india going global.indd - The IIPM Think Tank

MERGERS & ACQUISITIONS
D) Multinational Enterprises and M&As in India: Patterns
and Implications
By Nagesh Kumar
The paper makes an exploratory attempt to map out
the recent M&A activity in the Indian corporate sector
associated with foreign MNEs and their Indian affi liates.
That is attempted with the help of an exclusive
database built-up by us that cover
most of the deals associated with
MNEs in India for the period
April 1993 – mid-February 2000.
This database helps to examine
the industrial composition of the
deals as well as their motives.
The research will include the
study of the strategic objectives behind the takeovers,
mergers, acquisitions from the Indian perspective and
will also evaluate the stock price performance of the
acquiring fi rm around the date of the announcement
of the corporate takeovers.
The research investigates the role that corporate
strategies plays in explaining changes in acquiring-fi rm
shareholder wealth at the takeover announcement date
and conclude on the various aspects like:
• The primary strategic objective behind the mergers,
acquisitions or takeovers for acquiring-fi rm shareholders.
• The mode of payment in the mergers and acquisition
deals
Relative cost and
differentiation
positions - mantras to
achieve a competitive
advantage
Strategic objectives behind the corporate takeovers
mergers and acquisitions:
Researchers believe that the fi rm’s ability to achieve
a sustainable competitive advantage depends upon its
relative cost and differentiation positions. The relative
cost and differentiation positions are determined
largely by the fi rm’s horizontal and vertical boundaries.
Horizontal boundaries focus on the varieties and
quantity of goods or services the fi rm produces. Vertical
boundaries defi ne the type of activities the fi rm
products rather than it buys.
The research has investigated the PRIMARY strategic
objectives of each merger, acquisition by using the
newspaper articles, any stock exchange announcements.
The strategic objectives are considered according to
the acquiring fi rm’s perspective.
1 Capacity Expansion: Companies who wish to grow
and increase their market share are indirectly looking
for opportunities to increase their capacity. Example:
2 Vertical Integration: When companies acquires its
suppliers (backward) or buy out its immediate customers
(forward) into its own business in order to
have a good hold in its existing businesses.
3 Geographic Expansions: when a company wants
to establish its reach in some new geographic location,
or in the new market segment then it targets
a company who is well established in the desired
area.
4 Growth: when a company
doing well in the business wishes
to expand its business and invest
more, it goes for growth strategy.
5 Consolidation: When a
group company acquires its subsidiary
into itself. This strategy
results into umbrella positioning in the market and
produces synergy effect.
6 Diversification: when a company wishes to start a
new business other than the existing one, it goes
for kind of strategy.
7 Gaining Financial Strength: when a company acquires
a cash rich company in order to utilize its
cash position to expand, diversify, or increase capacity.
8 Horizontal Integration: when a company acquires
its competitors in the existing businesses.
9 Broadening the Product Line: When the acquiring
fi rm seeks economies of scope by expanding its
product line.
10 Increase In Market Share: this strategy is some what
like the horizontal integration where in the acquiring
fi rm buys its competitors.
52 deals from 2001-2006:
The primary strategic objectives behind the
acquisitions from 2001-2006
Strategic Objectives
Frequency
Capacity expansion 3
Vertical integration 9
Geographic expansion 2
Growth 4
Consolidation 18
Diversification 4
Gaining financial strength 1
Horizontal integration 3
Broadening product line 6
Increase in market share 2
TOTAL 52
July-October - 2007 Need the Dough
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