Recent Mergers and Acquisition in India

Mergers and Acquisition in India

BACKGROUND:

Mergers and Acquisition have played important role in industrial or corporate sector of India. In India, Mergers are infrequently used for acquisitions of business, but they are used extensively to archive a tax-neutral consolidation of legal entities in the course of corporate in reorganizations.
In 2016, the overall Mergers and Acquisition concept owing to a resilient domestic economy and stable the capital markets. Domestic deals continued to dominate the Indian Mergers and Acquisition landscape, as home-grown companies choose the route to generate growth in an environment that was conducive to deal making.

INTRODUCTION:

 A company may decide to accelerate its growth by developing into new business areas, which may or may not connected with its traditional business areas. once a company has decided to enter into the new business area, it has to explore various alternatives to achieve its aims.

corporate restructuring is one of the methods to achieve this objective through Mergers, Acquisition, demerger, compromise and arrangements are the different modes of corporate restructuring.

CONCEPT OF ACQUISITION:

 Acquisition of business by a limited company, generally, refers to the purchase of a non-corporate business like proprietorship or partnership form of business by a company. it does not mean that a limited company cannot acquire the business of corporate body, i.e by another limited company. The acquisition of the business of a limited company by another limited company comes under the preview of " Amalgamation, Absorption, and Reconstruction of companies".

Generally, Acquisition refers to acquire the control of another company. A company which acquires control of another company is called holding company & the company which has acquired by holding company is called a subsidiary company. An agreement is made between the company and the vendor containing the term & conditions of the acquisition of a business, the basis for determining the consideration and mode of payment of consideration. Consideration determined by taking into following facts:
  1.  The present value of net tangible assets acquired, i.e the present value of gross tangible assets acquired fewer liabilities. 
  2.  The amount payable, if any for the goodwill of the business acquired. 
  3.  The liability to be taken over by the purchasing company. 

CONCEPT OF MERGER:

 A merger can be defined as the fusion or absorption of one company by another. it may also understand as an arrangement, whereby the assets of two or more companies get transferred to or come under the control of a company. In a merger one of two existing companies merges its identity into other existing companies may form a new company and merge their identities into a new company by transferring their businesses and undertakings including all assets and liabilities to the new company ( referred to as merged company). The shareholders of the company or companies whose identities have been merged are then issued the shares in the capital of a merged company.(Referred to as the merging company or companies).

Therefore, a merger may mean absorption of one company by another company , wherein one of two existing companies loses its legal identity after transferring all assets, liabilities and other properties to the other company as per scheme of arrangement approved by all or the statutory majority of the shareholders of both companies in their separate general meetings and sanctioned by court.

In India Mergers and Acquisition witnessed consolidation across the industry sector as company divested the distressed assets in an effort to reduce the debt. In the year 2016 domestic deals with US$25.1 billion highest yearly value on record in any of year. In the year 2016 505 deals registered with an increase of 5% in the previous year of 2015.

MARKET SHARE EXPANSION


The 2016 year saw a tremendous trend of mergers that provided companies an opportunity to strengthen their market position.

Examples: a. The HDFC life insurance and MAX life insurance showcased the consolidation activity in insurance space, focusing on healthy competition, regulatory reforms and driving distribution synergies.

b. Dish Tv India Limited and Videocon d2h Limited agreed to merge their operations to create a leading cable and satellite distribution platform. and other domestic deals such as the merger between Reliance Communications and Aircel, Acquisition of Videocon telecoms by Bharti Airtel.

REDUCTION OF DEBT

Consolidation plays a dominant role in capital intensive and cyclical sectors such as cement and power. several companies in these sectors sold the non-core assets to reduce the debts and consolidate their operations. 
The Reserve Bank of India has set a March deadline for banks to declare their Stressed & distressed or core & non-core assets which are treated as non-performing assets.
 
 Some online and offline players are also making Mergers and Acquisition to expand the market share and reduction in debt. such deals are as follows: 
  •  Myntra has acquired cube it for start-up the facilities on mobile devices. 
  •  Finetech startup Lending art group has acquired the counting money for an online lending marketplace for personal loans. 
  •  PayU online payments company owned by South Africa Naspers acquired Mumbai-based payments technology player Citrus pay.Pay will be able to add more 30 million people to its user base. 
  •  Flipkart owned Myntra bought its rival Jabong in US$ 70 million to create India's largest online market space. 
  •  Daily Delite India private limited which runs three supermarkets in Delhi, acquired a fresh fruit and vegetable e trailer. 
  • Tata group Titan bought a majority stake in online jewelry store Caratlane. 
In the 2016 year in cement sector 17 deals with a disclosed value of US$ 5.2 billion the highest record as any of year. 
  • sale of cement business arm, Reliance cement company limits of Reliance Infrastructure to Birla Corporation. In this deal, Anil Ambani led a group to lower its debt burden. 
In 2016 year the Indian infrastructure sector clocked 92 deals with a value of US$ 4 billion as compared with 2015, deal value increased from US$ 2.3 billion. With infrastructure, the power segment holds the 86% of the total Mergers and Acquisition value of the assets. 

key examples of deals:

  • Sembcorp Green Infra Acquired 74% stake in Mulanur renewable energy private limited. 
  • Tata power company limited acquired the renewable energy business of well-spun enterprises limited. 

 in 2016 year pharmaceuticals 51 deals announced with a value of US$4.6 billion.
  •  Sun Pharma forayed into Japanese prescription market by acquiring 14 brands from Swiss drug firm Novartis. 
  •  Sun Pharma through its wholly owned subsidiary announced to acquire 85.1% stake in Russia-based JSC Biosintez. 

in 2016 year financial services sector saws its highest ever yearly deal value recorded at US$ 7.3 billion.
  • Axis Bank Limited acquired a 4.99% stake in increasing its stake to 5.99% in Max insurance co. Ltd. 
  • State Bank of India had acquired all its sister concern for market expansion & reduction in debt. 

In year 2016 total 18 deals having its value of US$ 19.6 billion were recorded. the sector was blockbuster for oil & gas sector.
  •  A consortium led by Oil India Limited, Indian Oil Corporation Limited and Bharat petroleum corporation limited signed the agreements to acquire the stakes in Russia oilfields for a total of US$ 3.26 billion. 

in the year 2016 Technology sector recorded the 106 deals having disclosed value of US$ 2.1 billion.
  • Wipro Limited acquired Appirio incorporation a US based cloud services firm for uS$ 500 million. 

Thus India's Mergers and Acquisition to stay strong & continue as in 2017 year not with standing short term. The Mergers and Acquisition environment in the country remains a strong long-term economic outlook and healthy capital market.

Domestic activity is expected to remain robust. Mergers and Acquisition deals are likely to gain further strength across sectors.

The year 2017 is likely to witness an increase in stock deals with listed and unlisted companies, largely to provide the opportunities to shareholders, as there is a limited number of acquires willing to evaluate all cash deals.
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