This study was undertaken purely to analyse the changes in market capitalization, revenues and net profits of Indian companies acquiring other Indian companies/foreign companies. The results went against all known research till date and were more eye opening than we could ever imagine... or you could!
We have to confess – despite the hype that we’ve created, the findings are pretty short (and you’ll find them if you rush to the end of this story). And you’ll obviously find all the comprehensive tables and statistical research on our website. What was painstaking was the calculation, authentication, validation, tabulation and factor analysis of the performance factors (share price movements, revenues, net profits) of 152 companies over seven years in this decade! During our expansive study, we immediately noticed two anomalies in even notable global researches. One was that a significant number of researchers failed to differentiate between the concept of ‘Mergers’ (when two or more companies ‘merge’ to form one single entity) and Acquisitions (when an ‘acquiring’ company buys significant equity stake in a ‘target’ company). The second anomaly was that we failed to notice relevant research reports coming up targeting Indian M&As. A few did, but these were more or less a handful considering that total Indian M&A spend during 2007 had reached $100 billion! (IndusInd Consultants’ estimates for 2007). Though the next year saw a fall in M&As, $41.2 billion – which was the total amount spent in 2008 by Indian companies in M&As – represented a rise of 47.5% over 2006! (Source: Grant Thornton Report, 2009). There were 766 M&A deals signed by Indian companies during 2008. Given that, we decided to undertake a comprehensive research that would analyse Indian acquirers (acquiring target firms; we deliberately did not consider mergers) in the past and provide details on success or failure conditions and parameters. The research was exhaustively statistical and the results, quite stunning (for better understanding, please read the first two paragraphs of the methodology section before proceeding ahead).
First, the part we did not cover; in other words, mergers. Mergers destroy shareholder value – no questions about them. Dr. Ulrike M. Malmendier, Stanford University & Prof. Geoffrey A. Tate, Wharton School of Business 2003 found that “The empirical results on returns to mergers… suggest that mergers may not create shareholder value…” An AT Kearney study in 2003 proved that “…few mergers actually create shareholder value…” Scott Christofferson, Robert McNish, Diane L. Sish McKinsey & Company, 2004 concluded that 70% of mergers failed ‘to achieve revenue synergies’. An Accenture report quoted that “most M&A transactions ultimately fail to create shareholder value… many destroy it!” Tom Herd, Arun K. Saksena & Terry W. Steger, Accenture, in another report, concluded similarly that “less than 30% of M&As actually create value that is noticeably higher than the industry average…” Dorian Swerdlow & Harrier Engel, of Booz Allen Hamilton supported this in their paper by concluding that “most mergers ‘will’ fail!” Danzon, Epstein, and Nicholson from National Bureau of Economic Research (M&A in the pharma and biotech industries, June 2004) proved that mergers, for small firms, are primarily “exit strategies for firms in distress.” In general, merged firms that merged had “slower growth in operating profit in the third year following a merger.” Thus, mergers may be a response to trouble, and not an effective solution for large firms, they concluded.
We have to confess – despite the hype that we’ve created, the findings are pretty short (and you’ll find them if you rush to the end of this story). And you’ll obviously find all the comprehensive tables and statistical research on our website. What was painstaking was the calculation, authentication, validation, tabulation and factor analysis of the performance factors (share price movements, revenues, net profits) of 152 companies over seven years in this decade! During our expansive study, we immediately noticed two anomalies in even notable global researches. One was that a significant number of researchers failed to differentiate between the concept of ‘Mergers’ (when two or more companies ‘merge’ to form one single entity) and Acquisitions (when an ‘acquiring’ company buys significant equity stake in a ‘target’ company). The second anomaly was that we failed to notice relevant research reports coming up targeting Indian M&As. A few did, but these were more or less a handful considering that total Indian M&A spend during 2007 had reached $100 billion! (IndusInd Consultants’ estimates for 2007). Though the next year saw a fall in M&As, $41.2 billion – which was the total amount spent in 2008 by Indian companies in M&As – represented a rise of 47.5% over 2006! (Source: Grant Thornton Report, 2009). There were 766 M&A deals signed by Indian companies during 2008. Given that, we decided to undertake a comprehensive research that would analyse Indian acquirers (acquiring target firms; we deliberately did not consider mergers) in the past and provide details on success or failure conditions and parameters. The research was exhaustively statistical and the results, quite stunning (for better understanding, please read the first two paragraphs of the methodology section before proceeding ahead).
First, the part we did not cover; in other words, mergers. Mergers destroy shareholder value – no questions about them. Dr. Ulrike M. Malmendier, Stanford University & Prof. Geoffrey A. Tate, Wharton School of Business 2003 found that “The empirical results on returns to mergers… suggest that mergers may not create shareholder value…” An AT Kearney study in 2003 proved that “…few mergers actually create shareholder value…” Scott Christofferson, Robert McNish, Diane L. Sish McKinsey & Company, 2004 concluded that 70% of mergers failed ‘to achieve revenue synergies’. An Accenture report quoted that “most M&A transactions ultimately fail to create shareholder value… many destroy it!” Tom Herd, Arun K. Saksena & Terry W. Steger, Accenture, in another report, concluded similarly that “less than 30% of M&As actually create value that is noticeably higher than the industry average…” Dorian Swerdlow & Harrier Engel, of Booz Allen Hamilton supported this in their paper by concluding that “most mergers ‘will’ fail!” Danzon, Epstein, and Nicholson from National Bureau of Economic Research (M&A in the pharma and biotech industries, June 2004) proved that mergers, for small firms, are primarily “exit strategies for firms in distress.” In general, merged firms that merged had “slower growth in operating profit in the third year following a merger.” Thus, mergers may be a response to trouble, and not an effective solution for large firms, they concluded.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
