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Mergers and Acquisitions: Situating the Indian Scenario
The practices of mergers and acquisitions (M&As) have been a distinctive feature of the dynamics of global economy since the beginning of the 20th century; it is only in the recent period that it has become a regular phenomenon in the developing countries. The merger waves in the US, in the eighties and beyond are characterized by the strong relatedness between the businesses of the merging firms unlike the conglomerate mergers in the sixties and seventies. The other developed countries such as the UK, Canada, France, Germany and Japan have also witnessed periods of intense merger activity, although the US has been the most active mergers market . The striking feature of the present wave of M&As at the global level is that it includes many cross-border (CB) deals and is propelled by a different set of forces. FDI through CB M&As in five financial crisis-hit countries in South-East Asia (Indonesia, Malaysia, Philippines, South Korea and Thailand) accounted for only 20 per cent before the crisis in 1997-98, but it increased to 80 per cent in 1999 (Zhan, 2001). By contrast, in the case of China, most of the FDI before China's entry into WTO had come in the form of joint ventures. Acquisitions and mergers, although always an important means of corporate growth during the post-independence period, became much more prominent during the early nineties in the Indian corporate sector. The policies of economic liberalization triggered a sharp increase in mergers and acquisitions between domestically owned firms and firms under foreign ownership. Many multinational firms have entered Indian corporate sector after 1990s through joint ventures and later on extended its corporate control by buying out the existing shares of their counterparts. Indian corporate sector ha:
experienced a boom in FDI inflows through CBM&As especially after 1995. The policy
changes adopted since 2000s has also facilitated FDI outflows through CBM&As. It is
argued that the potential for monopolistic behaviour and restrictive practices have continued
to exist in the liberalised business environment in the integrating global economy (Singh 1999; Evenett, 2002). The principal objective of this study is to analyse the trends of M&A in Indian corporate sector and especially the trends of FDI inflows and outflows throug CBM&As. The motives behind such M&As across selected industries and their consequence has also been analysed. Conclusion
Established theories of international investment suggest that the competitive advantages in the form of "'nerships location and internationalisation allow firms to acquire monopolistic and olil.:zopolistie power in the market through investments, mergers and acquisitions. Recent policy shill related to trade liberalisation and deregulation of foreign investment policy at the global level has, probably, been the main determinants in the emergence of new patterns such as internationalisation of the production process. The economic reform programme and the new industrial policy regime implemented by the Government of India enabled India's business houses as well as the subsidiaries of MNCs to undertake expansion either by entering into a new market or through expansion in an existing market without any restriction. The corporate sector in India has witnessed a substantial growth of Mergers and Acquisitions (M&As) since the 1990s. It is also evident that there was a substantial growth in FDI inflows and outflows through CBM&As. In the first wave of M&As, the Indian corporate houses seem to have been bracing up to face foreign competition while the second wave since the year 1995 experienced a significant involvement of buying out of Indian joint ventures by multinational firms. This trend has accelerated since 2000s. The macroeconomic policy changes in India have facilitated another form of acquisition movement since the year 2000 i.e, overseas acquisitions by the Indian firms. However, no substantial study exists in the Indian context, which analyses the relative importance of the motives and implications of M&As. The present study was to examine the nature of these Mergers & Acquisitions across industries and their motives and consequences. An analysis of the background leading up to the 1990s trends in M&As revealed that it had been used as one of the growth strategies by the Indian firms since seventies. During the period 1970-71 to 1990-91, the participation of non-MRTP companies was always greater than that of MRTP companies although the involvement of MRTP companies in the merger movement was relatively higher in the eighties than in the seventies. Takeovers were another phenomenon which served as an instrument of growth in the private corporate sector in the late eighties as compared to the seventies. This was mainly facilitated by the policy changes in the mid-eighties.
The number of Mergers was always higher than the number of Acquisitions throughout. However, there is a sharp increase in Acquisitions since the second half of nineties. Foreign controlled firms began to participate significantly in the M&A process especially after 1992-93, which was facilitated by the policy changes. And the participation of foreign owned firms in the acquisition process was relatively high since 1995. A majority of the acquiring firms belonged to the manufacturing sector throughout our study period, although the number of M&As in the non-manufacturing sector has shown a sharp increase since 1990s. The evidence also shows that the share of private limited firms involved in the M&A process was higher in the non-manufacturing sector than in the manufacturing sector. This was possibly a consequence of the financial liberalisation of the 1990s, which forced financial firms to increase their competitive capacity and seek early listing in the stock market and exploit the capital market boom through the private placement of shares.
When we measure the size of the M&As movement in the nineties in terms of total paid-up capital, we found that the share of acquiring manufacturing firms in the paid up capital of all non-financial private corporate companies in India increased significantly during 1990-91 to 2005-06. From the categorisation of size-distribution, we found that only one third of the sample acquiring manufacturing firms belonged to the large-sized group with an asset size of Rs. 1000 crore and above. However, these firms accounted for 94 per cent of the total asset of the sample of acquiring manufacturing firms. Many of the top firms are owned by big business groups, which are engaged much in M&A activity. It should also be noted that they are engaged in multiple number of deals in order to strengthen their corporate power and also to fulfil their aspiration to become national champions. Our study further reveals that although many firms may fall below the threshold size defined by Competition Law, these firms ranks one of the top five firms in their respective market. It could be further argued that relatively large number of small-sized firms adopted merger strategy to exploit the advantages of size in order to build their competitive strengths. Thus it is clear that the removal of institutional entry barriers appears to have encouraged Indian and foreign firms to redefine their product portfolios and reformulate their corporate and business strategies through the M&A process. An analysis based on leading M&As which occurred among firms in the private corporate manufacturing sector in India during liberalisation period revealed that the acceleration of merger movement was accompanied by the dominance of mergers between firms belonging to the same business groups or houses with similar product lines. However, there are signs that Mergers between unrelated firms have been gaining ground. This is especially true of Mergers involving foreign-owned firms. Horizontal merger dominated the M&A wave although the rest of the acquiring firms were involved in vertical and conglomerate mergers. The need for business groups to restructure themselves in the liberalised economic environment appears to be the real objective underlying the acceleration in mergers in the first half of 1990s.

Indian Council of Social Science Research.

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