View
3
Download
0
Category
Preview:
Citation preview
Review of Literature on Mergers and Acquisitions
* MANOJ KUMAR ** DR.GURCHARAN SINGH GHOTRA
* Research Scholar, RIMT University MandiGobindgarh, Punjab, India.
** Professor, RIMT University MandiGobindgarh, Punjab, India.
ABSTRACT The current study has been define, the Review of Mergers and Acquisitions
concept. Mergers and Acquisitions is a important weapon used by whole of the
World, to increased market shares and wealth of a companies. In current study, the
main objective of this research paper explains history of Mergers and Acquisitions
and define current scenario of Mergers and Acquisitions in selected companies in
India. The data was collected by secondary sources.
INTRODUCTION
Corporate rebuilding prompts enhancements in the Corporate presentation. India
has developed as the most astounding nations, regarding the Mergers and
Acquisitions bargains. Indian organizations are effectively worried in Mergers and
Acquisitions locally, correspondingly as, internationally. Fiscal writing
recommends that Mergers and Acquisitions decisions could likewise be the
aftereffects of one or extra of the consequent intentions.
These Mergers and Acquisitions are the aftereffects of following thoughts, I)
Synergy, ii) office and forceful . In India, it was the Government bodies, who got
the idea of Mergers and Acquisitions. This diversy affects the Indian economy.
The Corporate Sector is increasingly centered around Acquisitions of remote
ADALYA JOURNAL
Volome 8, Issue 8, August 2019 223
ISSN NO: 1301-2746
http://adalyajournal.com/
organizations. Particularly the Information Technology (IT) goliaths previously
investigated the advantages of this Global Market. This prompts the more Mergers
and Acquisitions actives in India in unmistakable areas.
MERGERS
Mergers can be defined as the process of combining two different companies, into
a single large company. Mergers is a voluntary act. It includes a stock swap also.
Cash payment to the target or stock swap allows the persons (generally the
shareholders of two companies) to share the risk or consequences which are
involved in the deal. Mergers are further classified into the categories
Horizontal Mergers: It can be defined as the process of combining two
companies, which manufacture a similar product in the same industry.
Horizontal represents the same level of manufacturing.
Vertical Mergers: When Mergers was done with the companies, who
manufacture the same products, but in different stages, then such type of
Mergers is known as Vertical Mergers.
Conglomerate Mergers: A Mergers between companies is totally different
Industries.
ACQUISITIONS
Acquisitions are additionally a sort of takeovers, what the real contrast among
Mergers and Acquisitions is that, it includes purchasing of one organization by
another. This procedure can be a deliberate or antagonistic Act. The takeover target
is reluctant to be purchased or the objective's Board has no previous data of the
offer. All in all, Acquisitions are the way toward obtaining a little organization by
a bigger organization.
ADALYA JOURNAL
Volome 8, Issue 8, August 2019 224
ISSN NO: 1301-2746
http://adalyajournal.com/
REVIEW OF LITERATURE
Vermilion& Rau[1988]depicted the results after Mergers and Acquisitions of
companies. Authors found that after 3 years of Mergers and Acquisitions (M&A)
the acquiring firms are under performance. On the other hand if anyone is looking
for the long-term performance of Mergers and Acquisitions (M&A), it is observed
that it is not uniform across the firms.[1]
Kang,J,Shivdasani [2000] assessed the effect of corporate restructuring on
financial results of Indian manufacturing firms which have undergone Mergers and
Acquisitions from 2004-2010.The sample set is of 12 banks, having 3 years of pre
and post-Mergers of firms. Parameters used in the study are various accounting
ratios like liquid ratio, working capital ratio,and operating ratio. t-test was used to
attain the desired objectives. The conclusion of the study shows a substantial
improvement in accounting ratios and financial position..The efficiency of
acquiring firms had also improved[2].
V Pawaskar [2001]studied the relation between lower and target firms. Acquiring
firms are lower in scale writ. Tax, the liquidity and growth. Whereas, target firms
are high with respect to profitability[3].
JoashGwayaOndieki, NjangiruMungai John.[2015] conducted the study of the
Mergers and Acquisitions (M&A) on Financial Performance of Banks and
evaluated the implications of mergers and acquisitions on profitability
&shareholders. The sample size is of 14 banking during the period of 2000-2014.
Authors conducted a survey based on questionnaire. On the basis of results of the
coefficient of correlation,the authors concluded that there is significant growth in
shareholders of acquiring firm after the Mergers.[4]
ADALYA JOURNAL
Volome 8, Issue 8, August 2019 225
ISSN NO: 1301-2746
http://adalyajournal.com/
Agarwal Meghan, Singh Sheikh [2015]carried research on the effect of Mergers
on the financial performance of Kingfisher Airlines. The main aim of the research
is to examine the pre-& post-Mergers financial performance of KFA (Kingfisher
Airlines). The main parameters of analysis of the pre and post-merger are
profitability, liquidity, earning per share and leverage. Authors concluded that no
improvement has been observed in return on equity and earning per share after
Mergers.[5]
G.Coontz [2004]conducted a study on ‘Economic Impact of Corporate Mergers
and Acquisitions on Acquiring Firm Shareholder’. The researcher concluded that
companies are not able to perform better after Mergers and Acquisitions (M&A) in
every aspect. The observed performance varies from industry to industry. The
performance is solely dependent on the type of industry in which Mergers and
Acquisitions (M&A)take place.
Mantravadi and Reddy [2007], conducted a study on the effect of mergers on the
operating performance of acquiring corporate. Authors examined the financial
ratios of the pre and post-Mergers periods of the firms, which are mainly traded
companies or a public limited company during the time span of 1991-2003.
Authors observed that operating performance following the Mergers is varied in a
small amount. This has been observed when acquiring firms, as well as acquired
firms, are of different size. Size of firms is measured by the market value of the
equity [7].
Liargovas [2011] examined the Greek Bank post-Mergers financial performance
of 1996-2008. To conduct the study, secondary information was collected from the
information of Athens securities market, daily bulletin, printed annual money
reports. Normal least multivariate analysis, t test was applied in the study.
ADALYA JOURNAL
Volome 8, Issue 8, August 2019 226
ISSN NO: 1301-2746
http://adalyajournal.com/
Research worker found that there was no differences in the performance of the
Bank after Mergers.[8]
RESEARCH OBJECTIVES
The main objective of this study is to define the History of Merger and
Acquisitions and Current Scenario of Mergers and Acquisitions.
1. To define the History of Mergers and Acquisitions.
2. To explain the Current Scenario of Mergers and Acquisitions.
RESEARCH METHODOLOGY
The present study is based on the review of secondary sources of data. The
secondary sources of data included the study of previous research papers or articles
over the topic. The present study used a kind of meta-analysis approach for
drawing inferences from the data available in the research papers.
HISTORY OF MERGERS AND ACQUISITIONS
Since times old, the grouping has thickly settled, The World earth can do so until
the top of the planet. within the past, it's been theorized that the principle of the
survival of the Fittest holds true. Then what happened to the Dinosaurs. The
researcher has another theory and that's the survival of the contriver. Man survives
so long, not as a result of, he was the fittest, however as a result of the strategically
and consistently devised that, and suggests that by which he may thrive within the
wild, amongst the animals. As homogeneous step by step evolved to civilized
individuals, then suggests that minds and strategies evolved too . Twenty five
hundred years past, Sun Tzu in his work titled. The Art of War explained that the
contriver seeks the state of Shih - having positioned his forces, at a place of
advantage over rivals. in this same era, the Greek student, Thucydides, wrote that
the events of the past "will at your time or different, and in abundant identical
ADALYA JOURNAL
Volome 8, Issue 8, August 2019 227
ISSN NO: 1301-2746
http://adalyajournal.com/
ways, be recurrent within the future." For the following twenty-four centuries, he
has been well-tried correct time and once more. Biographers of general quote his
ability to scrutinize a situation with one glimpse, that means a stroke of the eye or
glance.
Napoleon was, therefore, intimate his strategic situation the landscape, the enemy,
accessible technology, similar things from the past that he may understand and
respond quickly to ever- dynamic circumstances. The few things which square
measure of utmost importance here square measure Enemy, Landscape, Similar
things from the past and Ever dynamic circumstances. Within the past times, the
methods were mainly utilized for the aim of war or annexure of kingdoms. As the
man started moving far from his barbaric ways that and tried to determine order and
harmony in his social life, war methods took several new forms. This study deals
with strategy from the management purpose of reading. it'd not be wrong to
mention that creating a hit out of your business is like winning a war. Revisiting
Napoleon Enemy in war is like competition in business, Landscape in war is that the
Economic, political and social environment in Business, ever dynamic
circumstances in war square measure like ever-changing the climate of the market
and economy in business. So, within the important quest for strategic amendment,
the business has abundant to be told from war. each square measure regarding the
same thing: succeeding in competition. Even a lot of basic, each will be distilled to
four words: knowing choice/timely action. The key objective in competition -
whether or not business or war - is to boost the organization's performance on these
dimensions:
To come up with higher data than rivals.
To research that data and create sound decisions.
To create those decisions quickly.
ADALYA JOURNAL
Volome 8, Issue 8, August 2019 228
ISSN NO: 1301-2746
http://adalyajournal.com/
To convert strategic decisions into decisive action.
In short in other words, strategy, from the purpose of reading of business
management is a decision or a series of selections taken so as to be ready to beat
the competition and adapt to some major amendments, within the existing
surroundings of business for the ultimate growth or prosperty of the enterprise.
Mergers and Acquisitions and every one the various styles of Company
restructuring activities will be classified as methods or similar methods tailored by
businesses, to achieve growth expands, publicize price and essentially become
higher equipped to face competition.
Mergers and Acquisitions square measure nothing however strategic alliances
between Companies. These styles of transactions will be observed, as alliances as
they're usually useful to each – the exploited party still because of the
merchandising party. Strategic alliances have a terribly deep unmoving history.
One will begin with the primary emperor of India- Chandragupta Maurya (320
BCE-298 BCE). it's aforementioned that his kingdom ranged from the geographic
area and Assam in the archipelago to geographic area and Kingdom of Nepal
within the North, the Deccan highland and far of Southern India. it's believed that,
Alexander the Great came to India and conquered abundant of the Northern
Province (now Afghanistan and Pakistan) and he fought with King Porus on the
banks of the stream Beas. though he defeated king Porus, his troupes were heavily
broken and he had to come back to Balkan Nation. However, he left the regions he
had conquered within the care of his Satraps1 (A subordinate functionary official).
Chandragupta Maurya had already annexed most of Northern India with the
assistance of his chief contriver Chanakya once which he started taking a fastness
in Alexander‘s Satrapies. Seleucus Nicator, the then governor of Alexander, Who
was cognizant of the art of the emperor, struck an alliance with Chandragupta
ADALYA JOURNAL
Volome 8, Issue 8, August 2019 229
ISSN NO: 1301-2746
http://adalyajournal.com/
Maurya. The alliance was specified Chandragupta Maurya married Seleucus‘s
female offspring and clearly got the Satrapies as a gift and in return, he gave five
hundred war elephants to Seleucus! The Rajputs of Marwar are acknowledged for
his or her strategy of conquest through formation married alliances. The obtrusive
example is that of the wedding of princess Jodha, female offspring of King Bharmal
of Amer to King Akbar. Political success knew no bounds for Emperor Akbar. once
having secured the range of mountains, his empire extended from the Islamic State
of Afghanistan to the Bay of geographic area, and from the Himalaya to the
Narmada stream.
Table: 1: Mergers waves in the USA
Periods Name Facet
1895–1904 First Wave Horizontal Mergers
1916–1929 Second
Wave
Vertical Mergers
1965–1969 Third Wave Diversified conglomerate Mergers
1981–1989 Fourth
Wave
Concentric Mergers; Hostile takeovers; Corporate
Raiding,
Divestitures
1990–2000 Fifth Wave Cross-border Mergers
2003–
Present
Sixth Wave Shareholder Activism, Private Equity, Leveraged
Buy-Outs
However, the Rajput’s of the Western Regions of India were giving him a tricky
time. Through a shrewd mix of diplomacy, intimidation and brute force, Akbar won
the allegiance of the Rajputs. He married Jodhaa, a fiery Hindoo patrician, in order
ADALYA JOURNAL
Volome 8, Issue 8, August 2019 230
ISSN NO: 1301-2746
http://adalyajournal.com/
to, any strengthen his relations with the Rajputs. The alliance of Jodha and Akbar,
it absolutely was, however, it absolutely was a lot of a political alliance of the
Hindu States to King Akbar, whereby the Hindu States, to associate extent
preserved their autonomy, however successively were a vicinity of Akbar‘s kin folk.
These square measures, however, simply many of the numberless such strategic
political alliances, which have taken place throughout history in numerous
components of the Planet. Mergers and Acquisitions in businesses will be termed
as derivatives of such historical alliances. Business Mergers, Acquisitions and
Takeovers 1st started in the Eighteen Nineties and also the United States of
America recorded the foremost vital Mergers and Acquisitions activity throughout
this period.
MERGERS AND ACQUISITIONS: A CATALYST IN CURRENT
SCENARIO.
Mergers and Acquisitions plays an important in the past history of the organization,
as far as, growth is concerned. However, with the passage of time, the trends and
parameters have been revolutionized. This section will discuss the current scenario
of Mergers and Acquisitions.
Current Scenario
Mergers and Acquisitions are that the path businesses take to achieve exponential
and not simply linear Growth and, therefore continues to come up with interest.
The Indian Mergers and Acquisitions landscape isn't any totally different. Mergers
and Acquisitions have become an integral part of the Indian economy and daily
headlines. Supported economic science indicators, India is on a Growth flight, with
the Mergers and Acquisitions trend probably to continue. The catalysts of Mergers
and Acquisitions can be varied, but, almost invariably, inorganic Growth is on
ADALYA JOURNAL
Volome 8, Issue 8, August 2019 231
ISSN NO: 1301-2746
http://adalyajournal.com/
prime of the agenda. This is especially thus since even with the government’s
efforts to improve easy doing business in the Asian Nation, the gestation period for
greenfield comes continues to be long, often rife with compliance with multiple
laws. Thus, for any business, inorganic growth through Mergers and Acquisitions
continue to be a horny choice .
There are other factors which contribute to the above facts:
a) There is a desire to minimize the dependency on integration (either
forward or reverse) to invest in one more supply chain function.
b) Disquieted Sales, which lead to the business in an efficient and cheaper
manner.
Considerations and Consolidations
Considerations like Associate in Nursing anti-trust regime area unit forcing the sale
of the business to curtail market share. whereas anti-trust provisions are an
important a part of any group action overseas since fairly long, usually impacting
not solely timelines, however additionally deal mechanics, they're still aborning in
the Republic of India, largely because of the price tag size of the transactions.
However, the global Mergers of Lafarge and Holcim featured a hurdle in Republic
of India, with the Competition Commission of Republic of India| finally setting the
sale of Lafarge India, as a prerequisite to the worldwide deal consummation in
Republic of India, thereby paving entry for different players into India’s cement
market .
Several sectors in Republic of India area unit in consolidation mode—for instance,
the renewable energy sector (Tata Power nonheritable Welspun Energy’s assets in
June 2016, the banking sector (Kotak Mahindra nonheritable Ing Vysya Bank in
ADALYA JOURNAL
Volome 8, Issue 8, August 2019 232
ISSN NO: 1301-2746
http://adalyajournal.com/
November 2014 in Also, the Nursing all-stock deal valued at over fifteen thousand
large integer INR).
Reduction in debits and E-commerce Sphere
Changes in government regulations: most relevant company laws/regulations in the
Asian country have been revamped within the previous few years, be it the
Takeover Code, delisting pointers, firms Act, Accounting, Competition Law, etc.
Tax laws are frequently evolving and so are interchanged Management Act
regulations, impacting each incoming and outward investments. Investor policy:
although activism against Mergers and Acquisitions activity is nevertheless to
select the maximum amount steam in an Asian country because it has globally,
with Indian retail investors for the most part going by sentiments than fundamentals,
proxy consolatory companies are increasingly observing transactions with a
magnifier and are advising shareholders. Structure to segregate its client
merchandise business (to usher in a strategic investor) into a separate entity, while
still holding management with itself, had to eventually be modified to vertically
split the companies. Arguably, shareholder sentiment, distributed by proxy
consolatory Companies against the initial deal structure, was a major trigger.
Tax Concerns
Tax concerns: ranging from 2007, once the Vodafone controversy erupted, the
Asian country has witnessed many high-profile tax controversies encompassing
Mergers and Acquisitions transactions, that were on account of income tax
obligations on indirect transfer of capital assets settled in India. With the
ADALYA JOURNAL
Volome 8, Issue 8, August 2019 233
ISSN NO: 1301-2746
http://adalyajournal.com/
appearance of the planned Gaar in 2017, structuring of transactions is about to
become more vexed. it's possible that tax indemnity negotiations between parties
might get a lot of concern, and, to achieve certainty, a lot of taxpayers might
approach tax authorities (such because of the Authority for Advance Rulings) for
clarity. Tax insurance cowl is additionally possible to air the rise, though, within
the Indian context, it should still be elusive or terribly high-priced.
Restrictions on Funding
Indian firms have many restrictions obligatory on them for funding acquisitions,
especially just in case of share acquisitions, making leveraged buyouts in Bharat
troublesome. Native Bank funding for the acquisition of shares is presently still
permissible solely in restricted circumstances. However, with the arrival of newer
instruments like masala bonds and listed Non-Convertible Debentures (NCDs),
fundraising is ready to become easier.
Further, the external business borrowings (ECB) policy is additionally underneath
relief. Given the emergence of clarity on pass-through taxation of relief, invites
various investments, it is likely that a lot of firms can use them, as a way, to raise
funds, either to lower their existing debt levels or for Acquisitions (unlike overseas
listing of unlisted Indian firms that never extremely took off, though the Forign
Direct Investment(FDI) policy was amended to permit it). India continues to be an
investment destination, with few company homes having the muscle to try to
outward Acquisitions the size of Tata Tea’s Acquisitions of Tetley, Tata Steels of
Corus, Lupin’s acquisition of Davis or Motherson Sumi’s multiple Acquisitions .
The newest addition to the list of Motherson Sumi’s Acquisitions is a finnish truck
Wire Maker pkc cluster. With the gap of the economy and also the government’s
thrust on varied initiatives, like create in and Digital India, inbound Mergers and
Acquisitions activity is merely getting to get on the dealings. In the following
ADALYA JOURNAL
Volome 8, Issue 8, August 2019 234
ISSN NO: 1301-2746
http://adalyajournal.com/
chapters, we are going to define into varied aspects of Mergers and Acquisitions,
particularly from an Indian tax and business perspective, that is ever evolving.
CONCULSIONS
Mergers and Acquisitions are two very important elements of corporate finance.
The area under Mergers and Acquisitions include developing strategies and
financing and managing purchase of one firm by another firm or joining of two
firms .Mergers and Acquisitions make headlines very often because of their
potential to affect the stock prices of firms.
REFERENCES
1. Vermilion & Rau. Effect of financial restricting on financial performance firms
in Kenya. International Journal of Management and Economics Invention, ISSN:
2395-7220. 2016; 2(1):487-495.
2. Kang, J, ShivdasaniEffects of organizational restructuring on firm performance:
A case of National Bank of Kenya. Global Journal of Advanced Research. ISSN:
2394-5788. 2016; 3(1):43-49.
3. V Pawaskar. The Impact of Mergers on Financial Performance of the Jordanian
Industrial Sector. International Journal of Management and Business Studies.
ISSN: 2230-9519. 2016; 6(1):9-13.
4. JoashGwayaOndieki, NjangiruMungai John. The Effect of Mergers and
Acquisitions on Financial Performance of Banks (A survey of Commercial Banks
in Kenya). International Journal of Innovative Research and Development. ISSN:
2278-0211. 2015; 4(8):101-113.
5. Agarwal Megha, Singh Shikha. Effect of Merger on Financial Performance: A
Case Study of Kingfisher Airlines. XVI Annual Conference Proceeding. ISSN:
978-81-923211-7-2. 2015; pp.399-413.
6. MoctarNabaBakari, Xiaofang Chen. The Impact of Mergers and Acquisition on
the financial performance of West African Banks: A case study of some selected
ADALYA JOURNAL
Volome 8, Issue 8, August 2019 235
ISSN NO: 1301-2746
http://adalyajournal.com/
commercial banks. International Journal of Education and Research. ISSN: 2201-
6333 (Print), ISSN: 2201-
6740 (Online). 2014; 2(1):1-10.
7. MantravadiPramod, Reddy Vidyadhar. Post-merger performance of acquiring
firms from different industries in India. International Research Journal of Finance
and Economics. ISSN: 1450-2887. 2008; 22:192-204
8. Liargovas Panagiotis. The Impact of Mergers and Acquisitions on the
Performance of the Greek Banking Sector: An Event Study Approach.
International Journal of Economics and Finance. ISSN: 1916-971X E-ISSN: 1916-
9728. 2011; 3(2):89-100.
ADALYA JOURNAL
Volome 8, Issue 8, August 2019 236
ISSN NO: 1301-2746
http://adalyajournal.com/
Recommended