and the external threats and opportunities it faces. Identifying strengths, weaknesses, opportunities and threats can help managers create strategies to exploit strengths or minimize weaknesses to take advantage of opportunity and avoid threats.
Cost-Benefit Analysis
A cost-benefit analysis is a strategic decision making tool that can help managers choose between two or more different courses of action. In a cost-benefit analysis, managers estimate the amount of revenue they expect a certain project to generate and the expected costs of pursuing the project. By estimating the costs and benefits associated with several different projects, managers can determine which project is expected to produce the greatest benefit.
Outside Advice
While entrepreneurs and small business owners may be experts in their chosen industry, they are often not experts in actually managing businesses. Business owners often seek outside help to aide in the strategic decision making process. The U.S. Small Business Administration says that mentors can be a vital source of advice for small business owners. Some businesses hire professional consultants to help them make strategic decisions.
Identifying Problems
Before making any decision, the organization has to identify exactly what the problem is. Not identifying the problem could lead to an erroneous decision. The leader of an organization should evaluate the issue with all employees so everyone knows about it, and then make a decision that taps into what's worked before if that decision process is right for solving the issue. This form of decision-making can be made into a computer program with a set pattern of rules to follow in amending a problem.
Multiple Perspective Analysis
Sometimes using multiple perspective analysis to make a decision is best so a CEO or manager can force herself out of her usual method of thinking. Professor Hossein Arsham, in an article titled “Leadership Decision Making” at the University of Baltimore site, notes this method and its steps. By wearing six different “hats,” you can make a decision using different thinking  made. A green hat will use freewheeling creativity in making a decision. The article also notes that a decision can be made using differing points of view from customers or those in different professions.
Short-Term Decisions
Another decision method is the short-term method, or operational decisions. These decisions usually solve a problem in the immediate term through the action of employees. The method to this involves practical steps for a quicker outcome. For example, it could be choosing a particular delivery service to deliver products to the organization’s customers.
Following Up and Feedback
After an organization has made a decision, the manager or CEO needs to follow up on it to make sure it was implemented correctly. Communication with every employee involved in implementing the decision is important in this scenario. Additionally, a leader of an organization should get feedback from those directly affected by the decision. By doing so, the organization can know whether the decision was the right one. This helps in gauging how to make future important business decisions.


Q3) What is the basic thrust of strategic decision making?

"Strategy is the determination of the basic long-term goalsof an enterprise, and the adoption of courses of actions
and the allocation of resources necessary to carry out these
"Strategy is the basic goals and objectives of the organization, the major programs of action chosen to reach these goals and
objectives, and the major pattern of resource allocation used

"Strategy is the forging of company missions, setting objectives
for the organization in light of external and internal forces,
formulating specific policies and strategies to achieve objectives,
and ensuring their proper implementation so that the basic
purposes and objectives of the organization will be achieved."
to relate the organization to its environment."


Q4) Explain in detail the issues in strategic decision making?

Improving CUSTOMER service
Building customer relationships
Hiring qualified people
Training employees
Motivating employees
Protecting the environment
Financing expansion
Working with franchisors
Merger mania
International expansion
Renovating facilities
Implementing technological advances
Selling on the Internet
Growth in brand names

1. Sensitivity testing
One of the most commonly used techniques in risk analysis is sensitivity testing. The aim
of this technique is to select individual assumptions and assess the outcomes sensitivity to changes in that specific assumption.
In terms of a spreadsheet model, input assumptions considered to be high risk can be
highlighted. Input values can then be singularly changed and a new outcome recorded.
Sensitivity testing can be useful when trying to identify specific factors that require
management focus in order to achieve a successful outcome.
A key limitation of sensitivity testing however is that of processing single input value
changes. In reality a change in a singular variable alone without impact on other key
inputs or indeed the market as a whole would be unusual.
Without applying a common sense approach to sensitivity testing it can become little
more than a number crunching exercise to satisfy stakeholders that risk has been assessed.
In most cases the true value of such analysis is limited to projects where there is little
flexibility in how risk factors can be managed and when the project will go ahead
regardless of the degree of undesirable outcomes identified.

2.Scenario or ‘what-if?’ analysis
Scenario analysis moves a step further to consider clusters of risks reflected in changes in
a range of assumptions. Commonly management build a picture of best case, worst case
and most likely values for each input value. The model will then calculate the outcome of
each scenario.
Although an improvement on single point estimates, the process of calculating every
possible combination from the range of input variables can be very time consuming and
result in lots of data. Furthermore it gives you no sense of the probability of achieving
different outcomes.

3.Monte Carlo simulation
To undertake a timelier and ultimately more complete risk analysis a combination of a
spreadsheet modelling and simulation may be required.
For each uncertain variable (an input value within a range of possible values) the possibly
values with a probability distribution are defined. The type of distribution selected is
based on the conditions surrounding the variable.
The simulation calculates multiple scenarios of a model by sampling values from the
probability distribution and using the values in that cell.
By defining key output measure, known as the forecast values, the impact of the
simulation on that forecast value and assessment of the certainty that a particular forecast
value will fall within a certain range can be reviewed.
Application of this approach can improve sensitivity analysis, for example to show you
which factors are most responsible for the uncertainty surrounding cash flows. Monte
Carlo simulation allows management to gain a richer understanding of risk without the
need to spend time running and analysing multiple scenarios.
Tools such as Crystal Ball alleviate the need to devise the equation that represents this
distribution, making the process considerably less onerous. However simulation involves
the application of statistical techniques and should be supported by a developer with the
appropriate knowledge.

4. Optimisation
Optimisation is about identifying the best solution to the problem using the model. It is
particularly appropriate when management have control of a range of variables impacting
on the outcome.
Traditionally Excel Solver can be applied to generate optimal solutions by applying a
linear equation. The limitation of this approach is that it is difficult to take account of the
range of uncertainty surrounding these variables.
Building on our ability to assess the degree of uncertainty, tools such as OptQuest can
help strategic decision makers identify the optimal decision. Again this can provide
management with valuable knowledge on how to benefit from uncertainty, but must be
supported by stakeholders and those with the requisite technical knowledge.

5.Real Options
Q1) Define vision? And explain the benefits of a vision?
Members of the organization often have some image in their minds about how the organization should be working, how it should appear when things are going well.
An aspirational description of what an organization would like to achieve or accomplish in the mid-term or long-term future. It is intended to serves as a clear guide for choosing current and future courses of action.

Benefits of a Vision Statement
Seeing the benefits of vision can be a powerful motivation for individuals to reprioritize their activities and resources. A vision is beneficial for some of the following reasons:
-It empowers people and focuses their efforts
-It focuses energy for greater effectiveness
-It raises the standard of excellence
-It establishes meaning for today
-It gives hope for the future
-It brings unity to community
-It provides a sense of continuity
-It raises commitment level
-It brings positive change

Q2) What do you mean by mission?

What is a Mission Statement?
A mission statement sets out the business vision and values that enables employees, managers, customers and even suppliers to understand the underlying basis for the actions of the business
You should think of a mission statement as a cross between a slogan and an executive summary.
Just as slogans and executive summaries can be used in many ways so too can a mission statement. An effective mission statement should be able to tell your organization  story and ideals in less than 30 seconds.

Here are some basic guidelines in writing a mission statement:
1   A mission statement should say who your organization  is, what you do, what you stand for and why you do it. .
2   The best mission statements tend to be 3-4 sentences long.
3   Avoid saying how great you are, what great quality and what great service you provide.
4   Make sure you actually believe in your mission statement, if you don't, it's a lie, and your customers will soon realize it.


Q3) How are Mission statements formulated and communicated?
1. Who our team serves:          
2. Why we serve these people:
3. The specific client needs our team strives to meet:
4. The specific ways in which we serve our clients:
5. How we communicate our mission to the community and our clients:
6. How we measure how well we’re fulfilling our mission:

1.   Distributing posters for display on office walls, laminating wallet-sized cards or prominently displaying the vision/mission in the main lobby are some ways to communicate this important information throughout the enterprise

Q4) Explain in detail the characteristics of a Mission statement?
Make it as succinct as possible. A mission statement should be as short and snappy as possible – preferably brief enough to be printed on the back of a business card. The detail which underpins it should be mapped out elsewhere (see Vision and Values)
2.   Make it memorable. Obviously partially linked to the above, but try to make it something that people will be able to remember the key elements of, even if not the exact wording
3.   Make it unique to you. It’s easy to fall into the ‘motherhood and apple pie’ trap with generic statements that could equally apply to any institution. Focus on what it is that you strive to do differently: how you achieve excellence, why you value your staff or what it is about the quality of the student experience that sets you apart from the rest.
4.   Make it realistic. Remember, your mission statement is supposed to be a summary of why you exist and what you do. It is a description of the present, not a vision for the future. If it bears little or no resemblance to the organisation that your staff know it will achieve little.
5.   Make sure it’s current. Though it is not something which should be changed regularly, neither should it be set in stone. Your institution’s priorities and focus may change significantly over time – perhaps in response to a change of direction set by a new Vice-Chancellor or Principal, or major changes in government policy. On such occasions the question should at least be asked: ‘does our current mission statement still stand?’
Q1) Explain the concept of Environment?
Intuitively, the notion of ``the environment''   refers to the relatively enduring and stable set of circumstances that surround some given individual.  . The environment is where agents live, and it determines the effects of their actions. The environment is thus a matter of importance in computational modeling; only if we know what an agent's environment is like can we determine if a given pattern of behavior is adaptive. In particular we need a positive theory of the environment, that is, some kind of principled characterization of those structures or dynamics or other attributes of the environment in virtue of which adaptive behavior is adaptive.
Q2) Explain in detail the characteristics of Environment?
Environment Characteristic
# 1: Atmosphere
a. none
b. methane gas
c. carbon dioxide gas
d. sulfur dioxide gas
e. oxygen gas
# 2: Temperature
a. very hot (like in a desert or volcano)
b. temperate (moderate temperatures year round)
c. very cold (like in Antarctica)
# 3: Surroundings
a. primarily water (like an ocean)
b. very acidic/basic
c. mainly land (no lakes/oceans/etc.)
d. consists of methane lakes/molten lava
# 4: Light
a. little to no sunlight
b. abundant sunlight
# 5: Food Source
a. mineral/nutrient rich soil
b. barren soil (no nutrients)
c. sunlight
d. no plant life/organisms
e. plant life/organisms present
f. no sunlight
# 6: Other
a. fast predators
b. soft ground
c. multi-colored terrain
d. dimly lit, hard to find your prey
Q3) Explain Internal Environment?

Internal Environment
  It consists of conditions and forces within an organization. It is located within the organization. It provides strengthens and weaknesses to the organization. It is controllable by the organization.
  Forces in the internal environmental consist of:
•   Organizational scope
•   Stakeholders

a)   Organizational Scope
It is indicated by:
i)   Organizational goals and policies: Goals are desired outcomes. They state end results. They can be multiple as well as conflicting. They form a hierarchy. Organization activities must be conducted within the framework of goals.
Policies are guidelines for managerial decision making. They follow from goals. Organizations must operate within the policy guideline framework.
ii) Organizational Structure: Structure is the design of jobs and relationships. It I concerned with the division of activities (differentiation) and coordination of efforts (integration). Organizations must function within the boundary of their structure.

iii) Organizational Resources: Resource availability sets a limit on organizational activities. They can be physical, human, financial and information. The recent developments in information technology have greatly facilitated the activities of organization.
iv) Culture: Culture encompasses shared values, norms, beliefs, customs and symbols that guide member behavior in organization. It helps to understand what the organization stands for, how it functions, and what it considers important. Culture shapes the overall effectiveness of the organization.
•   Culture is reflected by mutuality of interests, collaboration and team spirit, faith in employees, autonomy in work, tolerance for conflicts, open communication, risk taking and human focus in organization.
•   Stakeholders:   They are important part of internal environment. They affect an organization’s activities. They are directly relevant for achievement of organization’s goals. Stakeholders form the task environment of organization.

Stakeholders have a stake in the performance of the organization. They include:

i.   Customers: They can be consumers, business or institutional customers. They can money for products. Organizations develop programs to satisfy the needs of customers. Customers need sand preferences keep changing. Organization should aim for total customer satisfaction.
ii.   Suppliers and allies: Organizations buy inputs from the environment s and sent outputs to the environment. They are dependent on the suppliers of materials and resources. Long lasting relationships with suppliers are essential.

Allies: Organizations develop strategic alliances with other organizations to work together in joint ventures or partnerships. Such allies provide expertise and spread risk. Such alliances directly affect the activities of organizations.

iii.   Competitors: Organizations compete for customers. They must analyze competition. They should formulate a clear strategy for customer satisfaction and bigger market share. Competition s everywhere. It directly affects organizations.
iv.   Government: Government regulates. Its policies and attitudes constrain or support organizational activities. It protects consumer and societal


Q4) Explain External Environment?
External Environment
  The second level of the management system involves the organization's external environment. It consists of all the outside institutions and forces that have an actual or potential interest or impact on the organization's ability to achieve its objectives: economic, social, political, legal, technological and international forces.

  "According to James Stoner," External environment can be defined as all elements outside an organization that are relevant to its operations."

  External environment includes all of the forces outside of an organization's boundaries that are not under the control of management. Of course, the boundary that separates the organization from its external environment is not always clear and precise.

  The external environment consists of two layers:
  i)   The Task Environment, and
  ii)   The General Environment.

  Political environment consists of political and legal forces that influence management.

1. Political Environment:
  Forces in the political environment are related to management of public affairs. The components of political environment are:

a. Political System:   It consists of ideological forces, political parties, election procedures, and power centers. A stable, efficient and honest political system is essential for the growth of management. Political instability resulting from civil war, emergencies and terrorist activities adversely affects management.

b. Political Institutions:
  They consist of legislature, exercise and judiciary.
•   The legislature enacts laws. They guide managerial activities.
•   The executive implements the decisions of the legislature. It lays down policies, regulations and procedures that influence the activities of management. Government- business relations are crucial for the growth of business activities.
•   The judiciary serves as watchdog. Their rulings influence management practices. It settles disputes and carries out judicial review.

c. Political Philosophy:   It can be democratic, totalitarian or a mix of both. Democracy vests power in the hands of people. Totalitarian vests power in the hands of the state. A mix of both is based on power sharing.

2. Legal Environment:
  Legal environment refers to all the legal surroundings that affect management activities. It consists of an array of acts, rules, regulations, precedent, institutions and processes. It defines what management can or cannot do.
Legal environment is concerned with:
•   Protecting the right sand interests of organization, consumer’s employees and society.
•   Providing grounds on which organizational activities can be carries out. It encourages or restrains activities by providing facilities to law abiders and gibing punishment to law breakers.
•   Regulating activities through legal provisions. They are relating to licensing, wages, labor relations, monopoly, foreign investment, foreign exchange, environment protection, consumer protections, industrial location, imports, exports, pricing and taxation.

Management must ensure that its activities conform to the laws of the land. It must comply with legal provisions I force.
The components of legal environment are:
a.   Law: It consists of an array of laws enacted by the parliament. It protects the rights and interests of consumer’s labor, business and society.
b.   Courts of Law: Courts are intuitions established to solve legal disputes. Nepal has a three-tier court system. The Supreme Court is t the national level. It is the highest level of judiciary. The Courts of Appeal are at the middle level. The 75 district courts are at district level.
c.   Law Administrators: Various law enforcement agencies ensure implementation of laws and the judgments of the courts of law. Government agencies, lawyers, police and jails play an important role in law administration.

  Economic environment refers to all the economic surroundings that influence management. Important components of economic environment are:
1. Economic Systems:   Economic system determines the scope of private sector participation and market forces. The models of economic system are:
a. Free Market Economy:   This system is based on private sector ownership of the factors of production. Profit serves as the driver of economic engine. The competitive market mechanism guides business decisions. There is freedom of choice. Individual initiative is encouraged.

b. Centrally Planned Economy:   This system is based on public ownership of the factors of production. The economy is centrally planned, controlled and regulated by the government. There is no consumer sovereignty. Public enterprises play a dominant role.

d.   Mixed Economy: this system is a mix of free market and centrally planned economies. Both public and private sectors coexist. The public sector has ownership and control of basic industries including utilities. The private sector owns agriculture and other industries. It is regulated by the state.

2. Economic Policies:   Policies are guidelines for action. Economic policies significantly influence and guide management actions.
  Key economic policies influencing organization are:
a.   Monetary Policy: It is concerned with money supply, interest rates and credit availability. It influences the level of spending through interest rates. Cheap money reduces cost. Dear money increases cost.
b.   Fiscal Policy: It is concerned with the use of taxation ad government expenditure to regulate economic activities. Taxation on income, expenditure and capita are an important influence on management decisions. Government purchases, subsidies and other transfers also influence the activities of management.
c.   Industrial Policy: it is concerned with industrial licensing, location, incentives, facilities, foreign investment, technology transfer, and nationalization. It influences the investment climate.

3. Economic Conditions
  They indicate the health of the economy in which management operates. The factors of economics conditions are:
a.   Income: The level and distribution of income affect expenditure, saving and investment. They together influence the economic conditions of organizations. Nepal has a per capita income of US $ 240. The GDP growth rate is very low.
b.   Business Cycles:   The stages of business cycle can be prosperity, recession and recovery. They affect the health of organization.
c.   Inflation: It is rise in price level. It influences costs, price and profits of organization.
d.   Stage of Economic Development: An economy can be least developed, developing and developed. Management activities are influenced by the state of economic development. Nepal is least developed.

4. Regional Economic Groups:
  They promote cooperation and free trade among members by removing tariff ad there restrictions. They provide opportunities to member countries and threats t non-members countries. Example is:SAARC, ASEAN, EU.


1.   Social Environment: It refers to all the social surroundings that influence management. It consists of factors related to human relationships.
Organizations operate within the society. They primarily exits to satisfy societal needs. Social factors influence the policies practices and activities of organizations.
Important factors in the social environment consist of: demographics, social institutions, pressure groups and social change.

a.   Demographics: Demography is concerned with human population and its distribution. Demographic forces consist of:

•   Size, distribution and growth of population
•   Age mix of population
•   Urbanization of population
•   Migration of population

b.   Social Institutions: They consist of family, reference groups and social class.

•   Family:   Two or more persons related by blood, marriage or adoption who reside together constitute a family. The family as a asocial institution greatly influences decisions and activities of management.
•   Reference Groups: They consist of groups that have a direct or indirect influence on the attitudes and behavior of consumers. They can be sports, musical and cinema personalities. They can be professionally successful people. They:
*expose to new behaviors and life style;
*Influence values and attitudes;
         *Provide norms for behavior.
•   Social class: It is the rank within a society determined by its members. It can be classified into upper, middle and lower. Members of a class share similar values, interests and behavior. Organizational activities are influenced by the behavior of various classes in the society. Organizations need to their activities to meet the needs of specific social classes.

c.   Pressure Groups: They are special interest groups. They sue the political process to advance their position on an issue of social concern. They pressurize and lobby government and organizations to protect their interests through change in laws, policies and practices.
d.   Social Changes: Change is making things different. Social change implies modification in relationships and behavior patterns in a society. Life style and social values promote social change.
Life style is a person’s pattern of living reflected in his activities, interests and opinions. It affects product choice. Management should adapt their activities to changes in life style.

2.   Cultural Environment

It refers to cultural surroundings that influence management. Culture is the complex whole which includes values, norms, beliefs, and customs. Symbols and works of arts and architecture. It is created by society. It is handed down from generation to generation.
Culture is learned behavior. It changes over time. It is made up of subcultures based on religion, language, caste and ethnicity. Cultural factors influenced by:
a. Influencing the Type of products:    the type of food people eat, beverages they drink, clothes they wear, and the building materials they use for construction of houses vary from culture to culture.

b. Creating Attitudes towards Work and Leisure: Work motivation, profit motivation, meaning of body gestures, and attitudes toward time vary from culture to culture.

C.Influencing Values and Beliefs: Values are basic convictions. Beliefs are descriptive thoughts held about something based on knowledge, opinion or faith. Culture influence values and beliefs.
Management should be culturally sensitive. Cross-cultural changes brought about by globalization and information technology significantly influences management.


  Technical environment refers to all technological surroundings that influence management. Technology consists of skills, methods, systems, and equipment. It includes inventions and innovations. It makes work more efficient.
  Technology influences management by bringing about changes in jobs, skills, life styles, products, production methods and processes. Automation, computerization, robotics, production, biotechnology, new materials and artificial intelligence have all influenced management. Information technology affects every function of management.
  Technology reaches people through organization. Factors in the technological environment consist of:
1. Level of Technology: The level of technology can be appropriate or sophisticated. It can be labor-based or capital-based. The level of technology influences management.
* Labor-based technology: Human labor is mainly used for the operations.
* Capital-based Technology: Machinery is mainly used for operations. Technology is represented by automation, computerization, mobilization, etc. The technology can be high, intermediate or low.
2. Pace of Technological Change: Technology is a dynamic force. Its pace of change is accelerating. Management should adapt to the changing technological forces. It should also upgrade the skills of human resources to effectively cope with the demands of technological changes.
  Technological change influences management in the following ways:
•   It can make existing industries obsolete.
•   It can rejuvenate the existing industries through product improvements or cost reductions.
•   It can create entirely new industries.
•   It can increase government regulations.
•   It can create need for technological up gradation.
3.   Technology Transfer: Sources of technology can be within the organization, within the country or foreign countries. Technology transfer implies technology imported from technologically advanced foreign countries. The speed of technology transfer is important.
Technology transfer can be through:
a)   Globalization: Global companies are the key sources of technology transfer in developing nations. The modality can be franchising, technical collaboration, subsidiary establishment or contract.
b)   Projects: Turn-Key projects based on global bidding serve as a sources of technology transfer.
c)   Trade: This consists of sale of equipment or machines by the manufacturer.
d)   Technical Assistance: Bilateral and multilateral donors provide international consultants who bring new technology with them.
e)   Training and publications: They provide opportunities to learn about new technology.
Technology transfer influences management by:
•   Increasing efficiency and decreasing costs.
•   New product development and product improvements.
•   Improving production systems and processes
•   Better satisfaction of customer needs.

4.   Research and Development (R & D) Budget: R& D is the essence of innovation. Expectations for improved technology are increasing. Customers expect new products of superior quality which are safe, comfortable and environment-friendly. This calls for increased research and development budget.
Government and industry collaboration in R& D effort is also an important aspect of technological environment. Industries can also collaborate with universities.
Q1) Explain the term mergers and acquisitions?

         Merger is defined as combination of two or more companies into a single company where one survives and the others lose their corporate existence. The survivor acquires all the assets as well as liabilities of the merged company or companies. Generally, the surviving company is the buyer, which retains its identity, and the extinguished company is the seller.  

Merger is also defined as amalgamation. Merger is the fusion of two or more existing companies. All assets, liabilities and the stock of one company stand transferred to transferee company in consideration of payment in the form of:

•   Equity shares in the transferee company,
•   Debentures in the transferee company,
•   Cash, or
•   A mix of the above modes.


         Acquisition in general sense is acquiring the ownership in the property. In the context of business combinations, an acquisition is the purchase by one company of a controlling interest in the share capital of another existing company.

Methods of Acquisition:

An acquisition may be affected by

(a)   agreement with the persons holding majority interest in the company management like members of the board or major shareholders commanding majority of voting power;
(b)   purchase of shares in open market;
(c)   to make takeover offer to the general body of shareholders;
(d)   purchase of new shares by private treaty;
(e)   Acquisition of share capital through the following forms of considerations viz. means of cash, issuance of loan capital, or insurance of share capital.


         A ‘takeover’ is acquisition and both the terms are used interchangeably.
Takeover differs from merger in approach to business combinations i.e. the process of takeover, transaction involved in takeover, determination of share exchange or cash price and the fulfillment of goals of combination all are different in takeovers than in mergers. For example, process of takeover is unilateral and the offeror company decides about the maximum price. Time taken in completion of transaction is less in takeover than in mergers, top management of the offeree company being more co-operative.

De-merger or corporate splits or division:

         De-merger or split or divisions of a company are the synonymous terms signifying a movement in the company.

What will it take to succeed?

Funds are an obvious requirement for would-be buyers. Raising them may not be a problem for multinationals able to tap resources at home, but for local companies, finance is likely to be the single biggest obstacle to an acquisition. Financial institution in some Asian markets are banned from leading for takeovers, and debt markets are small and illiquid, deterring investors who fear that they might not be able to sell their holdings at a later date. The credit squeezes and the depressed state of many Asian equity markets have only made an already difficult situation worse. Funds apart, a successful Mergers & Acquisition growth strategy must be supported by three capabilities: deep local networks, the abilities to manage uncertainty, and the skill to distinguish worthwhile targets. Companies that rush in without them are likely to be stumble.

Assess target quality:

To say that a company should be worth the price a buyer pays is to state the obvious. But assessing companies in Asia can be fraught with problems, and several deals have gone badly wrong because buyers failed to dig deeply enough. The attraction of knockdown price tag may tempt companies to skip crucial checks. Concealed high debt levels and deferred contingent liabilities have resulted in large deals destroying value. But in other cases, where buyers have undertaken detailed due diligence, they have been able to negotiate prices as low as half of the initial figure.

Due diligence can be difficult because disclosure practices are poor and companies often lack the information buyer need. Moreover, most Asian conglomerates still do not present consolidated financial statements, leaving the possibilities that the sales and the profit figures might be bloated by transactions between affiliated companies. The financial records that are available are often unreliable, with different projections made by different departments within the same company, and different projections made for different audiences. Banks and investors, naturally, are likely to be shown optimistic forecasts.

Q2) What are the types of mergers and acquisitions?
There are many types of mergers and acquisitions that redefine the business world with new strategic alliances and improved corporate philosophies. From the business structure perspective, some of the most common and significant types of mergers and acquisitions are listed below:

Horizontal Merger
This kind of merger exists between two companies who compete in the same industry segment. The two companies combine their operations and gains strength in terms of improved performance, increased capital, and enhanced profits. This kind substantially reduces the number of competitors in the segment and gives a higher edge over competition.

Vertical Merger
Vertical merger is a kind in which two or more companies in the same industry but in different fields combine together in business. In this form, the companies in merger decide to combine all the operations and productions under one shelter. It is like encompassing all the requirements and products of a single industry segment.

Co-Generic Merger
Co-generic merger is a kind in which two or more companies in association are some way or the other related to the production processes, business markets, or basic required technologies. It includes the extension of the product line or acquiring components that are all the way required in the daily operations. This kind offers great opportunities to businesses as it opens a hue gateway to diversify around a common set of resources and strategic requirements.

Conglomerate Merger
Conglomerate merger is a kind of venture in which two or more companies belonging to different industrial sectors combine their operations. All the merged companies are no way related to their kind of business and product line rather their operations overlap that of each other. This is just a unification of businesses from different verticals under one flagship enterprise or firm.

Q3) Explain in detail the reasons for mergers and acquisitions?

The purpose for an offer or company for acquiring another company shall be reflected in the corporate objectives. It has to decide the specific objectives to be achieved through acquisition. The basic purpose of merger or business combination is to achieve faster growth of the corporate business. Faster growth may be had through product improvement and competitive position.

Other possible purposes for acquisition are short listed below: -

(1) Procurement of supplies:

1.   To safeguard the source of supplies of raw materials or intermediary product;
2.   To obtain economies of purchase in the form of discount, savings in transportation costs, overhead costs in buying department, etc.;
3.   To share the benefits of suppliers economies by standardizing the materials.

(2) Revamping production facilities:

1.   To achieve economies of scale by amalgamating production facilities through more intensive utilization of plant and resources;
2.   To standardize product specifications, improvement of quality of product, expanding

3.   Market and aiming at consumers satisfaction through strengthening after sale   
4.   To obtain improved production technology and know-how from the offered company
5.   To reduce cost, improve quality and produce competitive products to retain and
Improve market share.

(3) Market expansion and strategy:

1.   To eliminate competition and protect existing market;
2.   To obtain a new market outlets in possession of the offeree;
3.   To obtain new product for diversification or substitution of existing products and to enhance the product range;
4.   Strengthening retain outlets and sale the goods to rationalize distribution;
5.   To reduce advertising cost and improve public image of the offeree company;
6.   Strategic control of patents and copyrights.

(4) Financial strength:
1.   To improve liquidity and have direct access to cash resource;
2.   To dispose of surplus and outdated assets for cash out of combined enterprise;
3.   To enhance gearing capacity, borrow on better strength and the greater assets backing;
4.   To avail tax benefits;
5.   To improve EPS (Earning Per Share).

(5) General gains:

1.   To improve its own image and attract superior managerial talents to manage its affairs;
2.   To offer better satisfaction to consumers or users of the product.

(6) Own developmental plans:

The purpose of acquisition is backed by the offeror company’s own developmental plans.
A company thinks in terms of acquiring the other company only when it has arrived at its own development plan to expand its operation having examined its own internal strength where it might not have any problem of taxation, accounting, valuation, etc. But might feel resource constraints with limitations of funds and lack of skill managerial personnel’s. It has to aim at suitable combination where it could have opportunities to supplement its funds by issuance of securities, secure additional financial facilities, eliminate competition and strengthen its market position.

(7) Strategic purpose:

The Acquirer Company view the merger to achieve strategic objectives through alternative type of combinations which may be horizontal, vertical, product expansion, market extensional or other specified unrelated objectives depending upon the corporate strategies. Thus, various types of combinations distinct with each other in nature are adopted to pursue this objective like vertical or horizontal combination.

(8) Corporate friendliness:

Although it is rare but it is true that business houses exhibit degrees of cooperative spirit despite competitiveness in providing rescues to each other from hostile takeovers and cultivate situations of collaborations sharing goodwill of each other to achieve performance heights through business combinations. The combining corporate aim at circular combinations by pursuing this objective.

(9) Desired level of integration:

Mergers and acquisition are pursued to obtain the desired level of integration between the two combining business houses. Such integration could be operational or financial. This gives birth to conglomerate combinations. The purpose and the requirements of the offeror company go a long way in selecting a suitable partner for merger or acquisition in business combinations.
Q4) What are the important issues in mergers and acquisitions?
When negotiating an M&A transaction, there are many issues that should be addressed up front (preferably at the letter of intent stage or as soon as possible after the execution of a letter of intent). The target company and the acquiring company should consider the following issues when contemplating a transaction. Click on any item to jump down to more detail.
Top 10 Merger and Acquisition Transaction Issues
1.   Deal Structure
2.   Cash versus Equity
3.   Working Capital Adjustments
4.   Escrows and Earn-Outs
5.   Representations and Warranties
6.   Target Indemnification
7.   Joint and Several Liability
8.   Closing Conditions
9.   HSR/Timing Issues
10.   Non-competes & Non-solicits
1. Deal Structure
Three alternatives exist for structuring a transaction: (i) stock purchase, (ii) asset sale, and (iii) merger. The acquirer and target have competing legal interests and considerations within each alternative. It is important to recognize and address material issues when negotiating a specific deal structure. Certain primary considerations relating to deal structure are: (i) transferability of liability, (ii) third party contractual consent requirements, (iii) stockholder approval, and (iv) tax consequences.
Transferability of Liability. Unless contractually negotiated to the contrary, upon the consummation of a stock sale, the target’s liabilities are transferred to the acquirer by operation of law. Similarly, the surviving entity in a merger will assume by operation of law all liabilities of the other entity. However, in an asset sale, only those liabilities that are designated as assumed liabilities are assigned to the acquirer while the non-designated liabilities remain obligations of the target.
Third Party Consents. To the extent that the target’s existing contracts have a prohibition against assignment, a pre-closing consent to assignment must be obtained. No such consent requirement exists for a stock purchase or merger unless the relevant contracts contain specific prohibitions against assignment upon a change of control or by operation of law, respectively.
Stockholder Approval. The target’s board of directors can grant approval of an asset sale at the corporate level without obtaining individual stockholder approval. However, all selling stockholders are required to grant approval pursuant to a stock sale. When unanimity is otherwise unachievable in the stock sale context, a merger can be employed as an alternative whereby the acquirer and target negotiate a mutually acceptable stockholder approval threshold sufficient to consummate the deal. However, under Delaware law (and most other jurisdictions that follow a similar corporate doctrine), non-consenting stockholders to an asset sale or merger shall be entitled to exercise appraisal rights if they question the adequacy of the deal consideration.
Tax Consequences. A transaction can be taxable or tax-free depending upon structure. Asset sales and stock purchases have immediate tax consequences for both parties. However, certain mergers and/or reorganizations/recapitalizations can be structured such that at least a portion of the sale proceeds (in the form of acquirer’s stock a/k/a “boot”) can receive tax deferred treatment. (1) From an acquirer’s perspective, an asset sale is most desirable because a “step up” in basis occurs such that the acquirer’s tax basis in the assets is equal to the purchase price, which is usually the fair market value (fmv). This enables the acquirer to significantly depreciate the assets and improve profitability post-closing. A target would be liable for the corporate tax for an asset sale and its shareholders would also pay a tax on any subsequent dividends. (2) Upon a stock purchase, the selling shareholders would pay long term capital gains provided they owned the stock for at least a year. However, the acquirer would only obtain a cost basis in the stock purchased and not the assets, which would remain unchanged and cause an unfavorable result if the fmv is higher. (3) A third possibility would be to defer at least some of the tax liability via a merger/recapitalization whereby the boot remains tax free until its eventual future sale. (4) Compromises are possible including, by way of example, an “h(10) election” whereby the parties consummate a stock purchase with all of the aforementioned results being the same except, for tax purposes, the deal is deemed an asset deal and the acquirer obtains the desired basis step-up in the assets.
2. Cash versus Equity
The method of payment for a transaction may be a decisive factor for both parties. Deal financing centers on the following:
Cash. Cash is the most liquid and least risky method from the target’s perspective as there is no doubt as to the true market value of the transaction and it removes contingency payments (excluding the possibility of an earn out) all of which may effectively pre-empt rival bids better than equity. From the acquirer’s perspective, it can be sourced from working capital/excess cash or untapped credit lines but doing so may decrease the acquirer’s debt rating and/or affect its capital structure and/or control going forward.
Equity. This involves the payment of the acquiring company's equity, issued to the stockholders of the target, at a determined ratio relative to the target’s value. The issuance of equity may improve the acquirer’s debt rating thereby reducing future cost of debt financings. There are transaction costs and risks in terms of a stockholders meeting (potential rejection of the deal), registration (if the acquirer is public), brokerage fees, etc. That said, the issuance of equity will generally provide more flexible deal structures.
The ultimate payment method may be determinative of what value the acquirer places on itself (e.g., acquirer’s tend to offer equity when they believe their equity is overvalued and cash when the equity is perceived as undervalued).
3. Working Capital Adjustments
M&A transactions typically include a working capital (W/C) adjustment as a component of the purchase price. The acquirer wants to insure that it acquires a target with adequate W/C to meet the requirements of the business post-closing, including obligations to customers and trade creditors. The target wants to receive consideration for the asset infrastructure that enabled the business to operate and generate the profits that triggered the acquirer’s desire to buy the business in the first place. An effective W/C adjustment protects the acquirer against the target initiating (i) accelerated collection of debt, or (ii) delayed purchase of inventory/selling inventory for cash or payment of creditors. The typical W/C adjustment includes the delta between the sum of cash, inventory, accounts receivable, and prepaid items minus accounts payable and accrued expenses. In terms of measuring the W/C, the definitive agreement will include a mechanism that compares the actual W/C at the closing against a target level, which target level is viewed as the normal level for the operation of the business based on a historical review of the target’s operations over a defined period of time. Certain unusual or atypical factors, “one-offs”, add-backs, and cyclical items will also be considered as part of the W/C calculation. The true-up resulting from the post-closing W/C adjustment will usually occur within a few months of the closing and, to the extent that disputes between the parties arise concerning the calculation, dispute procedures are set forth in the definitive agreement.
4. Escrows and Earn-Outs
The letter of intent should clearly indicate any contingency to the payment of the purchase price in a transaction, including any escrow and any earn-out. The purpose of an escrow is to provide recourse for an acquirer in the event there are breaches of the representations and warranties made by the target (or upon the occurrence of certain other events). Although escrows are standard in M&A transactions, the terms of an escrow can vary significantly. Typical terms include an escrow dollar amount in the range of 10% to 20% of the overall consideration with an escrow period ranging from 12 to 24 months from the date of the closing. Earn-out provisions are less common and are most often used to bridge the gap on valuation that may exist between the target and the acquirer. Earn-out provisions are typically tied to the future performance of the business, with the target and/or its stockholders only receiving the additional consideration to the extent certain milestones are met. When drafting earn-out terms, it is important to have the milestones be as objective as possible. Typical milestones include future revenue and other financial metrics. From the target’s perspective, the concern with earn-outs is that post-closing the target loses control over the company and decisions made by the acquirer post-closing can dramatically impact the ability to achieve the milestones that were established.
5. Representations and Warranties
The acquirer will expect the definitive agreement to include detailed representations and warranties by the target with respect to such matters as authority, capitalization, intellectual property, tax, financial statements, compliance with law, employment, ERISA and material contracts. It is critical for the target and target’s counsel to review these representations carefully because breaches can quickly result in indemnification claims from the acquirer. The disclosure schedules (which describe exceptions to the representations) should be considered the target’s “insurance policy” and should be as detailed as possible. One of the more debated representations is the “10b-5” representation, which requires the target to make a general statement that no rep or warranty contains any untrue statement or omits to state a material fact necessary to make any of them not misleading. Targets are typically uncomfortable with such a broad statement, but without such a representation an acquirer often will question whether the target is withholding certain information. Acquirers and targets also struggle with the appropriateness of knowledge qualifiers throughout the representations. The target typically tries to insert knowledge qualifiers in many of the material representations (for example, with respect to whether the target’s intellectual property has infringed the rights of any other third party), but the acquirer will want these types of risk to lie with the target.
6. Target Indemnification
Target indemnification provisions are always highly negotiated in any M&A transaction. One of the initial issues to be determined is what types of indemnification claims will be capped at the escrow amount. In some instances all claims may be capped at the escrow. It is common to have a few exceptions to this cap – any claims resulting from fraud and/or intentional misrepresentation usually go beyond the escrow and often instead are capped at the overall purchase price. In addition, breaches of “fundamental reps” (such as intellectual property or tax) may go beyond the escrow as well. Another business term related to indemnification to negotiate relates to whether there will be a “basket” for indemnification purposes. In order to avoid the nuisance of disputes over small amounts, there is typically a minimum claim amount which must be reached before which the acquirer may seek indemnification – which could include a true “deductible” in which the acquirer is not permitted to go back to the first dollar once the threshold is achieved.
7. Joint and Several Liability
Related to the concept of indemnification is the issue of joint and several liability. As most transactions involve multiple target stockholders, one of the primary issues to consider regarding indemnification, from the acquirer’s perspective, is to what extent each of the target’s stockholders will participate in any indemnification obligations post-closing (i.e., whether joint and several, or several but not joint, liability will be appropriate). Under joint liability each target stockholder is individually liable to the acquirer for 100% of the future potential damages. However, if the liability is several, each target stockholder pays only for that target stockholder’s relative contribution to the damages. It goes without saying that the acquirer will almost always desire to make each target stockholder responsible for the full amount of any future potential claims. However, target stockholders will generally resist this approach but, even more so, where there are controlling stockholders and/or financial investors (both of which traditionally resist joint and several liability in every situation).
8. Closing Conditions
A section of the definitive agreement will include a list of closing conditions which must be met in order for the parties to be required to close the transaction. These are often negotiated at the time of the definitive agreement (although sometimes a detailed list will be included in the letter of intent). These conditions may include such items as appropriate board approval, the absence of any material adverse change in the target’s business or financial conditions, the absence of litigation, the delivery of a legal opinion from target’s counsel and requisite stockholder approval. One of the more heavily negotiated closing conditions is the stockholder voting threshold which must be achieved for approval of the transaction. Although the target’s operative documents and state law may require a lower threshold, acquirers typically request a very high threshold of approval (90% - 100%) out of concern that stockholders who have not approved the transaction might exercise appraisal rights. The target should review its stockholder structure carefully before committing to such a high threshold (although from a target perspective, the more stockholders approve the transaction the better, but the target just does not want the acquirer to have the ability to walk away from the transaction).
9. HSR/Timing Issues
In connection with any transaction, the parties should review long-term lead items as soon as possible. For example, the parties should complete an analysis to determine whether a Hart-Scott-Rodino filing will be required to be made and, if so, at what point such filing will be completed (occasionally it is filed after the letter of intent is executed but is often filed upon the execution of definitive agreement). Although the 30-day waiting period can be waived, the necessity of making an HSR filing can significantly delay the closing of a transaction. A second potential lead items is determining if any third party notices or consents (as further described above) will be required and the process by which such notices or consents shall be made.
10. Non-competes & Non-solicits
Within the context of an M&A transaction, a covenant not to compete or solicit is a promise by the selling shareholder(s) of the target to not, for a certain post-closing time frame or after termination of employment with the target/acquirer, (i) engage in a defined business activity that is competitive with the target’s/acquirer’s, or (ii) attempt to lure away customers or employees of the target/acquirer. Enforceability of such restrictions requires that the restrictions be (A) reasonable in time and scope, and (B) supported by consideration. Because the M&A context involves the sale of a business and payment to the selling shareholders of typically a material amount of consideration, courts generally have deemed such consideration adequate for purposes of enforceability both in terms of scope (i.e., any material business competitive with that of the target/acquirer) and multiple years of duration.  

Management Consulting

All Answers

Answers by Expert:

Ask Experts


Leo Lingham


management consulting process, management consulting career, management development, human resource planning and development, strategic planning in human resources, marketing, careers in management, product management etc


18 years working managerial experience covering business planning, strategic planning, corporate planning, management service, organization development, marketing, sales management etc


24 years in management consulting which includes business planning, strategic planning, marketing , product management,
human resource management, management training, business coaching,
counseling etc




©2017 All rights reserved.