How Mergers And Acquisitions Are Shaping Up India

Posted on June 5, 2011 in Business and Economy

By Sandeep Dasika:

Mergers and Acquisitions, in today’s world are the most fundamental elements of a corporate strategy, be it for a huge Multinational Corporation in course of taking over a fast growing gazelle company (the recent acquisition of Skype by the software giant Microsoft for a whopping $8.5 billion), or for two equals in the process of undergoing a merger (the merging of the then giant pharmaceuticals Glaxo Wellcome and SmithKline Beecham, to form a new pharmaceutical company, GlaxoSmithKline).

In simple terms, an acquisition is when one company takes over or purchases another company while a merger is a consensual situation wherein two companies agree to continue business operations and go forward as a single new company. By definition, a merger is generally a ‘merger of equals’ (the firms are about the same size).

In recent years, India has been a very active player in the M&A transactions, both locally and globally. After a dismal 2009, 2010 proved to be just the year for M&As in India. According to an M&A global outlook survey by Bloomberg, companies in the Asia-Pacific region especially China and India, were expected to be the most active buyers in 2011, which is what has exactly happened.

The volume of merger and acquisition deals in India had manifested three-folds to USD 67.2 billion in 2010 from USD 21.3 billion in 2009. Now, in 2011, M&As in India surged a whopping 270 percent in the first three months alone. Indeed, India has emerged into the one of the top countries in the M&A deals. Also, cross-border mergers and acquisitions were very rare in India till a couple of years ago. But now, news of Indian companies acquiring foreign businesses is quite common. The percentage of cross-border transactions has risen significantly. Cross border deals in India have taken the form of both inbound and outbound transactions. The growth in inbound transactions can mainly be attributed to the fact that foreign companies have been increasingly interested in acquiring Indian firms in the IT and telecom sectors. As far as the outbound transactions are concerned, they too have increased significantly, with manufacturing companies acquiring the overseas companies. Two of the major acquisitions made by Indian companies worldwide are those of Tata Steel acquiring Corus Group plc (UK) for $12,000 million and that of Hindalco acquiring Novelis (Canada) for $6,000 million, both in the steel industries.

Whether it’s Indian companies wanting to expand by capturing foreign markets or foreign companies wishing to acquire market share in India, Mergers and Acquisitions have been used as means to achieve crucial growth and are becoming more and more accepted than ever as a tool for implementing business strategy. Major factors like favorable government policies, buoyancy in the economy, additional liquidity in the corporate sector, and dynamic attitudes of Indian entrepreneurs have helped in facilitating the M&A transactions in India.

As George Bernard Shaw famously said, “We are made wise not by the recollection of our past, but by the responsibility for our future”; and the future of India is definitely bright!