Impact of merger and acquisition on shareholder value in the Indian software service industry

Abstract

Indian software services industry is at a mature stage and companies are increasingly finding it difficult to sustain the growth they were able to demonstrate in their earlier phase of rapid growth. These companies are increasing using the Merger and Acquisition route to try and expand their market share and offerings in a non-linear fashion. While the stated objective of any M and A is to increase the overall long-term value to the shareholders of the companies involved, the extent to which the envisioned synergy pans out has been subject to much debate. This study looks at five software service providers with significant operations in India to determine the impact of M and A on shareholder value in the last decade. As a secondary objective, the study also endeavors to compare the performance of India based software services companies vis-à-vis a couple of non-Indian companies when it comes to mergers and acquisitions. The study finds that while foreign firms do tend to fare better than their Indian counterparts (which exhibit equal likelihood of success and failure) in extracting shareholder value from M and A, the probability of positive returns from such transactions cannot be statistically guaranteed from this sample.