Review of Literature on Mergers and Acquisitions

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

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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.

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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]

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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.

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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

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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.

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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

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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

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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

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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

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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

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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

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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

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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.

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Documents

Review of Literature on Mergers and Acquisitions