Navigating the Perspective on Mergers & Acquisitions in Contemporary India: Key Movements and Insights
Introduction
Mergers and acquisitions have incredibly taken a sharp stride in the Indian as well as the global market in today’s time. Mergers and acquisitions are not limited to geographic and temporal limits, in fact, they stretch beyond the border of our nation, attracting foreign companies to invest in our diverse and ever-growing market (Walmart acquired Flipkart).
Liberalization in 1991, along with it has brought a wave of globalization which in turn prompted the Indian market giants to turn towards a collective formalization of business entities in one or associated identities. The Indian market till 2000 witnessed some major mergers and acquisitions post that the global credit crisis took a blatant hit on many major economies of the world. With entrepreneurship starting to develop during the late 20’s of the last decade mergers and acquisitions picked up their pace again in the Indian market.
Mergers and acquisitions like Vodafone and Idea (Vi), Zomato and Blinkit, Tata acquired Air India, and many more in recent times indicate that these corporate giant’s ultimate aim is to expand the scope of their product line as well as increase the market valuation of its shares thereby create an impeccable business economy. In this blog, we shall discuss the corporate mergers and acquisitions that have taken place in recent times
[Image Sources: Shutterstock]
The Concept
Before dwelling into the details of this article further let us first of all understand the concept of mergers and acquisitions. Picture this you’ve a company that has a business of sandalwood incense sticks. There’s another company B which has its in-house production of sandalwood as its business. Now, if your company merges or acquires a company that has the in-house production of sandalwood or any of its primary raw materials, then don’t you think that the cost of making your product would be substantially lowered thereby your product can rake in a higher profit margin? Therefore, if your company combines with Company B to form a bigger company producing incense sticks and as a consequence, company B ends then this is known as a merger. Whereas, if your company acquires a maximum percentage of ownership of Company B (both of the Companies have their identities intact), your company has the binding command on any decisions concerning Company B as your company is the majority stakeholder. This is known as acquisition.
In an ordinary sense, a merger can be defined as a collaboration or an amalgamation of two or more companies to form a new company in an expanded form. Whereas, an acquisition is defined as a process of selling one company to another. After getting hold of the concept, let’s check the reasons that give rise to mergers and acquisitions as follows-
- To eliminate competition
- Establish a bigger market share
- Create a strong brand
- Reduce tax liability
- Set off losses of the entity against the profit of others.
All the above-mentioned reasons primarily suggest the need for any organization to opt for M&A or subsequent combinations to sustain in the market with a better stake in the market as well as increased profit margins.
Top M&A’s in the recent times
Without further ado, let’s begin with the top mergers or acquisitions in recent times!
The Vodafone and Idea Merger (Vi)
The telecom industry was revolutionized with the arrival of Reliance’s Jio and thereby it proved as a massive setback for its competitors like Airtel, Vodafone, BSNL, Idea, etc. Jio came with the aim of digitalizing every Indian household at an affordable cost, thereby it made persuasive effective prices for its network and mobile phones. As a consequential result, many telecom giants started to face numerous hurdles in retaining their consumers, their shares started to flunk and their market evaluation was severely affected by the introduction of Jio in the telecom sector.
The telecom giants like Vodaphone and Idea decided to merge to form ‘Vi’, as the telecom business became increasingly competitive. It was a beneficial merger agreement for both network giants, it is prudent to claim that the aforementioned telecom giants were propelled to do so by Jio’s arrival and the ensuing price war. Vodafone now owns 45.1% of the corroborated company, with the Aditya Birla group owning 26% and Idea owning the remaining equity.
Acquisition of Air India by Tata Group
Air India was a longstanding loss-making public sector undertaking (PSU) until its privatization by the Tata Group.
The Tata Group won 100% equity in full-service carrier Air India and subsequently got its low-cost subsidiary Air India Express in January 2022.
The Tata Group acquired Air India for an estimated amount of $2.4B or INR 18,000 Cr. An amount of INR 2700 crore was paid and INR 15300 crore of debt was taken up by Tata Sons. Consequentially, the Tata Group announced a major merger between Air India and Vistara. Singapore Airlines which has equity of 49% in Vistara got ownership of a whopping 25% of the aforementioned combined merged entity.
HDFC Limited and HDFC Bank
HDFC Bank and HDFC Ltd, the largest private bank and the biggest mortgage industry in India combined to form a new company with a market value of INR 14.37 crore. The merger objectives are to effectively meet the client’s needs, create a real-time financial service conglomerate, and provide an array of financial products and services.
Enhanced financial stability led to this vertical merger. HDFC Banks’ robust and sturdy balance sheet and impeccable financial services complement HDFC Ltd.’s judicious lending practices and high asset quality. This merger specifically creates a more reliant as well as resilient financial service conglomerate which has improved stability, that subsequently benefits all stakeholders, including retail investors.
Zomato and Blinkit (formerly Grofers)
Zomato is an analytical investor in the hyper-local e-commerce sector and has picked up stakes in small enterprises or start-ups. While Zomato is primarily a food-related business at its core which is inclusive of food delivery, dining, and B2 supplies units remains its prime focus, it wants to simultaneously invest in the budding ecosystem around the food delivery business so that the cost of running a better food delivery business so that the cost of food delivery business goes down with time.
In the quest to lower the food delivery cost and keep up with the quick commerce model, Zomato acquired Blinkit in an all-stock deal for INR 4447 crore.
Conclusion
Mergers and acquisitions are a common strategy these days by corporate houses to achieve growth and expand their market shares. They can be tedious and challenging ventures that stand in need of systematic and precise planning, execution, and integration. Success in this area is dependent on numerous parameters such as strategic fit, cultural alignment, communication, transparency, and leadership. The company should carefully analyze the potential benefits and risks before treading on the journey of M&A. The success of mergers and acquisitions ultimately will depend on the companies incorporated to work effectively towards their shared common goal and objectives.
Author: Vandita Rastogi, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or IP & Legal Filing.
References
- Mergers & Acquisitions (M&A) https://www.investopedia.com/terms/m/mergersandacquisitions.asp
- Mergers and Acquisitions: A Conceptual Review
https://www.researchgate.net/publication/312104015_Mergers_and_Acquisitions_A_Conceptual_Review
- Mergers and Acquisitions: Case Study of Vodafone Idea
https://ijclp.com/mergers-and-acquisition-in-telecom-industry-a-case-study-on-vodafone-india-and-idea-merger/
- Air India goes to Tata Group for Rs 18,000 crore
https://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/and-sold-tata-group-to-take-over-national-carrier-air-india/articleshow/86862950.cms
- Zomato approves Blinkit acquisition for ₹4,447 crore
https://www.livemint.com/companies/news/zomato-to-buy-additional-stake-in-blinkit-for-about-568-million-11656078266200.html
- Explained: Why did HDFC merge with HDFC Bank and what this deal means for investors
https://timesofindia.indiatimes.com/business/india-business/explained-why-did-hdfc-merge-with-hdfc-bank-and-what-this-deal-means-for-investors/articleshow/90635301.cms
