TITLE:
Does Merger Type or Industry Affect Operating Performance of Acquiring Firms? A Long-Term Merger Performance Study in India
AUTHORS:
Meher Pramod Mantravadi
KEYWORDS:
M&A, Mergers, Acquisitions, Operating Performance, India, Industry, Horizontal, Vertical, Conglomerate
JOURNAL NAME:
Theoretical Economics Letters,
Vol.10 No.3,
June
30,
2020
ABSTRACT: Mergers and Acquisitions (M&As)
are being increasingly used the world over, for improving competitiveness of
firms through gaining greater size and/or market share, broadening the
product/service portfolio, reducing business/financial risk, entering new
markets and geographies, and consolidation for achieving economies of scale
etc. While there has been lot of hype and hope around mergers, and research
about stock market reactions to such announcements, it is important to examine,
if merging with other firms in same or other industries, actually improves the
financial operating performance, for justifying such merger activities. This
research study has aimed to study the impact of mergers on the operating
performance of acquiring firms, by examining pre-merger and post-merger
financial performance ratios, using the sample set of publicly traded acquiring
firms in India between 1991-2015. Further, the sample has been segregated to
study the impact for 1) mergers occurring among different industry segments,
and 2) mergers between acquiring and acquired firms belonging to same industry (horizontal
or vertical), or between firms in unrelated industries (conglomerate). The results
from the analysis suggest that there are variations in terms of impact of
mergers on operating performance, in different industry sectors in India. In
particular, there was a positive impact on profitability for acquiring firms in
the Banking & Financial Services industry, while the impact was
significantly negative for mergers in Sugar & Agri-Products, Pharmaceutical
and Textiles Sectors. The impact was mildly negative for Chemicals Sector, and
mixed impact for the other sectors. Also, mergers seem to have caused
significant decline in returns performance for horizontal mergers, while the
impact has been neutral for vertical and conglomerate mergers.