This is to summarize the article, “The impact of mergers and acquisitions on corporate performance in India" written by “Satish Kumar and Lalit K. Bansal ”. The objective of this summary is to explain the changes occurred post M&A of the firms and financial performance of the firms and to find out whether merger or acquisition is suitable to increase the different perspectives of the organization performance.
The main reason for this kind of move by the corporate are to gain greater market power, gaining the new innovations thus reducing the risks associated with the development of a new product or service, increasing the efficiency with the help of economies of scale. Usually
corporate sector personal has tightened their belts in restructuring the company so that it can face the cut throat competition from MNC’s and also will helps in exploring new opportunities.
Thanks to liberalization measures where the Government controls where, regulations and restrictions have been reduced, has helped the corporate houses to expand, diversify and modernize the operations by resorting to M&A.
The study was conducted with the help of six ratio used for the comparison purpose between the pre and post merger of the organization, which are done on five parameters six ratios, where Liquidity position, operating efficiency, overall efficiency, debt to equity ratio, return on net worth and earnings per share are been found out.
Out of 22 merger cases 13 merging firms are showing increase in working capital. Out of these 13 firms, six firms are showing a huge increase in working capital which indicates that the current assets have gone up compared to current liabilities of the company. A sharp decrease is observed in three of the firms in its working capital post merger. In the case of Acquired firms, out of 52 acquisition cases 37 acquiring firms are showing an increase in working capital and 15 acquiring firms are showing a decrease in working capital, in which only three where shown an steep decrease.
In operating efficiency, if a comparison is made between merger and acquisition cases, merger cases are more successful in proportion of total cases of the same type. If a comparison is made between merging and acquiring firms on the basis of increase in working capital then more number of acquirers has increased their working capital. While considering the return on network, both merger and acquisition has shown a significant amount of increase in the return on net worth which shows that the firms are better in efficient at generating profits from every rupee of net assets, and a company is better in using the owners’ funds to generate earning growth.
It can be concluded that, the financial performance has improved significantly post-merger of more than half of the companies and in acquisition deals, more than half of the cases showed an improvement in the financial performance. In both mergers and acquisitions the financial performance has improved but at the same time both working capital and debt-equity ratio are also increasing. Because of which it can be observed that the financial burden of the firm has gone up as the current assets may turned into non-earning assets and the explicit costs are increased. But when compared to the pre merger and after merger period, there were no sign of increase of profits in after merger time, but anyhow the Indian companies had maintained a constant dividend to satisfy its shareholders, irrespective of the profits being constant.
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