In this essay, we are mainly going to emphasize how the appreciation of the US Dollar i.e., USD against other currencies would impact different sectors of an economy in the context of India. The growth trajectory of the Indian Economy post the Liberalization, Privatization, and Globalization (LPG) reforms has been stupendous. The CAGR of close to 7% for almost 25 years is extraordinary for any economy and India has been able to sustain this growth for such a long period. This growth was coincidental with the growth of the world economy.
However, the Indian economy has undergone some exceptional phases of macroeconomic developments and growth pattern post the Global Financial Crisis. When the world economy was growing at a very tepid pace, the Indian economy was an exception, growing at nearly 8% compounded annual growth and then Demonetization struck the Indian Economy and Goods and Services Tax (GST) was rolled out without proper planning of its implementation. The growth trajectory took a hit for some time and it’s only recently that India’s growth seems to be picking up once again (the last quarter’s GDP growth has reached close to 8.5 %).
A merger is a concoction of two companies to form a single entity where both assets and liabilities are merged together.
In an acquisition, one company “takes over” another company where assets and liabilities of the acquired company
become part of the “acquirer” company.
There are 4 different types of
Horizontal: Horizontal M&A happens between
companies engaged in the same business activity and competing with each other. e.g., HP-Compaq, Arcelor-Mittal, etc.
Vertical: VerticalM&A happen between companies
engaged in different segments of a product value chain so as to integrate the
entire value chain. e.g., Reliance Industries Limited (RIL)-Reliance
Petroleum Industries (RPL).
Concentric: It happens when two companies
operate in complementary industries and their products are used by the
same/similar customers. e.g., Sony- Columbia Pictures.
Conglomerate: Conglomerates arise when companies
that are in diversified industries with no visible synergy merge with one another. The
business of the target company is entirely different from the acquiring/merging
company. E.g., ITC Bhadrachalan-ITC.
History of Merger Waves:
In the past century, M&A activities have manifested a clustered
pattern which is delineated as a wave and they betide in a burst interspersed
with relative inactivity. There were six radical
M&A waves. Premiere four transpired between 1897 and 1904, 1916 and 1929, 1965 and 1969, and 1984 and 1989.
The first merger wave betided after the protracted depression
of 1873–1883, culminated between 1898 and 1902, and concluded in 1904.F
Source: Merill Lynch Business Brokerage and Valuation, Mergerstat Review,1989
During the second merger wave(1916-1929), multifarious
industries were consolidated. George Stigler, the late Nobel prize-winning
economist, contrasted the first and second merger wave as “merging for
monopoly” versus “merging for oligopoly.” Throughout the duration of this
period, the American economy perpetuated to metamorphose and transmogrify, predominately
because of the post–World War I economic boom, which proffered copious
investment capital for fervently interluding securities markets.
The third merger wave (1965-1969) attributed a historically extortionate magnitude of merger activity. These years were often known as the conglomerate merger period as it was recurrent for proportionately smaller firms to target larger companies for acquisition. In contrast, during the two earlier waves, a majority of the target firms were significantly miniscule than the acquiring firms.
Source: Merill Lynch Business Brokerage and Valuation, Mergerstat Review,1989
generis trait of the fourth wave
(1984-1989) lies in the conspicuous role of hostile
mergers. The downward trend that characterized M&As in the 1970s through 1980 back-pedalled keenly
Although the rapidity of mergers decelerated again in 1982 as the economy grew frail,
a brawny merger wave had taken hold by 1984.
Commencing in 1992(Fifth wave, 1992-2000), the number of M&As once again began to ameliorate. The prodigious deals, some similar in quantum to those that transpired in the fourth merger wave, emerged to eventuate afresh. During the 1990s, the U.S. economy entered into its longest post-war augmentation and companies reacted to the proliferated assemblage demand by pursuing M&As.
The Sixth Merger Wave (2003-2008) took
place on the heels of the recovery period of the dotcom bubble. Globalization, private equity,
and shareholder activism were the pivotal proclivity that defines the sixth
Global M&A deals and Rationale behind deals
Recently one of the strategic drivers of M&A deals has been acquiring technology assets. 20% of deals cite the acquisition of technological assets as the cardinal impetus behind deals, up from 6% in the spring of 2016.
of customer bases in existing markets, and also an inclusion to product
offerings or diversification of services, rank as the next two strategic
consequential drivers that corporate respondents cite as a raison d’etre behind
Digital strategy, a new response option for what is driving deals, ranked number four in importance, with 12% citing it as the most important driver.
Acquisition of talent has more than doubled in importance from the spring of 2016, increasing from 4% to 9%.
The prime influencers behind the deals in 2017 are:
One of the key influences on global M&A activity
in 2017 was a significant 62% plummet in Chinese investment in Europe and the US (the 2 biggest M&A
markets), as compared to the record-breaking levels reached in 2016.
Private equity played its part in shaping the M&A landscape in 2017 showing the
highest buyout value since 2007 and also the highest exit value on record.
Brexit has continued to have an impact on M&As both in the UK and overseas. The depressed value of the Sterling has promoted an uptick in inbound M&As in the UK, resulting in the highest level on record in 2017.
Global M&A have had a positive start in the first quarter of 2018 with deal value ameliorating to $1.2trillion in value. U.S. tax reforms and faster economic growth in European countries unbridled many companies’ deal making instinct.
Swelling cash coffers and hefty debt and equity
succoured to boost the confidence of chief executives and convince them that
now was a good time to pursue transformative mergers.F
According to Thomson Reuters data, though the number of deals globally plummeted by 10% to 10,338 y-o-y in the first quarter of 2018, the value of the deals burgeoned by 67% on y-o-y basis.
Brobdingnagian deals that consummated
in the 1st quarter of 2018 were those of U.S. health
insurer Cigna Corp’s $67 billion deal to acquire U.S. pharmacy chain Express
Scripts Holding Co, and German utility E.ON SE‘s $38.5 billion deal to
acquire RWE AG‘s renewable energy business Innogy SE. In the first quarter of 2018,
M&A volumes ameliorated by 67% in the US, 11% in Asia and almost doubled in
The two largest proposed deals this year are the $65billion deal of Disney to acquire Fox and the $85.4billion deal of AT&T to buy Time Warner.
M&A Consolidation Game in
ended the year 2017 on an optimistic note with 1,022 deals clocking a disclosed value of US$46.8
billion. While the deal volume attained a record acme (as compared to 895 deals in 2016) since 2010, the deal value was lower by 12% from US$53.2 billion in 2017. Deals aimed at market proliferation and
entry into new untapped markets, digital disruption and sector convergence,
were the cardinal drivers of deal-making during the year.
in deal count can be largely attributed to the powerful deal activity in the
domestic arena throughout the year, showcasing the preference of the local
market for businesses, driven by a stable economy and optimistic deal market
fundamentals. The year 2017 fared well on the value front as well as with the
yearly performance, which was in line with the median average of the previous
few years. Keeping in mind 2016s outstanding activity in value terms, the
decline in deal value during 2017 can be primarily attributed to a fewer number
of big-ticket deals (US$500
million and above). The year 2017 recorded 13 big-ticket deals as compared to 21 in 2016. Also, other factors such as the
uncertainty resulting from GST
implementation and the lagged effects of demonetization, heightened intensity of diligence in multiple
areas and delays in approval
processes also had an unfavourable impact on deal timelines.
Domestic deals continued to predominate the Indian
M&A landscape, as home grown companies preferred inorganic route to achieve
growth. In terms of volume, 2017 saw 682deals accounting for around 67%
of the gross deal volume. The
domestic deal value stood at US$37.9 billion, constituting for more than 3/4th of the total
disclosed value, a first time phenomenon ever in the Indian M&A deal
market. Interestingly, 127 deals
(totalling US$10 billion) out of the
total domestic deals were restructuring in nature, constituting around 19% of the domestic deal volume and 27% of the deal value. The local
M&A market saw US$3
billion plus deals during the year, totalling US$5.3 billion.
The years 2016 and 2017
have been the most promising years for M&As and looking into 2018, we can
conclude that this year has been as promising as the previous two years. Recent global political turmoil,
regulatory and policy changes by different nations are responsible for certain
disruptions of macroeconomic parameters, which have been the pivotal impetus
behind the deals.
Value creation: Laying the foundation for
mergers and acquisitions. PwC Report, 2018.
of 2017 and outlook for 2018, EY, 2018
Kashiramka and N V Muralidhar
Rao, Shareholders Wealth Effects
of Mergers and Acquisitions on Acquiring Firms in the Indian IT and ITeS Sector
XU1, Yong-jin LIANG, Shun-lin SONG, What Drives Mergers &
Acquisitions Waves of Listed Companies of The Chinext Market? IPO
Over-Financing or Stock Overvaluation, 2018
R. King, Svante Schriber, Addressing Competitive Responses to Acquisitions,