Mergers and Acquisition

Mergers and acquisitions, also known as M&A is the merging of two separate companies or the acquisition of a smaller company by a bigger one. Although they are commonly referred together, there are significant differences between the two terms which a common layman may be unaware of. 

Merger means combining of two or more entities into one, which results in merger of all the assets, liabilities of the entities under one business. An acquisition refers to a corporate transaction wherein a company purchases a portion or entire shares/assets of another company. 

Reasons why Companies go for Mergers and Acquisitions 

  • Opportunity: Bigger companies look for once in a lifetime deals to acquire smaller companies. In 2008, JP Morgan chase acquired Bear Stearns for a very small price. 
  • Taxation: A bigger company with positive cash flow may acquire a smaller company in order to pay lesser taxes. 
  • Cross selling: It may help two growing companies in similar businesses to merge. This makes it beneficial to the customers. Starbucks and Teavana merged together and hence customers can get coffee at Teavana and tea at Starbucks. 
  • Geographical diversification: Instead of building a company from scratch in a foreign country, it would seem wiser to buy an already existing company and use it as a platform for mutual growth. Banco Santander, a Spanish bank acquired Sovereign Bank, an American bank. 
  • New technology or expertise: Many oil and gas companies are investing in renewable energy firms. Companies look out for their future and aim to grow bigger and learn new advancements in technology. Google has acquired many small IT firms in order to expand their technological expertise. 
  • Economies of sale: Bigger companies often have lesser costs and competitive advantages. If a company is in high debt it can search for other companies which are ready to acquire them and help them out with their debts. Reliance group offered to acquire Future Group and promised to clear all their debts after the acquisition. 

List of Important Mergers in India

  • Indus Towers Ltd merged with Bharti Infratel in 2020
  • Bank of Baroda merged with Vijaya Bank and Dena Bank in 2019
  • IndusInd Bank merged with SKS Microfinance and formed Bharat Financial Inclusion Ltd in 2019
  • Vodafone India merged with Idea Cellular to form VI 
  • Tata Steel merged with ThyssenKrupp in 2018
  • Flipkart merged with E-bay India in 2017

List of major acquisitions in India 

  • Infosys acquired Kaleidoscope Innovations in 2020
  • Ola acquired Etergo in 2020
  • ITC acquired Sunrise Foods in 2020
  • Zomato acquired UberEats in 2020
  • LIC acquired IDBI Bank in 2019
  • OYO Rooms acquired Europe’s Leisure Group in 2019
  • Walmart acquired Flipkart in 2018
  • BYJU’S acquired Vidyartha in 2017

Sections 391 to 396 of the Indian Companies Act, and there are certain provisions and conditions which should be met before a company considers mergers, acquisitions and amalgamations. It is a complex process and the complexities change from company to company. 

Some mergers and acquisitions has turned out to be a great idea while some others have turned out to be disastrous. Therefore both the companies must think about the future and assess the various risks involved before taking over or being taken over by another company. 

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