india going global.indd - The IIPM Think Tank

MERGERS & ACQUISITIONS
fect of these practices, namely that of acquiring control over
ownership of companies and of acquiring control over the
managing agencies, was that a large number of businesses
passed into the hands of the prominent industrial houses of
the country. As it became clear that India would be gaining
independence, the British managing agency houses gradually
withdrew their stakes from the Indian corporate affairs and
liquidated their holdings at rock bottom prices that were
offered to them by the Indian business houses. Besides the
transfer of managing agencies, there were a large number of
cases of transfer of interest in individual industrial units from
British to Indian hands. Further, at that time, it used to be
the fashion amongst the Indian business houses, to obtain
control of insurance companies for the purpose of utilizing
their funds for acquiring substantial holdings in many such
above mentioned companies.
Mergers and Acquisitions after the dependence of the
country:
After Independence, in the period between 1951 and 1974, a
series of governmental regulations were introduced for controlling
the operations of large industrial organizations in
the private sector. Such regulations considerably influenced
the growth strategies as adopted by most companies at that
time. Some of these prominent regulations were, the Industries
Development and Regulation Act,
1951, the Import Control Order, 1957-58,
the Monopolies and Restrictive Trade
Practices Act, 1969, and the Foreign Exchange
Regulation Act, 1973.
Due to the existence of such strict
government regulations at that time,
Indian companies were forced to move
into new areas where capabilities were
difficult to develop in the short run. In
pursuit of this growth strategy, they often changed their organizational
structures as well as their basic operating characteristics
in order to meet the requirements of a diversified
business portfolio.
During the decade of the 1990s:
The Merger and Acquisition scenario at this time changed a
lot especially after the initiation of the liberalization process
in the year 1991. The plethora of Government regulations in
respect of the industrial growth and the growth in Merger
and Acquisition segment were reduced considerably during
that time. Besides, several other measures were also initiated
by the Government which included delicensing, derservation,
MRTP Act relaxation, liberalisation of policy towards foreign
capital and technology, etc. all of which led to a phenomenal
structural transformation of Indian industry. Such transformation
provided a much needed thrust to the corporates to
seek to grow and expand through an inorganic process of
growth enveloping the implementation of appropriate Merger
and Acquisition strategy at its helm.
If the growth, presence and size registered by some of the
principal corporate groups in India, at the time were to be
analyzed, it would be seen that most of the industrial houses/
groups had employed the merger and acquisition process in a
strategic manner for growing and expanding their businesses.
In fact business houses like that of R.P. Goenka (RPG), Vijay
Mallya (UB), and Manu Chabria (MC) had all employed with
the merger and acquisition strategy largely to grow aggressively.
The Piramal group had also nearly grown by the merger
and acquisition route. The Murugappa group in the South of
India had also grown by adopting a similar strategy. Other
companies down in the South which had grown similarly by
adopting the M & A route included the Ranbaxy group, Sun
Pharmaceuticals Limited, HLL, etc. Post-liberalisation several
studies were made by various academicians to evaluate the
M&A market in India. Some of these were by Beena (1998),
Roy (1999), Kumar (2000), etc.
Some of the factors behind the Merger and Acquisition
Process as identified by these studies were the following:
External Factors:
Though, there had been a number of M & As undertaken in
Due to the
existence of strict
government
regulations, Indian
companies were
forced to move
into new areas...
the period after independence, the ‘Anti-Monopoly’ bias in
the Government regulatory environment prevailing in the
1960s and in the 1970s seriously impeded the merger and
acquisition process. This did not however mean that M & A’s
were uncommon during those regulatory regimes.
Based on a study of trends in the merger activity from
1974-75 to 1994-95, Beena (1998) found that there had been
an acceleration in merger activity in the liberalized regime
of the 1990s. The study also argued that a number of factors
had triggered off the merger and acquisition wave during
the 1990s consequent upon relaxation and removal of many
legal restrictions as noted above, wherefrom most Indian
companies had substituted their green field growth plans
with M & A strategies. This was because of the fact that the
benefit in adopting the takeover route was premised to be
more lucrative as to make this strategy preferable to adopting
the organic growth route.
July-October - 2007 Need the Dough
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