Saturday, February 23, 2019
M&A in India in Past Few Years Essay
AbstractThe do of mergers and encyclopedisms has gained substantial importance in forthwiths embodied world. This process is extensively utilise for restructuring the business ar revolvements. In India, the concept of mergers and acquisitions was initiated by the government bodies. Some well known fiscal organizations excessively took the necessary initiatives to restructure the corporate heavens of India by adopting the mergers and acquisitions policies. The Indian economic re gain since 1991 has opened up a whole grant of challenges both in the domestic and international spheres. The change magnitude competition in the world-wide market place has prompted the Indian companies to go for mergers and acquisitions as an most-valuable strategic choice. The trends of mergers and acquisitions in India tolerate changed over the years. The immediate cause of the mergers and acquisitions have also been diverse across the various sectors of the Indian economy.Till recent past, t he relative incidence of Indian entrepreneurs acquiring contrary enterprises was not so common. The bunk has underg champion a sea change in the last couple of years. learnedness of foreign companies by the Indian businesses has been the latest trend in the Indian corporate sector. The Indian IT and ITES sectors have already proved their latent in the global market. The other Indian sectors be also following the same trend. The emergenced participation of the Indian companies in the global corporate sector has yet facilitated the merger and acquisition activities in India.The various factors that played their parts in facilitating the mergers and acquisitions in India argon favorable government policies, buoyancy in economy, excess liquidity in the corporate sector, and dynamic attitudes of the Indian entrepreneurs are the advert factors behind the changing trends of mergers and acquisitions in India. Even though mergers and acquisitions (M&A) have been an historic element of corporate strategy all over the globe for several(prenominal) decades, research on M&As has not been able to moment conclusive evidence on whether they enhance efficiency or bankrupt wealth. thither is thus an ongoing global debate on the effects of M&As on fast(a)s. This article seeks to explore the trends and progress in M&As India.Electronic copy available at http//ssrn.com/ rear=1618272MERGER & ACQUISITION IN INDIA AN ANALYTICAL STUDYThe phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, sell and combining of different companies that can aid, finance, or help a maturation company in a given diligence grow speedily without having to create another business entity. In business or political economy a merger is a conspiracy of two companies into one large company. Such actions are commonly voluntary and involve stock trade in or cash payment to the target. Stock swap is often used as it allows the shareholders of the two companies to share the risk involved in the deal. A merger can resemble a takeover but result in a new company name (often combining the call of the original companies) and in new branding in some cases, terming the combination a merger rather than an acquisition is done purely for political or marketing reasons.Mergers may be broadly classified in (i) Horizontal mergers A situation when two or more get together companies manufacture similar product in the same industry. (ii) Vertical mergers A situation when two or more merging companies work at different stages of manufacture of a same product. (iii) Conglomerate mergers A situation when two or more merging companies operate in different industries. The word acquisition, also known as a takeover or a buyout, is the buying of one company (the target) by another. An acquisition may be friendly or hostile. In the former case, the companies assemble in negotiations in the latte r case, the takeover target is un imparting to be bought or the targets board has no prior association of the offer.Acquisition usually refers to a purchase of a smallisher firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger or monthlong established company and keep its name for the unite entity. This is known as a reverse takeover. Another type of acquisition is reverse merger, a deal that enables a private company to get publicly listed in a short time period. A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publicly listed shell company, usually one with no business and restrain assets.Electronic copy available at http//ssrn.com/abstract=1618272Reasons for Merger and Acquisition Operating synergies The uniting of two firms improve productivity or burn costs so that the unlevered cash flows of the combined firm exceed the combined unlevered cash flows of the individ ual firm A vertical merger in the midst of a supplier and a customer, eliminates various coordination and bargaining problems A crosswise merger between competitors, produces a less competitive product market and cost savings from combining R&D facilities and sales forces pecuniary synergies Information and incentive problems may cause cashstarved firms to pass up incontrovertible NPV projects, but cash-rich firms to overinvest in negative NPV projects Conglomerates can use internal nifty markets to transfer finances from negative NPV projects to positive NPV projects Enhance the flexibility of the organization Reduces bankruptcy riskObjectives In this article an attempt has been made (i) To judge the presence of trends and progress of M&As in Indian corporation. (ii) To crumple year-wise and industry-wise variance in number and amount of M&A deals. Hypotheses To obliterate the above objectives following hypotheses have been formulated 1. There is no evidentiary rest in number and amount of M&A deals in between years and between industries. 2. There is no substantive difference between M&A progress in manufacturing and service sectorIndustry-wise Trends of M&AsThe industry-wise trends in number and amount of M&A deals between 2000 and 2007 are presented in the Table 1 and Table 2 and the industry-wise trends and progress of M&As have been analysed on this basis aliment and Beverages India is the worlds second largest producer of food next to China, and has the potential of being the biggest with the food and agricultural sector. The Indian food market is estimated at over US$ 182 billion, and eyeshades for about two thirds of the primitive Indian sell market. According to industry experts, the market for carbonated drinks in India is worth US$ 1.5 billion while the juice and juice-based drinks market accounts for US$ 0.25 billion. Growing at a rate of 25 per cent, the fruitdrinks category is one of the fastest exploitation in the beverages market. The Indian food processing industry plays a material aim in diversifaction of agriculture products, generates employment, enhances income of farmers and creates a surplus for export of agro-foods. The important reason of the M&A activity initiated in this industry are deregulation, restructuring disinvestment, restructuring by parent companies and presence of foreign players.Textiles Industry Until the economic slackening of Indian economy, the India Textile Industry was predominantly unorganized industry. The opening up of Indian economy post 1990s led to a olympian growth of this industry. India Textile Industry is one of the largest textile industries in the world. Today, Indian economy is largely dependent on textile manufacturing and exports. India earns nearly 27% of the foreign exchange from exports of textiles. Further, India Textile Industry contributes about 14% of the total industrial deed of India.Furthermore, its contribution to the gross domestic product of India is around 3% only. Textile Industry involves around 35 million workers instantaneously and it accounts for 21% of the total employment generated in the economy. However the important reasons for the M&As in these sectors are growth of power looms and handlooms sector at the cost of mill sector which has ultimately resulted in making them retch and unviable. This has led to an increase in the closure of mills in addition, continue and persistent use of old plant and machinery has led to low gainfulness in the mill sector and thereby forcing some of mills to close masss.Chemicals, Drugs and pharmaceutics on a lower floor this category companies run in the industrial groups of chemicals, drugs, pharmaceutical, cosmetics petrochemicals and rubbers have been taken into account for analyzing the trend and progress. The drug & pharmaceutical industry in India meets around 70% of the countrys demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, t ablets, capsules, orals and injectibles. There are about 250 large Pharmaceuticals manufacturers and suppliers and about 8000 Small Scale Pharmaceutical & Drug Units which form the core of the pharmaceutical industry in India (including 5 Central Public Sector Units). These bulk drugs and pharmaceuticals manufacturers produce the complete range of pharmaceutical formulations i.e. medicines ready for consumption by patients and about 350 bulk drugs i.e. chemicals having redress value and used for production of pharmaceutical formulations.Owing to a significant increase in Pharmaceuticals exports, Indias USD 3.1 billion pharmaceutical industries are growth at the rate of 14 percent per year. It is one of the largest and most travel among the developing countries. Even the number of pharmaceuticals exporters, manufacturers and suppliers is increasing tremendously, the factors that contributed to increase in M&A activity in these sectors are Introduction of the process open Act in 1 970, which positd Indian companies to recognize international process patents. This has given an opportunity for the Indian companies to grow. This growth is associated with M&As and the exit of WTO has brought about fundamental changes in the pharmaceutical industry. Trade- link up aspects of intellectual property rights (TRIPS) of WTO require all Indian companies to comply with international patents. This has mainly happened in the form of M&As.Nonmetallic Mineral Products In this sector, cement and ceramics manufacturers are the first-string players. The factors responsible for M&As are before 1999 cement industry faced many problems like liquidity crisis, inadequate expenditure on infrastructure and costs of inputs. South-east Asian crisis brought narrowed profitability resulting to the larger players withstanding the pressure of lower profitability and smaller and marginal players closing down or merging with big players and trying to appear favorable for a takeover. Nation al Quadrilateral Road Project and State Government Policies to frame the irrigation projects could be other factors responsible for this boom.Basic Metal, Alloy and Steel This is one of the oldest and traditional industry sectors in India. Companies operating in metals, alloy, steel and related concerns are grouped under this head. The factors contributing to M&As in this sector are Slowdown of the economy during the year 1996-97, the capital markets, be depressed for the past couple of years, drying up sources of investment funds for industry, small and medium corporate finding it difficult to entryway institutional funds and export growth subjected to competitive pressure from imports.Information Technology and telecommunication Companies operating in the IT, Software, telecom and convergence sector are clubbed in industry, the central government has formed an independent department of information technology. Since the removal of restrictions on foreign capital investment and industrial de-licensing, Indias telecom industry has shown large growth The Important factors for increasing M&As in this sector are Consistent efforts were made by the department of telecom and its constituent organizations for upgrading and expanding the telecom networks and services and the Initiation of internet and mesh based developments and introduction of cell phone in India.Automobiles and Automobile Ancillaries Companies operating in automobile sector, locomotives, transport and spares have been included under this head. The Indian transport industry has been gradually playing a catalytic role for producing a wide variety of vehicles, passenger cars. Important factors responsible for an increase in M&As in this sector are Globilalization is thrust global auto majors to consolidate, to upgrade technology, enlarge product range, access new markets and to cut costs.Competitive pressure and presence of global players have resulted in a number of M&As in this sector.Energy, Power, accelerator and Oil Companies operating in the field of energy, power, gas and oil are included in this group. Important factors responsible for an increase in M&As in this sector are, low rate of growth in power generation depressed the growth rate of industrial production and has necessitated immediate attention of big companies like Reliance Industries and due to unavailability of power and frequent disruptions have given an impetus to M&As in this sector..