MERGERS AND

ACQUISITION-
INDIAN SCENARIO
2010 ONWARDS
PRESENTED BY-
PARTH GOUDA
HPGD/JA/2581
 INTRODUCTION TO M&A

• Mergers and Acquisition are heady terms. It conjures visions of multi-billion dollar deals
of savvy, sharp investment bankers and large corporates making significant decisions that
have enormous effects and staggering repercussions.
• Mergers, acquisitions, takeovers and amalgamations have become essential components
of business restructuring. The process brings separate companies together to form a
larger enterprise and increases economies of scale.
• The increasing popularity of these are attributed to high-end competition and breaking of
trade barriers.
• In the present day business world, the procedure is hugely being used across various
industrial segments including telecommunication, finance, banking, hospitality,
pharmaceuticals and information technology.
• Nearly all industrial progresses today are based on external expansion and companies
look ahead to expand their customer base, gain credibility and break all barriers in the
market segment by mergers or acquisitions.
• One plus one makes three, this equation is the special alchemy of a merger or an
acquisition.The key principle behind buying a company is to create shareholder value
over and above that of the sum of the two companies.
 DEFINITION

• Mergers:
Mergers have been defined as, “The combining of two or more companies, generally by
offering the stockholders of one company securities in the acquiring company in
exchange for the surrender of their stock.” This is further explained as ,”Basically when
two companies become one. This decision is usually mutual between both firms.”
Other definitions include “a combination of two o more businesses into one business”.
In India, the law use term amalgamation for merger. The Income Tax Act, 1961, defines
amalgamation as the merger of two or more companies with another or the merger of
two or more companies to form a new company.
• Acquisition:
It is a process where a company end up buying another company. It may end up the
entire company or only the ownership stake for a purpose of controlling the target
company.

Acquisitions may be called an attempt made by a company to gain a majority interest in

another company.The company attempting to gain a majority interest is known as the
acquiring company and the other company is called the target company.
 DIFFERENCE BETWEEN MERGERS AND
ACQUISITION
Merger
Merger means two or more entities coming
together to form a new entity for attaining a
common goal
It is a mutual decision.
Merger is expensive than Acquisition
Through merger shareholder can increase their
net worth
It is time consuming and the company has to
maintain so much legal issues
Dilution of ownership occurs in Merger
Acquisition
Acquisition means buying of one entity by
another entity.
It can be friendly or hostile takeover
Acquisition is less expensive than Merger
Buyers cannot raise their enough capital
It is faster and easier transaction.
The acquirer does not experience dilution of
ownership.
 HISTORY OF MNA

• The Merger and acquisition process started way back in 1897, which occurred takeovers
of companies involved in monopoly trade practices.
• The process continued and formed a five waves process explained further.
• First Wave(1897-1904):
During the first wave the merger occurred between companies, which enjoyed monopoly
over their lines of production like railroads, electricity, etc. the first wave mergers that
occurred during the aforesaid time period were mostly horizontal mergers that took
place between heavy manufacturing industries.
• Second Wave(1916-1929):
The second wave merger that took place between the said period focused on the
mergers between oligopolies, rather than monopolies as in the previous phase. The
economic boom that followed the post world war I gave rise to these mergers.
The second wave mergers that took place were mainly horizontal or conglomerate in
nature. The industries that went for such mergers were procedures of primary metals,
food products, petroleum products, transportation equipment's and chemicals.
• Third Wave(1965-1969):
The mergers took place during this period were mainly conglomerate mergers. Mergers were
inspired by high stock prices, interest rates and strict enforcement of antitrust laws. The
bidder firm in the third wave were smaller than the target firm. The mergers were financed
from equities.
• Fourth Wave(1981-1989):
The merger that took place between these period were characterised by acquisition targets
that were much larger in size as compared to the third wave merger. Merger took place
between the oil and gas industries, pharmaceuticals industries, banking and airline industries.
Foreign takeover became more common, with most of them being hostile takeover.
• Fifth Wave(1992-2000):
The fifth wave was inspired by globalization, stock market boom and deregulation. The
fifth wave merger took place mainly in the banking and telecommunications industries.
They were mostly equity financed rather than debt financed. The mergers were driven
long term rather than short term profit motives.
 MNA IN INDIA

• The concept of merger and acquisition was not very popular in India until 1988, because
of the regulatory and prohibitive provisions of MRTP Act, 1969. According to this Act, the
companies had to follow a pressurized and burdensome procedure to get approval for
merger and acquisition.
• The post independence period witnessed a few negotiated mergers between large
business groups. Important amongst the early reported mergers in India include the
merger of Bengal Iron and Steel Co. Ltd with Indian Iron & Steel Co. Ltd. In 1936 and the
acquisition of Pukhuri Tea Co. Ltd by Bishnauth Tea in 1965.
• During the pre-liberalization licensing era (prior to 1991), several companies indulged
diversification based on the availability of licenses. The companies flourished in spite of their
inefficiencies because the total capacity of the industry was restricted due to the licensing
policy.
• The first wave of corporate deal making in India has started in 1980s in the era of the first
tentative reforms under the then prime minister of India Mr. Rajiv Gandhi which gave birth to
large-scale corporate ambition.
• The year 1988 witnessed one of the oldest business acquisition by Swaraj Paul to overpower
DCM Ltd. and Escorts Ltd. Other corporate raiders were Manu Chhabira and R.P Goenka.
• The policy of decontrol and liberalization coupled with globalization of the Indian
economy since 1991 onwards exposed the corporate sector to serve domestic and
global competition. This was further accentuated by recessionary trends which resulted
in fall in demand which, in turn, resulted in overcapacity in several sectors of the
economy.
• The second wave was largely built on the theme of corporate restructuring during the
period 1992-1995. The Murugappa Group, the Chhabira and the RPG Group sought to
build industrial empires through acquisition during this time. They followed the prevailing
industrial practices of building a conglomerate of diverse business.
• The government of India created SEBI(Securities and Exchange Board of India) in 1992 to
regulate the Indian capital markets and protect the interest of the investors.
• In November 1994, in order to regulate takeovers, SEBI promulgated the Substantial
Acquisition of Shares and Takeover (SAST) Regulation Act. Further, restrictions imposed
by Foreign Exchange Regulation Act on foreign ownership in Indian companies were
abolished and the requirement of prior approval of government on M&A was removed.
• Such globalisation and liberalisation of the Indian economy at the onset of 1990s paved
the way for consolidation towards the end of the decade.
• The third wave splashed its way into the corporate landscape during 1997-2000. There
were a large number of consolidations in sectors like cement and telecommunications. A
new type of deal also made its presence felt known as venture capital where money
poured at the start ups, especially in technology and IT services.
• From early 2000 onwards, Indian Inc. has been on an overseas acquisition spree.
• The number of Indian companies investing abroad has been steadily growing since then.
• India’s private banking system and open capital markets were the foundations on which
the Indian acquisitions were based and had much more financial discipline.
• Indian companies strength was their widely acknowledge world class managerial talent.
Top line companies were also cash rich.
• The easy availability of dollars as a result of the government’s policy of economic
liberalization made it Indian companies to go global.
• The changing mindset of Indian corporates for greater exposure and competitiveness
facilitated the process of overseas acquisitions. More and more US and other global
private equity firms have started funding Indian companies for acquisitions in the Western
world.
• The fourth wave (2004-2006) witnessed a fury of global deals. Private equity investors
and MNCs got optimistic about India during this period. Overseas acquisitions by Indian
companies had also gained momentum.
• The value of acquisition doubled to US $ 9.30 billion in 2004 from US $ 4.5 billion in
2003. The value of M&A activity increased by 151% in 2004 compared to the previous
year.
• Large deals in the telecom sector included Essar Group’s acquisition of BPL
Communications,Vodafone’s investment in Bharti’s TeleVentures, Maxis Group’s
acquisition of Aircel and VSNL’s acquisition of Teleglobe International Holdings.
• During 2006 cross border M&A activities increased significantly. IT & ITES was the clear
leader as far as sectoral deal values were concerned. This sector garnered US $ 2.9
billion worth of deals.
• The major deals include ED’s acquisition of majority stake in Mphasis BFL, RR Donnelley’s
acquisition of Office Tiger, I-Flex’s acquisition of Mantas Inc, etc.
• According to the data compiled by India Advisory Partners, Indian companies paid US $
209 million and US $ 1.8 billion in 2002 and 2003, respectively, for overseas acquisitions.
It is found that the growth in M&A activity in India has taken its momentum from the
year 2004.