Business Description

A western Maharashtra based group is operating in the forging industry through two separate entities- C1 and C2. The company had started C1 by purchasing it from another promoter family in early seventies. As a part of the expansion program, the group started another C2 in the eighties to cater to the need of the growing demand. Both the companies operated as parallel entities and served almost non-overlapping customers and markets. Both the companies specialize in open and closed die operations. Companies are managed by the promoter’s family. Both the companies are serving domestic and export market as well. C1 also has huge land.

Strategic objectives

The strategic objectives of the promoter include:

  • Consolidate the manufacturing business of both the companies given both the companies are in the same line of business.
  • Develop the land of C1 as real estate business.
  • Raise funds for manufacturing activities through private equity or IPO.
  • To have desired shareholding pattern in the Land Company and the consolidated manufacturing company.

Key Problems & Issues

  • C1 has land of a huge market value but the land is very near to residential area which is hindering the operation and further expansion of the company.
  • C1’s manufacturing facilities (building and plant and Machinery) are located on the land itself.
  • The Huge market value of land does not justify the manufacturing business commercially.
  • Cross holding structure in the group acting as impediment for restructuring

Options Analyzed:

To restructure the business, the Management had two options available:

  • Option 1: Hive off manufacturing business of C1 to C2 through Demerger, Slump sale or Itemized sale.C1 will remain as Land / Property Company.
  • Option 2: Hive off land of C1 to separate new company.Merging remaining C1 Radar with C2 or C2 with C1.

Critical factors considered for Restructuring:

To restructure the business, the following were the key points considered:

  • Strategic /operational Synergies
  • Optimum utilization of various resources
  • Valuation of independent companies
  • Fundraising plans for both the companies
  • Promoters’ stake in both the companies
  • Revenue streams in Real Estate Company and fundraising plan
  • Likely capital structure of the companies among family members
  • Cost in terms of taxes
  • Tax compliances as far as transfer of undertaking without land is concerned
  • Uses of family and personal loans for business short / long term
  • Future expansion plan and funding of present expansion
  • Other family businesses and sources of income

Our Recommendation : –

“Considering the various implication of the living off options, Demerger option was chosen. Further, considering the   issue in its entirety, Option 1 was the best option.”

Issues addressed

  • Treatment of the stake held by C2 in C1 had many- it could have been sold to any or all the shareholders of C1 and/or C2, it could have been transferred to a trust or it could have been transferred to another company acting as an investment company and so on. Considering the present and future shareholding plan it was decided that the shares were to be transferred to the shareholders of the transferee/resulting company.
  • Have separate company for real estate and manufacturing.
  • Consolidating manufacturing business.
  • Valuation: For the purpose of valuation of companies involved, Future Maintainable Profit Method was chosen because the companies had shown commendable performance in the past and were poised to grow in the future too.

Our Service Offerings

Mergers and AcquisitionsDivestment Advisory ServicesJoint VenturesFinancial Re-engineering

Mergers and acquisitions have become an essential and integral part of corporate strategy and will gain more significance as competition intensifies and companies move up the growth curve. In fact, M&A should grow in magnitude across the scale regardless of type and size of corporate from the blue chips to S&M companies…… Know More…

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Family-owned companies often divest for various reasons including next generation not interested in carrying on the said business or to fund retirement etc. Carving out a business is often more complex than acquiring one and selling a carve-out business requires a greater level of planning, effort, and resources. HU Consultancy has extensive experience…… Know More…

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Joint Venture is the right option for inorganic growth when both the parties to the transaction have unique strength and want to come together to leverage the strength of each other without affecting their present structure or ownership. With the advent of globalization and increasing business opportunities,…… Know More…

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Financial re-engineering involves the radical redesign of core business processes to achieve dramatic improvements in return on investments. The company, may, in the long run, have some assets which are surplus or not being utilized by the core business. The effective utilization of those assets / funds can increase value for stakeholders substantially. HU Consultancy offers financial re-engineering and debt restructuring …… Know More.

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