Role of HR in

Mergers &
Acquisitions
Group 9
A Shiva Yamini Yadav
Dharm Vrat Maurya
Pallavi Dasgupta
Sanjib Kalita
Sreeram Muraleedharan

1.What is a TERM
SHEET

1. WHAT IS A TERM SHEET

o TERM SHEET is a formal document submitted by the acquirer to the target company, in which
it states the price and conditions under which it offers to acquire the company.
o It also contains the permissions that are given by the company to be acquired, to the
acquiring company, to carry out the process of due-diligence before acquisition.
o This is a precursor to an actual acquisition agreement, and is usually not intended to be
legally binding. A draft of the term sheet is usually circulated among the parties and their
attorneys for changes to be negotiated before a final version is signed.
o Key Elements of a term sheet are:
Binding

The term sheet will state whether the terms in the document are binding.
Usually they are not, in case a company calls off a deal, they might have to pay
penalty to the other party.

Parties

Contains the names of the acquirer and the target company.

Price

States the total amount of consideration to be paid to the seller. There should
be a statement that the stated price will vary, depending upon information
uncovered during the due diligence process.

Form of
payment

States whether the price will be paid in cash, debt, stock, or some mix of
these elements

Earnout

In case of an earnout, seller of a business will receive additional payments

based on the future performance of the business sold. this clause states
how the earnout is to be calculated.

Working
capital
adjustment

States any changes in the purchase price that will be triggered if the
sellers working capital varies from a certain predetermined amount as of
the closing date.

Legal structure

It states the form of the legal structure to be used, such as a triangular

merger or an asset purchase. The legal structure can have profound tax
implications for the seller, so this item may require considerable
negotiation during the merger.

Escrow

This states the proportion of the price that will be held in escrow, and for
how long.

Due diligence

This states that the acquirer intends to conduct due diligence, may state
the approximate dates when this will occur and the permissions available
to the acquirer to carry out the due diligence.

Responsibility
for expenses

This states that each party is responsible for any legal, accounting, and
other expenses related to the acquisition transaction.

Closing

This states the approximate date when the acquirer expects that the
purchase transaction will close.

Acceptance
period

This states the time period during which the terms stated in the term
sheet are being offered. The recipient must sign the term sheet within
the acceptance period to indicate approval of the terms. Limiting the
term of the offer allows the acquirer to later offer a different (usually
reduced) set of terms if the circumstances change.

No shop
provision

The seller agrees not to shop the price given in the term sheet to other
prospective bidders in an effort to find a higher price. This clause can be
legally binding. It is an additional clause.

Stock restriction

If payment is to be in stock, the acquirer will likely require that the seller
cannot sell the shares within a certain period of time, such as six or 12
months. It is an additional clause.

Management
incentive plan

There may be a bonus plan, stock grants, stock option plan, or some
similar arrangement for the management team of the seller. It is an
additional clause.

Conditions
precedent

This states the requirements that must take place before the acquirer
will agree to complete the purchase transaction

Representations
and warranties

This is a short statement that the acquirer will want representations and
warranties from the seller in the purchase agreement, under which the
seller essentially creates a warranty that the business it is selling is as
represented to the acquirer

2. Explain ROFR and

ROFO

2. WHAT IS ROFR & ROFO

o Right of first refusal (ROFR or RFR) is a contractual right that gives its holder the option to
enter a business transaction with the owner X of a business according to specified terms,
before X enters into a agreement with a third party. The right of first refusal is similar in
concept to a call option.
o Also known as the Last Look provision.
o ROFR can cover any type of assets ranging from Real Estate, Personal Property, Patent
License, a Screenplay, right to enter into a Joint Venture, Distribution Arrangement or any
other business of interest.
o If the owner of X sells the asset to a third party without offering the holder of ROFR the
opportunity to purchase it first, the holder can then sue the owner for damages. It may
however, be difficult to reverse the sale. However, in some cases the option becomes
a property right that may be used to invalidate an improper sale.
o A ROFR is an option to enter a transaction on exact or approximate transaction terms
o Right of First Offer (ROFO, also known as a Right of First Negotiation) is a contractual
obligation by the owner of an asset to a rights holder to negotiate the sale of an asset with the
rights holder before offering the asset for sale to third parties.
o A ROFO is merely an agreement to negotiate.
o An ROFR differs from a Right of First Offer in that the ROFO merely obliges the owner to
undergo exclusive good faith negotiations with the rights holder before negotiating with other
parties.

STRATEGY FOR ROFR & ROFO

Strategy -- First Refusal
Strategically, the right of first refusal has significant advantages for the buyer. Few bidders are
likely to appear if they know that another bidder is simply waiting in the wings to match the offer.
So, a right of first refusal clause tends to depress price. The right of first refusal does give the
seller a powerful way to test the market for the business. In cases where there is no business
partner holding the right of first refusal, the first bidder may request it, or the seller may offer it as
a way of luring potential buyers.
Strategy -- First Offer
The strategic advantage of a first offer provision is that it can drastically reduce transaction
costs. Selling a business takes time, and in some cases, armies of lawyers, investment advisers
and accountants. When a prospective buyer holds a right of first offer, the seller is free to accept
or reject the offer. The buyer, especially if he is a commercial real estate tenant, has an interest
in offering a fair price to reduce moving costs. The seller is always free to return to the holder of
the right of first offer if nobody bids higher, but, of course, that buyer is also free to reduce his
bid.

3.Difference between Private

Equity investment, Venture
Capital investments and
corporate buyout

Differences
between the
Private Equity
investments,
Venture
Capital
Investments
and Corporate
Buyout

Private Equity investments:

In the operating companies which are publically not listed on the stock exchange, the assets
consisting of equity securities and debts are known as private equity investments
PE firms make large investments of at least $100 million up into the tens of billions for large
companies. They almost always buy 100% of a company in an LBO. PE firms use a
combination of equity and debt
How it works:
These firms are often partnerships that obtain their investment funds from
wealthy individuals, investment banks, endowments, pension funds, insurance companies,
various financial institutions and even corporations wishing to foster their new products,
businesses or technologies.

The managers of many private equity firms receive an annual management fee (usually 2% of
the invested capital) and a portion of the funds net profits (typically 20%)
These private equity firms decide which companies to invest in by reviewing hundreds of
business plans, meeting entrepreneurs and company managers, and performing
extensive due diligence on investment candidates
Why it matters:
It fosters liquidity, entrepreneurship and creates shareholder value. This in turn promotes job
creation and economic growth. It attracts Consultants and Bankers exclusively.
Examples: The Carlyle Group, Kohlberg Kravis Roberts, The Blackstone Group, Apollo
Global Management etc

Differences
between the
Private Equity
investments,
Venture
Capital
Investments
and Corporate
Buyout

Venture Capital investments:

Venture capital is financing that investors provide to start-up companies and small businesses
that are believed to have long-term growth potential. For start-ups without access to capital
markets, venture capital is an essential source of money. Risk is typically high for investors,
but the downside for the start-up is that these venture capitalists usually get a say in company
decisions.
How it works:
Submit Business Plan to VC
firms or Angle Investors

Due
Diligence

Firm or investor will pledge an investment

in exchange for equity in company

Capital is typically provided in rounds, the firm or investor actively ensures the venture is
meeting certain milestones before receiving another round of capital. The investor then exits
the company after a period of time, typically 4 to 6 years after the initial investment through a
merger or an acquisition or initial public offering (IPO). Venture Capitals only acquire a
minority stake less than 50%.VC investments are much smaller often below $10 million for
early-stage companies.
Why it matters:
Promotes diversity in hiring process VC attracts diverse mix like ex-bankers, consultants,
business development people, and even former entrepreneurs
VC firms use only equity
Examples: Accel Partners India, Idein ventures, Reliance ventures etc

Differences
between the
Private
Equity
investments,
Venture
Capital
Investments
and
Corporate
Buyout

Corporate Buyout:
A buyout is the purchase of a company's shares in which the acquiring party gains controlling
interest of the targeted firm. A leveraged buyout (LBO) is accomplished by borrowed money or
by issuing more stock. Buyout strategies are often seen as a fast way for a company to grow
because it allows the acquiring firm to align itself with other companies that have a
competitive advantage.
How it works:
A complete buyout typically takes three to six months. The purchaser examines the target
companys balance sheet, income statement and statement of cash flows, and conducts a
financial analysis on any subsidiaries or divisions seen as valuable.
After completing its research, valuation and analysis of a target company, the purchaser and
target begin discussing a buyout. The purchaser then makes an offer of cash and debt to the
board of directors (BOD) of the target company.
After completing the buyout process, the purchaser implements its strategy for restructuring
and improving the company. The purchaser may sell divisions of the business, merge the
business with another company for increased profitability, or improve operations and take the
business public or private.
Why it matters:
The company performing the LBO may provide a small amount of the financing, typically 10%,
and finance the rest through debt. The return generated on the acquisition is expected to be
more than the interest paid on the debt. The target company's assets are typically provided as
collateral for the debt. The buyout firm may sell parts of the target company or use its future
cash flows to pay off the debt and exit with a profit.

Differences
between the
Private
Equity
investments,
Venture
Capital
Investments
and
Corporate
Buyout

Corporate Buyout:
Example 1:
In 1986, Safeway's BOD avoided hostile takeovers from Herbert and Robert Haft of Dart Drug
by letting Kohlberg Kravis Roberts complete a friendly LBO of Safeway for $5.5 billion.
Safeway divested some of its assets and closed unprofitable stores. After improvements in its
revenues and profitability, Safeway was taken public again in 1990. Roberts earned almost
$7.2 billion on his initial investment of $129 million.

Example 2:
In 2007, Blackstone Group bought Hilton Hotels for $26 billion through an LBO. Blackstone put
up $5.5 billion in cash and financed $20.5 billion in debt. Before the financial crisis of 2009,
Hilton had issues with declining cash flows and revenues. Hilton later refinanced at lower
interest rates and improved operations. Blackstone sold Hilton for a profit of almost $10 billion.

4.Documents Required
for HR Due-diligence

Document
s that you
will check
for
registratio
n

i) Applicability:
a) PF: During visit, check whether the company is engaged in packaging or not. Packaging in
wafers industry should mean plastic products which are included in Schedule 1 of PF Act. Also,
check if it has at least 20 persons employed.
b) ESI: seasonal or not.
c) Gratuity: Bakauli is factory or not. Corporate office has 10 or more employees or not in last
12 months
d) Bonus: Bakauli is factory or not. Corporate office has 20 or more employees or not in the
accounting year
ii) Documents for registration: Copy of registration from the factory inspector and licence to
carry out the operations.
PF: Establishment EPF Code no. and verify on EPFO website
ESI: 17 Digit establishment ESI code and verify on ESI website
iii) Receipts and Challans to be asked for:
a) PF:
iv) Registers to be asked:
a) PF: Register of wages and Record of EPF
b) ESI:
Employees Register in Form 6
Accident Register in new Form -11
Inspection Book
c) Payslips of all the employees

Document
s that you
will check
for
registratio
n

v) Calculations:
a) PF:
Salary details of all the employees
The number of current employees whose monthly salaries are below Rs. 15,000/- will be
considered
Number of employees whose salaries are above Rs. 15,000/- and who opted for PF scheme
will also be considered
For calculations; Basic salary, Dearness Allowance and Retaining Allowance are considered
EPF (12% Employees + 3.67%), EPS (8.33%), EDLIS (0.5%, Max Rs. 15,000/-), EPF
Administrative charges (0.85%), PF Admin account (1.1%), EDLIS Administrative charges
(0.01%)
Calculations to be checked would be: Based upon the Number of employees covered under
the act and employees opted for EPF the total amount will be calculated as per the formulae
given above. These figures will be cross checked with the Profit and Loss Account details
Calculations can also be checked by checking the pay-slips of the employees and adding the
contributions paid by employees and employer
b) ESI:
Salary details of all the employees
The number of current employees whose monthly salaries are below Rs. 21,000/- will be
considered
For calculations; All the remunerations paid will be considered. But does not include annual
bonus, retrenchment compensation, provident fund payments, encashment of leave and
gratuity
Employee's contribution rate (1.75% of the wages) and employer's contribution rate (4.75%
of the wages paid)
Employees earning dalily wages upto Rs. 100/- will not contribute anything but the employers
will contribute their part

Document
s that you
will check
for
registratio
n

Calculations to be checked would be: Checking the pay-slips of the employees and adding the
contributions paid by employees and employer
c) Gratuity:
Salary details of all the employees
All the employees are eligible for gratuity
Calculations will be done on Monthly Basic Salary and Dearness Allowance.
Formulae for Gratuity Calculation:
GRATUITY = LAST DRAWN SALARY 15/26 NO. OF YEARS OF SERVICE
(The ratio 15/26 represents 15 days out of the 26 working days in a month)
d) Bonus:
Salary details of all the employees
The number of current employees whose monthly salaries are below Rs. 21,000/- will be
considered
For calculations; All the remunerations other than overtime work paid will be considered.
Minimum bonus 8.33% and maximum can be 20% of wages
Payslips of the employees can be checked and the total amount can be verified
vi) Fines and Penalties in case of non-compliance:
a) PF:
In case of avoiding any payment by employer or making false statements under pension scheme
or insurance scheme; the employer is punishable with imprisonment which may extend to 1 year
or fine of Rs. 500/- or both. If the offence is repeated by anyone, he shall be imprisoned for 2-5
years and fined Rs. 25,000/- for every subsequent offence.
In case of non-compliance with payment of employers contribution provident fund; the employer
is punishable with imprisonment which may extend to 3 years which would be minimum of 1 year
and Rs. 10,000/- if the default by the employers contribution deducted from employees wages. In
any other case, it will not be less than 6 months and a fine of Rs. 5,000/-.

Document
s that you
will check
for
registratio
n

b) ESI:
Punishment for false statement is imprisonment upto 6 months or Rs. 2,000/- or both.
Punishment for failure to pay employers contribution is imprisonment for 1-3 years and shall also
be eligible for a fine of Rs. 10,000/-. For any such subsequent offence, the employer will be
punished with imprisonment of 2-5 years and also be liable for a fine of Rs. 25,000/-.
Punishment for deducting any part of employers contribution from the wages of employees and
any other offence under the ESI act, Imprisonment of 6 months to 3 years and a fine may also be
imposed of Rs. 5,000/-.
c) Bonus:
If the employer fails to comply with the payment of bonus act 1965, he shall be imprisoned for
upto 6 months or fined with Rs. 1,000/- or both.
d) Gratuity:
Punishment for false statement is imprisonment upto 6 months or upto Rs. 10,000/- or both.
If the employer fails to comply with the payment of bonus act 1965, he shall be imprisoned for
3months to 1 year or fined with minimum Rs. 10,000/- or both.

5. Analyze news from HR

perspective
NITI Aayog for Air India divestment, closure of 26 ailing
PSUs

Excerpt: BUSINESS STANDARD

(08/09/2016)
Link: http://
www.business-standard.com/article/economy-policy/niti-aayog-bats-for-strat
egic-sale-of-22-central-psus-116090701243_1.html
NEWS FACTS:
NITI Aayog, tasked with preparing a roadmap for ailing public sector undertakings, has
recommended disinvestment of companies such as Air India after they are revived and
immediately winding up 26 state-run firms and leasing out several loss-making hotels.
Air India, along with Chennai Petroleum, Madras Fertilizer and FACT are on the list of 22
public sector companies which have been identified for strategic sale after they are
revived, sources said.

ANALYSIS OF AIR INDIA

Hierarchical structure
Extremely active unions
Employee cost: 25%
Air India is unable to fill its 17000 seats out of 62000 every day
On a daily basis, 17% cabin members are extra
The pilots are under utilized with flying below 56 hours per month whereas the norm being 84 hours
Currently, Air India officials at the prospects of suspension or transfer are afraid to take any divergent
step
Bad management and lack of responsibilities for results and failures
Deeply ingrained corruption at all levels
Labor issues with pilots:
Want to remove pilots from definition of workmen under ID Act 1947
Due to this reason the employees are mostly unsatisfied with the management and their
performance is also affected
Government gave clarifications about jobs of pilots being managerial in nature
But after enacting a law in the parliament, the role of the legislation gets over, the clarifications can
only be provided by the courts once the law has been enacted

SUGGESTIONS
For some coming years, Air India should not take any fresh recruits. They already have
17% excess workforce which is underutilized. In the near future, Air India has shown
some signs of increasing the number of aircrafts they have and the extra crew can be
deployed in those flights to increase operational efficiency. Once the excess
employees are absorbed in their suitable places and new vacancies open up. Then Air
India should begin the recruitments again.
They need to show to the employees that they are already paying them well above the
market. They spend around 25% of the revenue generated on the employees which is by
a very high margin, surpasses every player in the airlines industry in India.
The employees need to be made to understand that only if they perform better then the
organization can perform better. It is only possible when the organization starts to show
the employees that it cares about their well-being and welfare.
If Air India could show confidence in its employees and assure them that they will be given
opportunities to work with more autonomy and the punishing culture will be removed, it may
save the dooming airline because many employees are apprehensive of doing anything
new due to the fear of the adverse consequences.

6.
Inspiring
and
attractive
employer/
person to work with

PRIVATE EQUITY FIRMS

Surge in morale and strong

performance against competitors

Partners from across geographies,

consensus-driven deal process

Strong monetary condition; can

work independently

Best Place to Work: Forbes

Fewer
potential
investment
mistakes, greater success rate

Very smart, hard working group of

people

Around 200 employees; small

but growing

Young, intelligent, and ambitious

workforce, friendly approachable
management

Lot of opportunities for growth

and learning

Competitive compensation

VENTURE CAPITALIST FIRMS

Entrepreneurial culture; team of

self-starters
Encourages
initiative
and
accepts mistakes rather than
inaction

Lot of responsibility

Good work-life balance, fun at work

Learning opportunities in
abundance

Collaborative Work Environment

Amazing work environment

Good learning environment

Most prolific venture capital firm in India

in 2015
Inspiring work culture and a great place
to learn and unlearn to bring the best
out in a highly competitive environment

M&A CONSULTING FIRMS

Brand image, better processes,

great learning place

Good work life balance, good pay,

brand name

Fast career growth, responsibility

right from junior levels

Employees encouraged to
innovate; great peer group

Learning along with fun at work

good brand and reputation

More balance work-life compared

to competitors

Great benefits and employee

policies, opportunity to learn and
grow
Good support from the management

Professional set of people, Nice work

culture and environment, Ideal place to
learn from their diverse business
offerings & product lines,
Provides ideal opportunities to grow
especially for Fresh hires

TOP M&A PROFESSIONALS

ARUN ANAND
Infosys, PwC,
KPMG
Highly-experienced
One
of
the
most
competent
M&A
professionals in India
Strong financial acumen,
ability to analyze data
Team-player, high energy
levels enthuse other team
members as well

BRIJESH KUKREJA
Deloitte, PwC
Highly-experienced,
drives and monitors work
thoroughly till completion
Honest
and
fair
in
dealings, not swayed by
existing
norms
and
traditions
Approaches matters with
professional skepticism,
cool, calm, helping and
passionate

SAMEER
KARULKAR
Bennett Coleman &
Co. Ltd., SBI Capital
Creative, pro-active and
knowledgeable
Has an eye for details
Sincere, self-motivated
Creates
a
positive
environment at workplace
An excellent mentor and
guide.

KUMAR SHAH
Micromax Informatics
Ltd,Global
Environment Fund,
Deutsche Bank
Global Head of M&A and
Strategy at Micromax
Extremely skilled in
sourcing and partnering
with companies
Risk-taker, great learning
experience for peers and
sub-ordinates

AJAY JOSHI
AGC Networks Ltd
Head
Mergers
&
Acquisitions, AGC
Extensive
end-to-end
exposure of strategy and
M&A
Energetic
and
selfmotivated;
entrepreneurial nature
Drives the best out of coworkers

HR PROFESSIONALS WITH EXPERIENCE OF

M&A

ZENOBIA MADON
Philips, Johnson &
Johnson

BINAYAK BAGCHI
Medtronic,
UnitedHealth Group

DEEPA MOHAMED
LexisNexis,
The People Connect

Director HR, Business

Partner at Philips
Passionate
and
dedicated
HR
professional
Connects
with
employees at all levels
Creative
and
dependable,
infuses
spirit and energy in team

Subject matter expert

with holistic view
Takes pride in people
development and can be
fully entrusted with goal
ownership, commitment,
organizational
brand
enhancement
High
risk
appetite,
provides
astute
guidance on people
matters

Visionary,
forward
looking,
inspirational
thoughts
Extremely warm and
self-driven, creates an
intellectually stimulating
environment,
inspires
the team to go that extra
mile
and
work
collaboratively
Excellent mentor and
coach,
inspirational
leader

SHUBHANKAR ROY
CHOWDHURY
Lenovo, Nokia Corp,
IBM Business
Consulting Services
Global Head HR Strategy,
M&A and Analytics, Lenovo
Leads talent, learning and
overall transformation of
employees
Multiple field knowledge
with inclination to monitor
total completion of projects
Helping and cooperating,
team player, approachable

HARISH HULYALKAR
Iron Pillar, Citi Group
Entrepreneurial spirit
Experience of handling
deals across various
geographies
Founding member of Iron
Pillar

INVESTMENT BANKING FIRMS

Good learning opportunities,

Good culture

Good work life balance; Good pay

and yearly bonus

Employee friendly environment,

balanced work-life, good bonus

Work life balance, Flexible

Medical insurance bonus, Work

timings, balanced work pressure

Proper feedback, learning and

development; flexibility

Growth supportive work environment

High work life balance and good pay

Brand image, better processes, great

learning place
Employees encouraged to innovate;
great peer group

30

THANKS
!

Submitted by :
Group 9
A Shiva Yamini Yadav
Dharm Vrat Maurya
Pallavi Dasgupta
Sanjib Kalita
Sreeram Muraleedharan