Reliance Industries’ retail arm, Reliance Retail, has acquired the majority of share of the netmeds which represent the 60%of the total of the equity shares in market for the heavy price of 620 crore. [1]An acquisition take place when the business entity purchases the stock of the target company which is more than 50% making the majority shareholder in the company. In relation with reliance India limited is one of the major companies in India and has a turnover more than $87billion.
The Vitalic Health and the subsidiaries also known as netmeds is basically the company for the pharma sector and has a licensed in e pharma.[2]The company has a rapid growth in online sale for the medicine and has a consumer based of 5.7 million.
Why this merger or acquisition
The acquisition is done by the reliance retails because the online pharmacy is the new market for the selling of the medicine and the covid 19 pandemic has given the push to this industry. Moreover, the amazon the us based e-commerce company which has a good consumer based and well-established digital company in India has enter into the online pharma sector can be good competition to the netmeds and reliance.
Also, digital platform like reliance Jio having a good subscriber base of consumer can bring more customers in online pharmacy sector and ultimately help the reliance to grown into the market and increase the sales of the product.
Another reason for this deal is that the reliance retail acquired 60%share at a price of $80 million which is the good deal as compared to report which says a valuation of $120 million. Of netmeds. The reliance retails plan to increase its share up to 80 percent by 2024 in this company for the growth and expansion in the digital market.
Objective/ purpose for such M&A for both the legal entities involved.
The purpose and the objectivity for the merger and acquisition for the both legal entities are –
1 Capturing market – The new rival like amazon and med life pharm-easy merger bringing competition in the market. The reliance growing in the digital market has to capture the market for its sales in this sector also to meet the competition.
2 Growth potential in the industry – Due to covid 19 pandemic there has been increase in the consumer base of this sector. In this sector there has been a growth till $1.2 billion in financial Year2020 which ultimately give the new opportunity for the reliance retails to invest in this field. They acquire the 60% of the shares of the netmeds to increase their digital base.
3 Good deal – Another reason for this deal is that the some of the report talk about the valuation for the acquiring netmeds can be for $120 million. The reliance industries mange’s the 60% of the share instead in $80 million which is supposed to be a good deal.[3]
4 Brand image – We know that the netmeds is the established brand in the industry for the online pharmacy and the reliance industries is been one of the largest companies in India and having the good name in the digital market. So, the reliance acquiring the netmeds will bring along its brand value for which they had worked hard.
5 Meeting the Competition – the other reason for this acquisition is the major players entering in the market. The reliance seeing their rival’s amazon and other company making growth in the digital industries will ultimately become the major players in pharma industries. So, to meet the competition it’s the right time for the reliance and Netmeds to have the deal.
Synergy
Moving along with synergy it is the concept by combining performance of two companies which will bring the good value, instead of the company in individual[4]. The terms are generally used in the merger and acquisition. The first synergy for the company reliance and netmeds is revenue synergy. As the reliance industries acquired the 60%of the share of the netmeds the online pharmacy. The reliance plans to increase the territory in the digital market as the Jio platform will provide the customer bases which it had and try to link it with the online pharmacy. By going through the acquisition, netmeds also getting a good customer base, it will increase the revenue for the both companies in the online pharma industries.
Cost synergy – It is the second type, the cost reduction where two company plans to reduce the cost for their business[5]. As reliance is planning in expanding its business in the digital market because of the competitors like amazon who already enter in this online pharma market. Netmeds also required the strong background company have a good consumer base in the digital market. This acquisitions between the reliance and netmeds not only help the reliance to get the access in the online pharma industries but also in very effective cost as the netmeds is already a brand in this industry and can access its resources to increase the space in the digital market instead of establishing it own resources into it. So, this acquisition has the cost reduction synergy.
Valuation
The valuation of this acquisition between the reliance retail and the Vitalic Health Pvt. Ltd. (“Vitalic”) and its subsidiaries collectively known as netmeds. “It has been around 620 crores where the reliance retail acquires 60% shares in the vitalic and 100% in subsidiary like tresara health pvt ltd, Netmed market place limited, dadha pharma pvt limited.”[6] Netmeds offers consumer access of 70000 and has delivery network more than 20000 pin codes.[7]some of the report suggested that valuation price of the netmeds is around $120 million for the deal of the acquisition but the reliance retail gets the share around $80 million which is amount to be good deal for them. The reliance retails planning to increase the stake in the company up to 80% or more till 2024 believing having the good future in the market.[8]
Due diligence
Now moving further towards our analysis, the main component for the acquisition is having the due diligence of the companies before acquiring it. The due diligence is the process of the investigation of the company by seeing the actual position of the company in the market. The due diligence is generally done by the buyer and evaluate its financial legal and administrative value of the company.
Now moving towards the company reliance retails has also done the due diligence for the acquisitions of the company for knowing the actual value of the target company.
The reliance retail has done the financial due diligence for the company netmeds. In this there is the assessment of the financial health or performance of the company. The key part which are also seen like debts, cash projection to determine the true value of this company. They have also look into the debts of the company and analyse the target Company debts along with overall performance of the netmeds.
The reliance retail also focused on the legal due diligence of the target company. It is the mandatory in the process of the acquisitions. The reliance retail analyses various contracts, agreement, loans, licensing agreement of the netmeds and saw all the legal parameters of the company before acquiring it. Along with it the intellectual due diligence is important for the company before acquiring. Various patent, copyright, trademarks are been observed by the reliance retail in the due diligence process.
The reliance retail also done Commercial due diligence of netmeds. The company observe the consumer base, market size of the netmeds in the digital market. Along with it the company also evaluate the future growth of the industry in the market after the pandemic of covid 19. The reliance retail also observes the human resources due diligence where they had observed the nedmeds policy towards the employees’ contract, salary benefits etc. they saw the different procedures followed by the netmeds and analysed them. The other due diligence like regulatory, tax and information technology are also been evaluated by the reliance retail.
How deal happened
We can now see the reliance and netmeds deals happened in the process of acquisitions , the first is to develop an acquisition strategy where making the idea for the acquisitions ,secondly making criteria and targets by the reliance by evaluation of customer base, profit etc., The third steps is valuation , where the reliance ask for the relevant information for evaluation the fourth one is M&A due diligence where the buyer company which is reliance conduct the full thrown investigation of the target company. And the 5th one is the purchase and sale agreement where completion of steps of due diligence leads to the actual contract between both reliance and netmeds[9]. The last one is closing the deal of the acquisitions and target and acquire work together.[10]
Documents required for the signature are the term sheet, non-disclosure agreement, confidential, induction of interest and share purchase agreement.
Non-disclosure agreement – it is one the document signed between the reliance and netmeds before the actual deal happened. In this agreement the confidentiality must be remained and the information cannot be shared.[11]
Letter of intent or term sheet – It is one of the important documents which has to be signed by the both parties before the acquisitions and contains various and important condition of the deal in a document manner.[12]It is generally a non-binding agreement contains company information, voting rights, condition precedents etc, but some time it can be also binding in nature like various clauses like confidentiality, dispute resolution etc.
Share purchase agreement – It is the most important contract or agreement between the parties. The seller and buyer sign this for the acquisitions of the agreement. it is the proof for the actual term and condition. It may contain name of purchasers, detail of the transaction., number of shares which are been given, name of the company etc.
Share subscription agreement- The agreement is basically made between the investor and the company in which the acquisitions of the shares are issuance of the new shares[13].It is basically asking fund by the shareholder by giving the share of the company at certain price.
Share holder agreement – It is one of the agreements between the shareholder and company where it define the right of the shareholder in the management of the company.[14]It’s main aim it safeguards the rights of the shareholder and specially less than 50 %.[15]
These are the some of the key document which are signed between the reliance and netmeds however there are many other documents which has to be signed for the acquisitions to fulfil the obligation for the deal.
Now moving towards the regulation, the reliance company required approval from regional director, filling petition for approval from national company law tribunal for the acquisitions. These permissions should be taken by them for completion of the deal between reliance and netmeds.
Is acquisitions success or failure (conclusion)
As we observe the reliance and netmeds both have agreed on the deal for acquisitions. This deal for the reliance retails is successful as it helps in growth of the reliance in digital market and get space entering in online pharmacy. The deals also help them to compete with their rival’s company like amazon. It is also a good deal under 620 crores acquiring 80 % of share. similarly, with netmeds it required more customer base and a company with good brand name to meet the competition from foreign players. This deal can be success in future as due to covid 19 pandemic which has increases the business of online pharmacy up to $1.2 billion and estimating in touching the business up to $16billion.in coming years. So, the reason for this growth in the industries, reliance retails planning to increase its stake up to 80% as industry grows is in the future.
[1] Business Today, ‘Reliance Industries acquires majority stake in Netmeds for Rs 620 crore’ (Business today, 19 august 2020) <https://www.businesstoday.in/latest/corporate/story/reliance-industries-acquires-majority-stake-in-netmeds-270568-2020-08-19> accessed 7 December 2021
[2] Aida 2
[3] Anand Kalyanaraman , ‘Why the Netmeds acquisition is significant for Reliance Industries’ (Thehindubusinesslin, 21august 2020) <https://www.thehindubusinessline.com/companies/why-the-netmeds-acquisition-is-significant-for-reliance-industries/article32393500.ece> accessed 7 December 2021
[4] Adam baron, ‘Synergy’ (Investopedia, 23 April , 2021 ) <https://www.investopedia.com/terms/s/synergy.asp> accessed 7 December 2021
[5] Dheeraj vaidya, ‘Synergy in M&A | Types of Synergies in Mergers and Acquisitions’ (Wallstreetmojo, 2021) <https://www.wallstreetmojo.com/types-of-synergies/> accessed 7 December 2021
[6] Media Reliance, ‘Media release’ (Reliancecom, 18 august 2020) <https://www.ril.com/getattachment/9cf2529c-06e7-451b-b9ca-60ec9e52377c/Reliance-Retail-Acquires-Majority-Stake-in-Leading.aspx> accessed 7 December 2021
[7] Aida7
[8] Aida 8
[9] Corporatefinance Institute, ‘Mergers Acquisitions M&A Process’ (Corporatefinanceinstitute, 2021) <https://corporatefinanceinstitute.com/resources/knowledge/deals/mergers-acquisitions-ma-process/> accessed 7 December 2021
[10] Aida10
[11] Up Council, ‘Acquisition Process: How to Acquire Other Companies’ (Upcouncil, 18august 2020) <https://www.upcounsel.com/acquisition-process-how-to-acquire-other-companies> accessed 7 December 2021
[12] Corporatefinance Institute, ‘Term Sheet Guide’ (Corporatefinanceinstitute, 2021) <https://corporatefinanceinstitute.com/resources/templates/word-templates-transactions/term-sheet-guide/> accessed 7 December 2021
[13] Chitrapu kama raju, ‘All about the Share Subscription Agreement’ (Latestlaws, 9october 2020) <https://www.latestlaws.com/latest-news/all-about-the-share-subscription-agreement/> accessed 7december 2021
[14] Clear Tax, ‘Shareholder’s Agreement’ (Clear tax, 12 October 2021) <https://cleartax.in/s/shareholders-agreement-format-download> accessed 7 December 2021
[15] Aida14
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