Cross Border M&A

What is Cross Border M&A?

They are basically those transactions wherein the target company and the acquirer company are of different home countries. This deal is such in which the assets and processes of the companies in different countries are combined to form a new legitimate entity.

Driving forces for Cross Border M&A’s

-Globalization of financial markets
-Market pressures and falling demand due to international competition
-Seek new market opportunities since the technology is fast evolving
-Geographical diversification which would result in exploring the assets in other countries
-Increase companies efficiency in producing the goods and services
-Fulfillment of the objective to grow profitably
-Technology share and innovation which reduces costs

Effects of Cross Border M&A

  • Capital build up
    Cross border merger and acquisitions contribute in capital accumulation on a long term basis. In order to expand their businesses it not only undertakes investment in plants, buildings and equipment’s but also in the intangible assets such as the technical know-how, skills rather than just the physical part of the capital.
  • Employment creation
    Sometimes it is seen that the M&A’s that are undertaken to drive restructuring may lead to downsizing but would lead to employment gains in the long term. The downsizing is sometimes essential for the continued existence of operations. When in the long run the businesses expand and becomes a successful it would create new employment opportunities.
  • Technology handover
    When companies across countries come together it sustains positive effects of transfer of technology, sharing of best management skills and practices and investment in intangible assets of the host country. This in turn leads to innovations and has an influence on the operations of the company.

Issues and Challenges

– Political scenario could play a key role in cross border merger and acquisitions, especially for industries which are politically sensitive such as defense, security etc.

– When there are cross border transactions there are cultural issues that arise because of the geographic scope of the deal

Trends in Cross border M&A

More and more companies want to go global as they offer great opportunities which are comparatively cheaper option for companies to build itself internally. Looking at the M&A sentiments around the world it shows that the businesses acquisition emphasis is changing from domestic to cross border transactions because of the various benefits it offers.

Summing It Up

On a whole cross border merger and acquisitions can provide great benefits to companies and also increase its share price but as we saw there are a lot of factors which need to be taken into consideration to avoid any glitches. Most critical factors which separate the successful M&A transactions from the others, who fail, are thorough and planned preparation and commitment of time and other resources.

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All you wanted to know about Corporate Finance

What is Corporate Finance?

  • Business involves decisions which have financial consequences and any decision that involves the use of money is said to be a corporate finance decision.
  • Corporate finance is one of the most important part of the finance domain as whether the organization is big or small they raise and deploy capital in order to survive and grow.
  • There are various roles that corporate finance plays, which are very interesting and challenging, one of the main roles is that of being a Finance adviser.
  • This can comprise helping to manage investments or even suggesting a mergers and acquisitions strategy.

Corporate Finance Principles

  • Investment Principle:
    This principle revolves around the simple concept that businesses have resources which need to be allocated in the most efficient way.
  • Financing Principle:
    The job here for the corporate financier is to make sure that the business has right amount of capital and the right mix of debt, equity and other financial instruments.
  • Dividend Principle:
    So the basic discussion here is that if the excess cash should be left in the business or given away to the investors/owners.

Understanding the concepts

Capital budgeting

Capital budgeting is the process of planning expenditures on assets (fixed assets) whose cash flows are expected to extend beyond one year. Managers study projects and decide which ones to include in the capital budget.
-The “capital” refers to long-term assets.
-The “budget” is a plan which details projected cash inflows and outflows during future period

The value of money

If you have a dollar today, you can earn interest on it and have more that a dollar next year. For example, $100 of today’s money invested for one year and earning 8% interest will be worth $108 after one year.

Cost of capital

  • Capital is an essential factor of production, and has a cost. The suppliers of capital require a return on their money.
  • The cost of capital is significant for a firm to calculate, as this is the rate of return that must be used when evaluating capital projects.
  • The return from the project must be superior than the cost of the project in order for it to be acceptable.

Working capital management

  • Working capital management involves the relationship between a firm’s short-term assets and its short-term liabilities.
  • The goal of working capital management is to ensure that a firm is able to continue its operations and that it has adequate ability to satisfy both maturing short-term debt and upcoming operational expenses.
  • The management of working capital encompasses managing inventories, accounts receivable and payable and cash.

Corporate Finance Career Overview

  • Corporate finance professionals are accountable to manage the money of the organization i.e. to know from where to source it, deciding how to spend it to get the maximum returns at the lowest possible risk.
  • They seek to find ways to ensure flow of capital, increasing the profitability and decreasing the expenses.
  • They have to monitor the other departments on their expenditure and if the company is in a position to take the risk of additional expenditure.
  • They explore the best ways to help company expand whether it is through acquisition or investing internally.

 

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Go Public – Initial Public Offering

An initial public offering, or IPO, is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it’s known as an IPO. Companies fall into two broad categories: private and public.

Privately held companies have fewer shareholders, usually owner, their family and friends and sometimes venture capitalist and angel investors. The public is not able to invest in private companies. Private companies have benefits of not having to disclose much information about the company. It usually isn’t possible to buy shares in a private company. Public companies offered some part of their business to the public and trade on stock exchange so initial public offering is often called “going public”. On the other side public companies can have thousands of shareholders and are subjected to rules and regulations. Public companies in United States must report to SEC and produce quarterly and annually reports. They also have to adhere to regulations and requirements set by stock exchanges on which they are listed.

Why go public? Going public is mostly used to raise cash and a lots of it. With initial public offering you can raise the largest sum of money compared to other methods of going public. Because increased supervision public companies usually get better rates when they are issuing debt.  As long as there is market demand, a public company can always issue more stock. Thus, mergers and acquisitions are easier to do because stock can be issued as part of the deal. Trading in the open market means liquidity. This makes it possible to implement things like employee stock ownership plans, which help to attract top talent. Being on a major stock exchange carries a considerable amount of prestige. You can always raise more cash with second offering.

An initial public offering (IPO) is the first time that the stock of a private company is offered to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can also be done by large privately owned companies looking to become publicly traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps determine what type of security to issue, the best offering price, the amount of shares to be issued and the time to bring it to market.

When a company starts an IPO process a specific set of event occur.The chosen underwriters facilitate all of these steps.

  • An external IPO team is formed, consisting of an underwriter, lawyers, certified public accountants (CPAs) and Securities and Exchange Commission (SEC) experts.
  • Information regarding the company is compiled, including financial performance and expected future operations. This becomes part of the company prospectus, which is circulated for review.
  • The financial statements are submitted for official audit.
  • The company files its prospectus with the SEC and sets a date for the offering.

 

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Reverse takeover – Canada

Reverse takeover is transaction in which public company listed on a stock exchange in Canada with few or without assets (often referred as shell company) acquires all securities of a private company with a significant assets and operation. It is considered a less expensive and time consuming alternative to initial public offering (IPO). This way public companies acquires all securities of public company and it becomes direct or indirect wholly-owned subsidiary. Shareholders of the private company receive shares from the public company and the operating company’s shareholders ultimately acquire a controlling interest in the new, combined company.

Shell companies may be created and maintained just for purpose of reverse takeover or it can be existing company, a reporting issuer that have previously ceased operations, but still maintain their reporting issuer status and usually have the shareholders required to list on a stock exchange. This makes them ideal candidates to complete an RTO transaction to take a private company public. The choice of structure used to implement an RTO transaction will depend on number of factors: the business sector in which the private company operates, legal and tax consideration, the number of shareholder and their location, deal process and timing matters. An reverse takeover transaction generally includes negotiations and discussions among parties, due diligence, shareholders meeting, preparation of disclosure documents containing-prospectus level disclosure concerning each of the companies and prescribed financial statement, review of and changes to corporate governance governance structures and policies to ensure that securities law and stock exchange requirements are met, review of transactions and related disclosure documents.  Securities held by officers, directors and other insiders will be subject to the escrow policies of the relevant stock exchange.

If you are interested in going public and you currently meet NEO’s or CSE’s requirements or will meet them following a public offering, we encourage you to contact us and we can assist in completing the listing application form. The listing application and the required due diligence can be done concurrently during the process of become a reporting issuer in Canada.

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STARTING UP

A HELPFUL GUIDE DETAILING THE STEPS TO CONSIDER WHEN LAUNCHING YOUR VERY OWN SMALL BUSINESS

  1.  HAVE AN IDEA BUT NOT SURE IT’LL WORK.
    Thinking through the potential of an idea is an important part of starting a business. Do research and gather data that can help decide if it’ll work.
    CONSIDER THIS:
    What are the practical realities of running my own business?
    What skills and abilities should I focus on to be successful?
    Does my business idea really excite me?
  2.  I’VE DONE SOME PRELIMINARY RESEARCH, WHAT ELSE SHOULD I CONSIDER?
    Consider various types of research to make sure you have a complete picture. Conduct surveys and interviews with potential customers, gather data from public sources and research your competitors to understand the strengths and weaknesses of those selling a similar product or service.
    CONSIDER THIS:
    The types of questions you may ask will depend on the product or service. However, you should always include questions to determine the following:
    Preference (flavours, features, how they prefer the service to be delivered to them)
    Consumer behavior (how often they would purchase this type of product or service?)
    Pricing (how much do they currently pay for this service? Are you able to compete?)
  3. I’VE GOT A VISION FOR MY BUSINESS BUT IT’S STILL A WORK IN PROGRESS

You should spend some time establishing a clear vision statement; this is a critical step in planning a business. It should define what you expect your business to be in the future.
CONSIDER THIS:
– Include what you would like your company to be in 2, 5 and 10 years.
Your vision statement should be succinct, vivid and inspiring.
Your business vision should align with your personal vision and goals.

  1.  IS HAVING A BUSINESS PLAN REALLY ALL THAT IMPORTANT?

YES. A business plan will outline your short and long term objectives, and most importantly it will help you see whether your business makes financial and operating sense. It is essential.
CONSIDER THIS:
Include your short & long terms goals and how you’ll accomplish them.
Show an understanding of the market, the competition and your customers.
Indicate how you intend to finance your business.

  1. IS THERE ANYONE ELSE WHO SHOULD BE ADVISING ME ON MY BUSINESS?

As a small business owner you will be called on to wear many hats in order to run your business. Involving the right advisors early on will help you be more successful in your business venture.
CONSIDER THIS:
Include a lawyer, an accountant and a small business advisor on your team.
Make sure your advisors are qualified and specialized, referrals are best.
Choose advisors who are compatible with you and understand your needs.

  1.  HOW DO I SECURE THE FINANCING I NEED TO START MY BUSINESS?

A combination of financial sources may be the best way to raise the money you need to launch your business; including loans, credit lines and credit cards. To prepare for getting financing make sure that.
CONSIDER THIS:
Your business plan is up to date and has clear measurable goals.
Your financial statements give an accurate picture of your finances.
Have your accountant review both your personal & business statements.

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Crowdfunding

Crowdfunding is a method of funding a project or a business venture by raising small amounts of money from a large pool of individuals. The term crowdfunding refers to internet -mediated registries. The modern crowdfunding model has three partakers: initiator of the fundraising campaign, one who puts forward an idea, individuals and investors who support the idea and moderating organization (often called platform) that brings two two parties together. Crowdfunding can be used to fund a wide range of project, from startups to non-profit organizations.

There is more than one way to crowdfund your business. The most common types of crowdfunding are: reward-based crowdfunding, equity crowdfunding, donation-based crowdfunding and marketplace lending (also known as peer-to-peer lending). With traditional ways of raising capital you can easily feel restricted. Pursuing the limited pool of investors can be arduous and time-consuming. That way you can easily lose your time and money. Crowdfunding is considered alternative to traditional methods; it is young and quick growing market that is transforming the ways of raising capital.  All you need to do is to sign-up with the platform and list your needs. But it is not that easy. it requires a good strategy and solid execution.

Reward-based crowdfunding provide the donors with rewards. It also means that you need to set the funding goals and devise a reward strategy. Depending on the amount of the donations you can separate donors into two or more ranks and therefor offer different types of awards. Often awards can be a prepurchase at advantageous prices or to first test the product. Good side of reward-based crowdfunding is that you don’t sell equity but instead you receive donations from people that support you and believe in your idea and/or your product. That is very important for your future products; it will be easier if you already have a fan base. On the other side it can bring a lot of pressure. After the funding part is over it means that you have to manufacture the product and ship which can be overwhelming for startup companies.

Other common type of crowdfunding method is equity crowdfunding. Similar with traditional methods, you get a working capital in exchange for part of ownership in your company. This means that in this way is giving the opportunity to wider range of people to invest. Sometimes on crowdfunding platforms you can meet accomplished investors or maybe an angle investors that are interested in your business idea. Another advantage is that you can potentially raise over $1.5 million. Very important benefit equity fundraising compared to traditional method are easier investor relations. All investors are consolidated as one investor by the platform. On the other hand you will have to give up part of you ownership in the company. You will have to get something really valuable in return in order to pursue it.

Crowdfunding has emerged as valuable way for businesses to raise money. Each method has it pros and cons and it is up to you to decide what is the best solution for you. Since crowdfunding is just getting started it is possible that there will emerge new ways to fund creative projects and businesses.

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investorrelations.mmg@gmail.com

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Reverse takeovers

An RTO involves a smaller quoted company taking over a larger unquoted company by a share-for-share exchange. In order to acquire the larger unquoted company, a large number of shares in the quoted company will have to be issued to the shareholders of the larger unquoted company.
After the takeover the current shareholders in the larger unquoted company will hold the majority of the shares in the quoted company and will therefore have control of the quoted company.

Reverse takeovers benefits include:

Easier access to capital markets
As a listed company, more finance is likely to be available and the cost of that finance is likely to be lower than if the company was still unquoted.

Higher company valuation
As the shares in the company will be listed, potential investors will deem the shares to be less risky as the company will have to abide by the relevant rules and regulations.

Enhanced ability to carry out further takeovers
Once the shares in a company are listed, the company is able to acquire other companies through further share-for-share exchanges.

Enhanced ability to use share based incentive plans
Once the shares of a company are listed, share based incentive plans can be used as a key tool to attract and retain good quality employees.

Reverse takeovers – the potential drawbacks:

Lack of expertise
A company achieving a listing through an RTO may find that it does not have the expertise to understand and deal with all the regulations and procedures that listed companies must comply with.

Reputation
RTO has often been viewed as a poor man’s IPO. Hence, companies that achieve their listing in this way may be viewed less favourably by investors than companies that have completed an IPO.

Risk
As a result of the lower level of scrutiny that is applied to an RTO compared to an IPO, investors must be aware of the higher level of risk that is attached to companies achieving a listing in this way.

As with anything that seems too good to be true, it must be recognized that an RTO is not without significant complication and cost. Just as there is no such thing as a free lunch, there is also no easy way to achieve a listing.

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investorrelations.mmg@gmail.com

 

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