Reasons Why Merger & Acquisitions Gained Popularity In India

In an acquisition, one company buys another company and becomes the new owner of the acquired company, absorbing its assets, liabilities, and operations. In contrast, a merger involves two companies of approximately the same size coming together to form a new, single entity, with shared ownership and control over the merged business. In a merger, the companies typically pool their resources and expertise to create a stronger, more competitive organization.

Mergers & Acquisitions In India

In recent years, India has witnessed a significant surge in mergers and acquisitions (M&A) deals across various industries. The trend of inorganic growth through M&A has become increasingly popular among Indian companies as it provides them with an opportunity to expand their market share, diversify their business operations, and gain access to new technologies and resources. Companies are using mergers and acquisitions as a growth strategy to expand into new markets.

Recent mergers and acquisitions in India are expected to continue to play a significant role in the economic growth and development of the country, as companies seek to expand their reach and competitiveness both domestically and globally. Here are some of the reasons why mergers & acquisitions gained popularity in India.

Merger and Acquisitions In India

India’s Economic Liberalisation Policies

India's economic liberalisation policies (introduced in the early 1990s) played a significant role in creating a conducive environment for M&A activity in the country. These policies involved reducing government regulations and restrictions, opening up the economy to foreign investment, and promoting competition in various industries. It created opportunities for Indian companies to partner with or be acquired by foreign entities, thus driving mergers in India.

Consolidation

Over the past few years, several industries, such as banking, telecom and retail, have witnessed significant consolidation through acquisitions, partnerships and mergers in India.

When companies consolidate, they combine their resources, capabilities, and customer base, which can make them more efficient and competitive. This often results in a reduction in the number of players in a particular market, leading to increased competition among the remaining companies. In turn, this competition may drive companies to pursue cross-border mergers and acquisitions to acquire their competitors and expand their market share.

In India, the consolidation of public sector banks, for example, has led to increased M&A activity in the banking sector, as surviving entities look to acquire smaller competitors and expand their market share.

Globalisation

India's growing integration with the global economy has led to an increase in cross-border mergers and acquisitions strategy.

As India continues to grow as an economic power, foreign companies have increasingly looked to invest in Indian companies to tap into the growing Indian consumer market and take advantage of the lower labour costs in the country. The Indian government has also been actively promoting foreign investment, further incentivising cross-border M&A activity.

In recent years, many foreign companies have made significant investments in Indian companies, particularly in sectors such as technology, healthcare, and renewable energy. For example, Walmart's acquisition of Flipkart, an Indian e-commerce company, was one of the largest M&A deals in India's history, valued at $16 billion.

Transfer of Technology

Technology transfer is one of the key advantages and drivers that urge companies to engage in M&A deals. In many cases, corporations require access to technologies that are not available in India to manufacture a particular product or service. By acquiring or collaborating with companies abroad, Indian companies can gain access to these technologies and enhance their competitiveness.

For example, in the pharmaceutical sector, Indian companies have been actively engaging in merger and acquisition processes to acquire companies abroad that have proprietary drug development technologies. This allows them to enhance their R&D capabilities and expand their product portfolios.

New Product Mix

The new product mix is another factor that can drive companies to engage in M&A deals. Sometimes, it may not be profitable for companies to manufacture certain products themselves due to cost constraints or the need for significant investments in R&D or manufacturing capabilities.

In such situations, partnering with another company through an M&A deal can provide them with the opportunity to diversify their product range and access new markets. By acquiring or partnering with companies that have expertise in a particular product or service, Indian companies can expand their offerings and gain a competitive edge in the market.

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