Mergers and acquisitions: an exploratory look; The American Express Bank Ltd., New Delhi

Abstract

Seen as a threat in the past, mergers, acquisitions and takeovers evoked images of sinister shadows and backdoor entries. Then came liberalisation, bringing with it open-door policies and foreign tie-up sweeteners, to transform these strategies into essential restructuring tools. The first ten weeks of 1994 have seen 29 takeovers or bids, i.e. one M&A move every 3 days. It is expected that the year will see more than 150 such moves. Liberated from the strangehold of the Foreign Exchange Regulations Act (FERA), the Monopolies and Restrictive Trade Practices (HMRTP) Act, and the Industries Development and Regulation Act, 1961, firms are substituting their greenfield growth plans with takeover strategies. The benefits of taking over & company ~ readymade manufacturing facilities, well-entrenched brands, captive market-shares, ho entry delays and established distribution networks - make this strategy preferable to organic growth. Further, this business strategy works for both companies entering new areas of operation and those consolidating in their existing lines of business. Secondly, the restructuring of Indian business is bringing about a major reshuffling of companies and businesses. As the corporate mantra, of “focussing on core competencies” that will help companies cope best with tomorrow, gains ground, business houses are shedding unrelated businesses and consolidating in a few chosen areas of operation. On the one hand this implies that most groups have companies to sell and on the other that most companies must buy up their competitors. And, both of these are triggering off a chain reaction of H&A activity. Thirdly, the Government after decades of zealously guarding the enterprises it floated, irrespective of economic rationalle, is about to sell off parts of those very enterprises, in keeping with the new economic thinking.