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The present study is an attempt to check the performance of merger and acquisition deals in India in long run. With the following objectives
- To examine the rationale behind mergers & acquisitions.
- To understand the advantages & disadvantages of mergers & acquisitions in India.
To fulfill the first objective data collected from the last 19 years was studied (year 1988 to 2006). It was found that generally for each succeeding year there was an increase in the number of mergers and acquisitions and the amount attributed for such deals. The number of deals rapidly increases with 113.3% in 1992 possibly due to a liberalisation effect on merger and acquisition deals. Between the years 2001 to 2004, although there was a overall decrease in the number of deals, there remained to be a year on year increase. In conclusion there is certainly an increase in merger and acquisition deals in India in recent years.
- To examine the need for growth through mergers & acquisitions.
- To examine the insight of consolidation trend in Indian industries.
- To examine the growth of M&A deals in recent time in India.
- To study the impact of M&A on the financial performance of the outcome in long run.
- To identify merger-induced changes in operating performance of companies and synergies, if any, resulting from mergers. http://www.emeraldinsight.com/Insight/viewPDF.jsp?contentType=Article&Filename=html/Output/Published/EmeraldFullTextArticle/Pdf/0210320204.pdf
Limitation of the study
Another case study parallel to this report could be examined further to get a more detailed result. More parameters could be used even in the same report to reach a different more in-depth conclusion. However the study could not be done on all the cases of mergers and acquisition for the selected time period, which would have given a more in-depth look on the results.
Further studies may help to develop some alternate measures of merger-related gains as financial measures have limitations to capture the full impact of merger on corporate performance. However, a study providing detailed insights into the reasons and patterns of post-merger corporate performance across the types of mergers and industry would be useful.
The research shows that management cannot take it for granted that synergy can be generated and profits can be increased simply by going for mergers and acquisitions. A case study based research parallel to this study could be initiated to get nearer to reality show.
In light of continuing to reform economically the expansion of trade and foreign investment and a vast amount of corporate restructuring is taking place in India. This allows the domestic corporations to be at an equal level to compete with global giants. As a copying strategy, organisations are going for corporate restructuring mainly in terms of mergers and acquisitions. In the post liberalisation period that is after year 1991 M&A deals in India are also at the activity state, the motive behind such deals is to capitalise the potential synergy in the after deal time period. A concern of many stakeholders would be whether or not these firms will be able to capitalize the value of the mergers and acquisitions. It would seem referring back to this study that in the short term there is no significant change in the performance of M&As but looking at the long term effects this has on an organisation, there is certainly a change in the performance of M&As. This has also improved the performance of the outcome firms in over 50% of the merger and acquisition cases under study.
The Indian economy has grown rapidly and has been emerging at the top. This is in many different areas in the tertiary sector for example IT, R&D, pharmaceutical, infrastructure, energy, consumer retail, telecom, financial services, media, hospitality etc. It is the second fastest growing economy in the world with GDP of 9.3 % just in the last year. This growth momentum was supported by the double digit growth of the services sector at 10.6% and industry at 9.7% in the first quarter of 2006-07. Investors, large companies and industrial houses view the Indian market as an up a coming growing economy, whereby increases the amount of returns paid back on capital and dividends paid out to shareholder. Both the inbound and outbound mergers and acquisitions have increased dramatically. According to Investment bankers, Merger & Acquisition (M&A) deals in India will cross the $100 billion bench mark this year, which is double last year's and has increased more than four fold than in the year 2005.
In the first two months of 2007, corporate India witnessed deals worth close to $40 billion. One of the first overseas acquisitions by an Indian company in 2007 was Mahindra & Mahindra's takeover of 90 percent stake in Schoneweiss, a family-owned German company with over 140 years of experience in forging business. What hit the headlines early this year was Tata's takeover of Corus for slightly over $10 billion. On the heels of that deal, Hutchison Whampoa of HongKong sold their controlling stake in Hutchison-Essar to Vodafone for a whopping $11.1 billion. Bangalore-based MTR's packaged food division found a buyer in Orkala, a Norwegian company for $100 million. Service companies have also joined the M&A game. The taxation practice of Mumbai-based RSM Ambit was acquired by PricewaterhouseCoopers. On an average, in the last four years corporate earnings of companies in India have been increasing by 20-25 percent, contributing to enhanced profitability and healthy balance sheets. For such companies, M&As are an effective strategy to expand their businesses and acquire their global footprint.
Mergers are the joining together of two or more companies or organisations, which would result in one or more companies loosing their identity. No fresh investment is made through this process.
However, an exchange of shares takes place between the entities involved in such a process. Generally, the company that survives is the buyer which retains its identity and the seller company is extinguished.
Considering the limited research on mergers and acquisitions in Indian industry, research that has been studied has been aimed at reviewing the operating performance of firms going through mergers in the Indian industry. The study has further attempted to investigate and test if there are any significant deviations in the results achieved by mergers in different industry sectors in India, by analysing sub-samples representing industry sectors.
Mergers and Acquisitions in different sectors in India Large volumes of mergers and mergers and acquisitions in India have occurred in finance, telecom, FMCG, construction materials, automotives and metals. In 2005 finance topped the list with 20% of total value of mergers and acquisitions in India taking place in this sector. Telecom accounted for 16%, while FMCG and construction materials accounted for 13% and 10% respectively.
In the banking sector, important mergers and acquisitions in India in recent years include the merger between IDBI (Industrial Development bank of India) and its own subsidiary IDBI Bank. The deal was worth $ 174.6 million (Rs. 7.6 billion in Indian currency). Another important merger was that between Centurion Bank and Bank of Punjab. Worth $82.1 million (Rs. 3.6 billion in Indian currency), this merger led to the creation of the Centurion Bank of Punjab with 235 branches in different regions of India.
In the telecom sector, an increase of stakes by SingTel from 26.96 % to 32.8 % in Bharti Telecom was worth $252 million (Rs. 10.9 billion in Indian currency). In the Foods and FMCG sector a controlling stake of Shaw Wallace and Company was acquired by United Breweries Group owned by Vijay Mallya. This deal was worth $371.6 million (Rs. 16.2 billion in Indian currency). Another important one in this sector, worth $48.2 million (Rs 2.1 billion in Indian currency) was the acquisition of 90% stake in Williamson Tea Assam by McLeod Russell India In construction materials 67 % stake in Ambuja Cement India Ltd was acquired by Holcim, a Swiss company for $634.9 million (Rs 27.3 billion in Indian currency).
Major Mergers and Acquisitions in India
Recently the Indian companies have undertaken some important acquisitions. Some of those are as follows:
Hindalco acquired Canada based Novelis. The deal involved transaction of $5,982 million. Tata Steel acquired Corus Group plc. The acquisition deal amounted to $12,000 million. Dr. Reddy's Labs acquired Betapharm through a deal worth of $597 million. Ranbaxy Labs acquired Terapia SA. The deal amounted to $324 million. Suzlon Energy acquired Hansen Group through a deal of $565 million. The acquisition of Daewoo Electronics Corp. by Videocon involved transaction of $729 million. HPCL acquired Kenya Petroleum Refinery Ltd.. The deal amounted to $500 million. VSNL acquired Teleglobe through a deal of $239 million.
When it comes to mergers and acquisitions deals in India, the total number was 287 from the month of January to May in 2007. It has involved monetary transaction of US $47.37 billion. Out of these 287 merger and acquisition deals, there have been 102 cross country deals with a total valuation of US $28.19 billion.