M&A in India in Past Few Years Essay

AbstractThe process of conjugations and acquisitions has gained substantial importance in todays corporate world. This process is extensively used for restructuring the business organizations. In India, the concept of mergers and acquisitions was initiated by the government bodies. Some nearly known financial organizations also took the necessary initiatives to restructure the corporate sector of India by adopting the mergers and acquisitions policies. The Indian frugal re diversity since 1991 has opened up a whole lot of challenges both in the domestic and supranational spheres. The increased competition in the global foodstuff has prompted the Indian companies to go for mergers and acquisitions as an important strategical choice. The trends of mergers and acquisitions in India have changed over the years. The immediate effects of the mergers and acquisitions have also been diverse across the sundry(a) sectors of the Indian economy.Till recent past, the incidence of Indian e ntrepreneurs acquiring foreign enterprises was not so common. The side has undergone a sea change in the last mates of years. Acquisition 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 electromotive force in the global market. The other Indian sectors ar also succeeding(a) the same trend. The increased elaborateness of the Indian companies in the global corporate sector has further facilitated the merger and acquisition activities in India.The various factors that played their parts in facilitating the mergers and acquisitions in India be favorable government policies, buoyancy in economy, superfluous liquidity in the corporate sector, and dynamic attitudes of the Indian entrepreneurs atomic number 18 the key factors behind the changing trends of mergers and acquisitions in India. as yet though mergers and acquisitions (M&A) have been an important element of corporate strategy all over the musket ball for several decades, research on M&As has not been able to provide conclusive severalise on whether they enhance efficiency or destroy wealth. There is thus an ongoing global statement on the effects of M&As on firms. This article seeks to explore the trends and progress in M&As India.Electronic copy operable at http//ssrn.com/abstract=1618272MERGER & ACQUISITION IN INDIA AN analytical STUDYThe phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and counsel chain reactoring with the buying, sell and combining of different companies that can aid, finance, or help a growing federation in a inclined application grow rapidly without having to create another business entity. In business or economics a merger is a conspiracy of ii companies into one larger caller-out. Such actions are commonly voluntary and involve stock shift or cash payment to the target. Stock swap is o ften used as it al lows 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 names 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 whitethorn be broadly classified in (i) Horizontal mergers A situation when two or much merging companies manufacture similar product in the same manufacturing. (ii) Vertical mergers A situation when two or more merging companies work at different stages of manufacture of a same product. (iii) heap up mergers A situation when two or more merging companies operate in different industries. The word of honor 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 work in negotiations in th e latter case, the takeover target is unwilling to be bought or the targets board has no prior knowledge of the offer.Acquisition usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger or longer established company and keep its name for the combine 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 limited assets.Electronic copy available at http//ssrn.com/abstract=1618272Reasons for Merger and Acquisition Operating synergies The uniting of two firms improve productivity or cut tolls so that the unlevered cash flows of the combined firm exceed the combined unlevered cash flows of the someone firm A vertical merger betwixt a supplier and a customer, eliminates various coordination and bargain problems A horizontal merger between competitors, produces a less competitive product market and cost savings from combining R&D facilities and sales forces Financial synergies Information and incentive problems may origin cashstarved firms to pass up positive NPV projects, but cash-rich firms to overinvest in negative NPV projects Conglomerates can use internal upper-case letter markets to transfer funds 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 examine the presence of trends and progress of M&As in Indian corporation. (ii) To analyze year-wise and industry-wise variance in material body and amount of M&A deals. Hypotheses To cover the above objectives following hypotheses have been formulated 1. There is no significant difference in number and amount of M&A deals in between years and between industries. 2. There is no significant difference between M&A progress in manufacturing and service sector persistence-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 basisFood and Beverages India is the worlds plunk for 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 accounts for about(predicate) two thirds of the total Indian retail 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 growing in the beverages market. The Indian food processing industry plays a significant role 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 liberalization of Indian economy, the India Textile Industry was predominantly unorganized industry. The opening up of Indian economy post 1990s led to a stupendous growth of this industry. India Textile Industry is one of the largest textile industries in the world. Today, Indian economy is generally dependent on textile manufacturing and exports. India earns around 27% of the foreign exchange from exports of textiles. Further, India Textile Industry contributes about 14% of the total industrial takings of India.Furthermore, its contribution to the gross domestic prod uct of India is around 3% only. Textile Industry involves around 35 million workers directly 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 sick and unviable. This has led to an increase in the closure of mills in addition, continued and persistent use of old plant and machinery has led to low profitability in the mill sector and thereby forcing some of mills to closedowns.Chemicals, Drugs and Pharmaceuticals Under this category companies direct 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, tablets, cap sules, 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 figure of pharmaceutical formulations i.e. medicines ready for consumption by patients and about 350 bulk drugs i.e. chemicals having therapeutic value and used for production of pharmaceutical formulations.Owing to a significant increase in Pharmaceuticals exports, Indias USD 3.1 billion pharmaceutical industries are growing at the rate of 14 percent per year. It is one of the largest and most advanced 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 conception of the process Patent Act in 1970, which required 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 emergence of WTO has brought about fundamental changes in the pharmaceutical industry. Trade-related 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 primary players. The factors responsible for M&As are before 1999 cement industry faced many problems like liquidity crisis, inadequate ingestion on infrastructure and costs of inputs. South-east Asian crisis brought narrowed profitability resulting to the bigger players withstanding the pressure of reduce profitability and smaller and marginal players closing down or merging with big players and trying to calculate favorable for a takeover. National Quadrilateral Road Project and State Government Policies to construct 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 operate 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, remaining discourage for the past couple of years, drying up sources of investment funds for industry, small and medium corporate finding it difficult to access institutional funds and export growth subjected to competitive pressure from imports.Information Technology and Telecom Companies operating in the IT, Software, telecom and convergence sector are clubbed in industry, the central government has formed an independent discussion section of information technology. Since the removal of restrictions on foreign capital investment an d industrial de-licensing, Indias Telecom industry has shown large growth The Important factors for increasing M&As in this sector are unvarying 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 weave based developments and introduction of cell phone in India.Automobiles and Automobile Ancillaries Companies operating in automobile sector, locomotives, please 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 pushing global auto majors to consolidate, to upgrade technology, augment 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, Gas and Oil Companies operating in the country 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 payable to unavailability of power and frequent disruptions have given an impetus to M&As in this sector..