Merger and Acquisition

By Grishma Shetty at Lexcliq


Indian enterprises were subjected to strict control regime before 1990s. This has led to haphazard growth of Indian corporate enterprise during that period. The reforms process initiated by the government since 1991, has influences the functioning and governance of Indian enterprises which has resulted in adoption of different growth and expansion strategies by the corporate enterprises. In that process, merger and acquisitions have become a common phenomenon. Merger and acquisition are not new in the Indian economy.

Now Indian corporate enterprises are refocusing in the line of core competence, market share, global competitiveness and consolidation. This process of refocusing has further been hastened by the arrival of foreign competitors. In this backdrop, Indian corporate enterprises have undertaken restructuring exercises primarily through M&A to create a formidable presence and expand in their core areas of interest.

M&A in India:

It have played an important role in the transformation of the industrial sector of India since the Second World War period. The economic and political conditions during that period and post –war periods gave rise to a spate of M&As. The inflationary situation during the war time enabled Indian businessmen to a mass income by way of high profits and dividends and black money. This led to wholesale infiltration of businessmen in industry during war period giving rise to hectic activity in stock exchanges. The practice of concerning shares in the open market and trafficking of managing agencies, was that large number of concerns passed into the hands of prominent industrial houses of the country.

As it became clear that India would be gaining independence, British managing agency houses gradually liquidated their holdings at fabulous prices offered by Indian business community. Besides, the transfer of managing agencies, there were a large number of cases of transfer of interests in individual industrial units from British to Indian hands.

Recent development in M&A:

The functional importance of M&A is undergoing a sea change since liberalization in India. The MRTP act and other legislations have been amended paving way for the large business groups and foreign companies to resort to the M&A route for growth. Further SEBI regulations, 1994 and 1997, have been notified. The decision of the government to allow companies to buy back their shares through the promulgation of buy back ordinance, all these developments, have influenced the market for corporate control in India.

M&A as a strategy employed by several corporate groups like R.P. Goenka, Vijay Mallya and Manu Chabria for growth and expansion of the empire in India in the eighties. Some of the companies taken over by RPG group included Dunlop, Ceat, Philips carbon black, gramophone India. Mallya’s united breweries group was straddled mostly by M&As. Further, in the post liberalization period, the giant Hindustan lever limited has employed M&A as an important growth strategy.

Objectives have been taken for empirical investigation:

  1. To identify the presence of any trend of M&A of the Indian industry in the post liberalization period.
  2. To examine the impact of M&As on performance of corporate enterprises.

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