Mergers & Acquisitions - The Global Perspective

Mergers and acquisitions are used for improving the competitiveness of companies and gaining an advantage over other firms by gaining greater market share, broadening the portfolio to reduce business risk, entering new markets and geographic spread, and capitalizing on economies of scale. Corporate worldwide have been aggressively building new competencies and capabilities and going in for markets based diversification leading to increasing in a number of mergers and acquisitions globally. In the USA, since the early 1900s, there have been six distinct waves of mergers and acquisitions, each with its distinct characteristics and outcomes. At the beginning of the twentieth century, there was a drive for market share, followed three decades later by a longer and more ambitious wave as companies connected together different elements of the value chain, from raw materials and production through to distribution. The most recent wave, which started in 2004 after the internet bubble at the turn of the century and the subsequent downturn, is driven by consolidation motives.

[Source of information – Boston Consulting Group (BCG) Report 2007].

Mergers & Acquisitions – The Indian Perspective

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India has emerged as one of the top countries with respect to merger and acquisition deals. Indian companies have been actively involved in mergers and acquisitions in India domestically as well as internationally. The value share of deals where India has been a target or an acquirer has risen sharply over the past decade, from $2.2 billion in 1998 to $62 billion in 2007[For the years 2008 and 2009 the total value of deals is $ 25.billion and $12.50 billion respectively]. As India increases its participation in M&A deals, it is interesting to compare the domestic and cross-border acquisitions due to their distinctiveness. The distinction between them is a function of the change in market integration which changes the costs and benefits structure and also the difference in synergies – social, cultural and organizational.

In India, the concept of mergers and acquisitions was initiated by the government bodies. Some well known financial organizations also took the necessary initiatives to restructure the corporate sector of India by adopting the mergers and acquisitions policies. The Indian economic reform since 1991 has opened up a whole lot of challenges both in the domestic and international spheres. The increased competition in the global market has prompted the Indian companies to go for mergers and acquisitions as an important strategic 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 various sectors of the Indian economy. Among the different Indian sectors that have resorted to mergers and acquisitions in recent times, telecom, finance, FMCG, construction materials, automobile industry and steel industry are worth mentioning. With the increasing number of Indian companies opting for mergers and acquisitions, India is now one of the leading nations in the world in terms of mergers and acquisitions.

Till the recent past, the incidence of Indian entrepreneurs acquiring foreign enterprises was not so common. The situation has undergone a sea change in the last four-five years. Acquisition of foreign companies by the Indian businesses has been the latest trend in the Indian corporate sector. There are different factors that played their parts in facilitating the mergers and acquisitions in India. Favorable government policies, buoyancy in an economy, additional liquidity in the corporate sector, and dynamic attitudes of the Indian entrepreneurs are the key factors behind the changing trends of mergers and acquisitions in India. A survey among Indian corporate managers Grant Thornton found that Mergers & Acquisitions are a significant form of business strategy today for Indian Corporate. The main objectives behind any M&A transaction, for Corporate today were found to be:

  1. Improving revenues and profitability
  2. Faster growth in scale and quicker time to market
  3. Acquisition of new technology or competence
  4. Eliminate competition and increase market share
  5. Tax shield and investment savings

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Post Merger Integration – A significant element to a successful deal

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As per the survey conducted by merger market commissioned by Merrill Corporation of 100 corporate from the Asia-Pacific, European and North American region in the second quarter of 2009, the foremost finding was the post-merger integration issues facing dealmakers today.

Integration issues are always fundamental; the majority of respondents (53%) expect post-merger integration issues to be examined more closely than other factors in distressed mergers, which are likely to be especially high in volume in the current scenario of economic downturn especially in Europe and USA. Respondents explain that integration must be closely monitored in these transactions, as the companies involved often merge unwillingly and may not necessarily have a shared vision. Additionally, respondents cite future financial performance, future operational performance and potential cultural conflicts as three factors that are crucial to a merger’s success but particularly hard to predict. These benchmarks are likely to become increasingly difficult to measure in the year ahead as many companies in the current market face a largely uncertain future. Over the course of time, post-merger integration will continue to be a vital component of the M&A process. In uncertain economic conditions, the process will undoubtedly take on greater significance as companies’ health or survival often depends on a successful merger.

In the realistic sense, there are three broad areas of integration namely –

  1. Finance where the objective is to attain the planned synergies
  2. Human Resource with the objective of harmonizing the workforce culture through effective communication
  3. Statutory compliance with the objective of ensuring smooth sailing within the given legal framework

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The significance for the purpose of integration though is at various time intervals where the planning for finance & legal aspects are critical at the time of pre-integration stage and reduces through the integration process. Subsequently, human resource integration is more critical at the time of actual integration stage. This significance in terms of percentage is expressed as follows –

post merger integration-significance
The “Finance” angle plays the dominant role at the time of planning stage followed by the “Legal”.  The “Human Resource” plays a minimal role.
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[Source: Inference is drawn based on the survey of Merger market commissioned by the Merrill Corporation – Second quarter of June 2009]

Going ahead in the process of integration i.e. at the time of actual integration the Human Resource gains more significance as it faces the challenges right from assimilating the leadership to cultural issues which are critical to successful execution of the integration activity. Hence the level of complexity is highest for such integration than finance, legal, information technology and sales & marketing. This is evident from the table expressing the complexity in terms of percentage –

post merger integration-analysis
Human resource here comprises of executive leadership and workforce that nearly account for 50% of the total perceived complexity. Finance accounts for nearly 10% of the complexity in the latter part of the integration process.
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[Source: Survey by Mergers Market commissioned by Merrill Corporation – Second quarter of June 2009]

The post-acquisition integration process is a ticklish issue which, most of the time gets well documented at the pre-integration stage but fails miserably at the implementation stage. Companies should be wary of this critical issue and keep their eyes and ears open at every stage of the implementation.

Click on the links below for related articles

Post Merger Acquisition - Finance
Post Merger Acquisition - HR
Post Merger Acquisition - Legal

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1 Comments

  1. dxwbook.com says:

    The paper states testable propositions for future research in a post-merger integration context.

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