COnCEPTuAL FRAMEwORk OF MERGER AnD ACquiSiTiOn
THE TOP 10 ACQUISITIONS MADE BY INDIAN COMPANIES WORLDWIDE:
Acquirer Target Company Country
Deal value ($ ml)
Tata Steel Corus Group plc UK 12,000
Hindalco Novelis Canada 5,982
Videocon Daewoo Electronics Corp. Korea 729
Labs Betapharm Germany 597
Suzlon Energy Hansen Group Belgium 565
HPCL Kenya Petroleum Refinery
Ranbaxy Labs Terapia SA Romania 324
Tata Steel Natsteel Singapore 293
Videocon Thomson SA France 290
VSNL Teleglobe Canada 239
FOREIGN ACQUISITION BY INDIAN FIRMS 2000-2006:
A Sectoral Comparison
Sector Number Percentage
IT/Software/BPO 90 29.40
Pharmaceuticals 62 20.30
Automotive 27 8.80
Chemical and Fertilizers 19 6.20
Consumer goods 17 5.50
Metals & Mining 15 4.90
Oil & Gas 14 4.60
Others 62 20.30
Total 306 100.00
The above table reflects the foreign acquisition by Indian firms during last 6 years. Table clearly depicts that % of foreign acquisition by Indian firms was highest in IT/Software and BPO sector, i.e., 29.4% while foreign acquisition by Indian firms in pharmaceuticals & healthcare sector was 20.3% during last 6 years which was second highest. Number of foreign acquisition is also highest in IT/Software and BPO sector i.e., 90 firms while pharmaceuticals & healthcare
sector and other sectors are in second number with 62 foreign acquisition. While in the automotive, chemical & fertilizers, Consumer goods, metals and mining and oil and gas sectors, the number of firms acquired by Indian firms were 27 firms, 19 firms, 17 firms, 15 firms and 14 firms respectively.
2.19 MERGERS AND ACQUISITIONS IN WORLD:-
The opening up of the European countries to international mergers and acquisitions and the economic reforms in developing countries provided major boost to international mergers and acquisitions since the 1990s. Foreign investment gets major impetus from international mergers and acquisitions. While there are various advantages of international mergers and acquisitions, certain impediments in the form of regulatory restrictions also exist. 12
The adoption of economic reforms in many countries in the last two decades of the 20th century opened up opportunities of international mergers and acquisitions. With different countries opening up their economies to foreign investors, international mergers and acquisitions has received. The European economy also opened up to foreign mergers and acquisitions in the 1990s, which resulted in M&A (merger and acquisition) activities of large volumes taking place across Europe.
While USA has always been the pioneer in merger and acquisition activities, UK too has registered high levels of mergers and acquisitions. With the European countries gaining momentum in mergers and acquisitions, international mergers and acquisitions also received a major boost.
There are various benefits that accrue to firms that undertake international mergers and acquisitions. Cross border mergers and acquisitions are effective in boosting Foreign Direct Investment (FDI). For international investors, it is easier to invest through a merger or an acquisition. International mergers and acquisitions provide access to infrastructure and customer base in
a country which is quite difficult to build from the scratch. Moreover an existing brand name in a country provides strong business edge. Access to local markets of different countries is possible through international mergers and acquisitions. 13
With the developing countries adopting liberal economic policies, the incentives of firms in the developed nations to indulge in mergers and acquisitions in these countries are huge. International mergers and acquisitions provide a way to tap the markets of these countries. On the other hand, for these developing countries international mergers and acquisitions provide them access to improved technologies and more productive operative mechanisms.
However there are certain impediments to international mergers and acquisitions. Regulations of different countries play an important role. In some countries certain sectors are prohibited from international mergers and acquisitions, while for some other sectors certain conditions need to be fulfilled. In China, for instance, laws regarding international mergers and acquisitions are quite stringent.
US MERGERS AND ACQUISITIONS:
More mergers and acquisitions take place in the USA than in any other country in the world. Real estate, finance and insurance are among the top sectors in terms of mergers and acquisitions in the USA. In the USA large firms are more likely to undergo mergers or acquisitions than smaller firms. US mergers and acquisitions have a major impact on jobs and employment.
Mergers and acquisitions have been higher in USA than any other country in the world. In the 1990s mergers and acquisitions in the United States of America accelerated rapidly. The effects of mergers and acquisitions on the jobs and business and on the overall US economy have been substantial. Takeovers
and mergers of record values, unmatched in any other country have taken place in various sectors in the United States of America.
Mergers and acquisitions have not been uniform across all industries in the USA. In the 1990s majority of the mergers and acquisitions took place in real estate, finance and insurance sectors. An average of 6.4% firms in these sectors were merged or acquired during the period 1990-1994. The industries with high employment that had undergone high rate of mergers and acquisitions included banks, hospitals, restaurants and grocery stores. Almost 25% of the employees in these sectors found themselves working under new employers during this period due to mergers and acquisitions. More than 4000 establishments in these sectors were acquired during this period.
A total of almost 1,00,000 firms were merged or taken over in the first half of the 1990s. Large firms in the US are more likely to undergo mergers or acquisitions than smaller firms. The value of mergers and acquisitions in larger firms has expectedly been much higher. It has been observed that only 1.6% of small firm locations were merged or acquired between 1990 and 1994. Large firms preferred to merge with or acquire other large firms. Small firms also acquired other firms. Such acquisitions were restricted to single units of other small firms.
A major impact of mergers and acquisitions was in terms of employment. Downsizing took place in large firms that were taken over. On the other hand mergers and acquisitions in many sectors led to rapid creation of jobs thus leading to higher employment. Another positive impact was that many employees in small firms found themselves working for large companies as a result of mergers and acquisitions in the United States of America.
MERGERS AND ACQUISITIONS IN CHINA:
Mergers and acquisitions have grown significantly in China in recent years. This fast growth in mergers and acquisitions in China can be attributed to economic reforms and China's accession to WTO. Government agencies in China play a strong supervisory role in approving mergers and acquisitions.
Mergers and acquisitions have played a significant role in the rapid growth of China's economy in recent years. Potential of acquisitions in China is large, given the rapid expansion in business in the country. While mergers and acquisitions were almost unheard in China even in the mid 1990s, they have played an important role in foreign investment in China in recent years.
► REASONS FOR GROWTH OF MERGERS AND ACQUISITIONS IN CHINA:-
Two factors played an important role in the fast growth of mergers and acquisitions in China -
• Economic reforms in China - reforms in China led to robust growth which
led to increased mergers and acquisitions
• China's accession to World Trade Organization (WTO) - China's accession
to WTO, opened up the doors of foreign investment to various industry sectors. This also had considerable impact on the growth of mergers and acquisitions in China.
However an important role is played by the Chinese government in regulating the merger and acquisition activities in China. Both commercial and social aspects are taken into consideration by the Chinese government in the review and approval of mergers and acquisitions. 14