india going global.indd - The IIPM Think Tank

MERGERS & ACQUISITIONS
The Main Idea behind any merger or an acquisition
is: “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. Two companies together are
more valuable than two separate companies - at least,
that’s the reasoning behind M&A.
This rationale is particularly alluring to companies
when times are tough. Strong companies will act to buy
other companies to create a more competitive, cost-efficient
company. The companies will come together hoping
to gain a greater market share or to achieve greater
efficiency. Because of these potential benefits, target
companies will often agree to be purchased when they
know they cannot survive alone.
World Wide Scenario:
USA has seen 20 years long wave
of mergers, leveraged buyouts
and takeovers that changed USA,
Inc. Biggest merger of the world,
the $190 billion America Onlinemedia
giant Time Warner (stock
fi nanced deal) became second biggest in one month’s
time. Previous biggest merger was MCI-world. Europe
and Japan also have seen many mergers.
The value of mergers in the global technology sector
alone surged a 52 percent to $ 1.2 trillion in 1999 as
companies scrambled to adapt their businesses to meet
the growing demands of the internet economy. The total
number of merger and acquisition transactions in the
IT, media and communications sector rose globally,
according to a report by New-York based investment
bank Broadview International.
Indian Scenario:
In India we have witnessed a storm of mergers and acquisitions
in recent years. The Finance Act, 1999 clarified
many issues relating to Business Reorganizations
thereby facilitating and making business restructuring
tax neutral.
Compelled by the present economic scenario and
market trends, corporate restructuring through mergers,
amalgamations, takeovers and acquisitions have
emerged as the best form of survival and growth for
the companies all over the world.
In the last few years, India has followed the worldwide
trends in consolidation amongst companies
through mergers and acquisitions. Companies are being
taken over, units are being hived off,joint ventures
tantamount to acquisitions are being made and so on.
The global M&A was
at a boom with an
average of $ 12.5
Billion worth of M&A
per day
It may be reasonably stated that the quantum of mergers
and acquisitions in the last few years must be more
than the corresponding quantum in the four and a half
decades post independence.
As per Finance Minister this has been done to accelerate
internal liberalization and to release productive
energies and creativity of Indian businesses. The year
1999-00 has notched-up deals of over Rs. 21000 cr.
which is over 1% of India’s GDP. This level of activity
was never seen in the Indian corporate sector.
InfoTech, banking, media, pharma, cement, power
are sectors which are more active in mergers and acquisitions.
Examples: ACC Gujarat- Ambuja Cement, Lafarge
TISCO, Satyam Infoway-Indiaworld, Rajpal E capital-
Zee tele-Subir Bhatia-HLL- lakme,
HLL Tomco, Sandoz-Ciba,HLL-
Lipton,IndiaCements-Rassi,
Sun-TDPL,Sun-MJ, Wockhardt
demerger, only distribution network-
parents’ acquisitions- PAL
– Peugot, Piramal Sarabhai, Piramal-
Crossland, HDFC-Times
Bank and many more. Among
hostile takeover bids we saw Sterlite’s bid for Indal,
Bajoria for Bombay Dyeing and Ballarpur Industries,
Dalmia for Gesco and many more.
Present Scenario as Per 2006:
The average Indian M&A deal size was close to US
$ 42 mn. The global M&A is also at a boom with an
average of $ 12.5 Billion worth of M&A per day. Recently
in one day $ 75 Billion worth of transactions took
place including the largest private equity deal which
was Blackstone’s $ 36 Billion offer for Equity Office
Properties.
The year 2006 has seen significant growth in acquisitions,
as well as investments by India Inc. Key
highlights of the year include:
- The total number of deals at 782 compared to about
467 in 2005. Of these there were 480 M&A deals and
302 private equity ones.
- The total value of deals at $ 28.2 billion compared
to about $ 18.3 billion in 2005, recorded a growth of
54%.
- The average deal size (value per deal) being close to
$ 36 million (including M&A and PE).
- There have been more than 40 deals with deal value
of over $ 100 million.
- 480 M&A deals with a total value of about $ 20.3
billion in 2006 where the average deal size is of $ 42
million.
July-October - 2007 Need the Dough
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