Mergers and Acquisitions in India

• Mergers and acquisitions as we know imply alliance of two or more companies. Where a merger leads to formation of a new company, acquisition leads to purchase of a company by other and no new company is formed.

• India in recent past has seen great potential in case of Merger and Acquisition

(M&A) deals.

• It is being played vigorously in many industrial sectors of the economy.

• Many Indian companies have been growing the inorganic way to gain access to new markets and many foreign companies are targeting Indian companies for their growth and expansion. It has been spreading far and wide through various verticals on all business platforms.

History of Merger and Acquisitions in India • After independence, during the initial years, very few corporations came

together and when they did it was a friendly negotiated deal.

• The reason behind less number of mergers and acquisitions were due to the provisions of MRTP act,1969 wherein the firm had to follow a pressurized procedure to get approval for the same which acted as a deterrent.

• The concept of merger and acquisition in India was not very popular until the year 1988. This year saw an unfriendly takeover by Swaraj Paul to overtake DCM ltd. which later had turned out to be ineffective.

• After the economic reforms that took place in the 1991, there was intense competition compelled the Indian companies to opt for M&A’s which later on became a vital option for them to expand horizontally and vertically.

Drivers of Merger and acquisitions in India

• Right to entry: Acquisitions that take place abroad permit Indian companies to gain access to developed markets across the globe.

• Technology transfer: Corporations require technologies to manufacture particular product or a service which is not available here . By acquiring/collaborating companies abroad they get access to the technologies.

• Hedging Country Risks: Merger and Acquisitions are also attempted to reduce the

reliance on the Indian markets and escape the local business cycles.

Recent trends of merger and acquisition in India

• Year 2012 saw a slowdown in mergers and acquisitions in India. It hit a three year low down by almost 61% from its preceding year. This was majorly caused by the tough macro-economic climate created due to euro zone crisis and other domestic reasons such as inflation, fiscal deficit, and currency

• Year 2014, has started off on a positive note for inbound M&A deals in India which has so far seen 15 deals in the first two months. The general elections due in the coming months would have a huge impact on the on the mergers and acquisitions in India.

Year No. of deals Value (In billions)

2011 644 $44.6

2012 598 $35.4

2013 ~500 $30

Challenges to mergers and acquisitions in India

• Regulatory Ambiguity: M&A laws and regulations are still developing and trying to catch up with the global M&A scenario.

• Legal Developments: There have been consistently new legal developments such as the Competition Act, 2002 , the restored SEBI Takeover Regulations in 2011 and also the notification of limited sections of the new Companies Act, 2013, has led to issues in India relating to their interpretations and effect on the deals valuations and process.

• Shareholder Involvement: Institutional investors in the minority position have become active in observing the investee companies.

Major mergers and acquisitions in India

• Bharti Airtel acquired Kuwait based Zain Telecom's African business for USD 10.7 billion which was considered the largest ever cross-border deal in an emerging market.

• Tata steel’s takeover on Corus in 2007 is considered to be the largest Indian take over

whose deal value was worth $7.6 billion which also made Tata’s the fifth largest steel company.

• Vodafone has acquired a 52% interest in Hutchison Essar from the Hong Kong based

Hutchison telecommunications International for about US$10.83 billion. • Subhash Chandra's Essel Packaging (EPL) acquired the Swiss tube packaging major

Propack, to become the world's largest in laminated tubes. • Aditya Birla Group's Hindalco Industries, India's largest non-ferrous metals company,

acquired the Canada based firm Novalis in an all-cash transaction for $6 billion.

Future Outlook

• India is becoming a highly sought after destination for M&A deals.

• India must concentrate upon refining the processes,

increasing the simplicity in doing business abroad and the legalities involved in them

• The key to success is keeping fundamentals in place i.e. to bring into line acquisitions to the entire business strategy, plan and execute a vigorous integration process and take adequate awareness of all relevant regulatory norms.

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