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Mergers and Acquisitions in India

ICICIdirect 12 Mins 24 May 2024

Mergers and acquisitions (M&A) have played and will continue to play a pivotal role in shaping the corporate landscape of India, influencing industries, markets, and economies. With globalization, deregulation, and technological advancements, M&A activities have witnessed significant growth and transformation over the years. In this article, we do an in-depth analysis of mergers and acquisitions.

Meaning of Mergers and Acquisition

Let us take mergers first. It occurs when two separate companies combine their operations into a single new legal entity. The resulting company will have a new name and ownership structure that reflects the combined ownership of the merging companies. 

On the other hand, in an acquisition, one company (the acquirer) purchases a controlling interest in another company (the target). It essentially means the acquiring company becomes the owner of the target company. The target company may continue to operate under its own name for a period, but ultimately, it becomes a subsidiary of the acquiring company.

Difference between merger and acquisition

To help you better understand the two terms, we will compare the two on different parameters. Here is the comparison:





Combination of two or more companies to form a new entity

Purchase of one company by another entity

Legal Structure

Often involves a legal process of merging two entities into one

Typically involves one company buying another company's assets or shares


Results in the formation of a single, combined entity with shared control

Acquiring company gains control over the acquired company


Shareholders of both merging companies become shareholders of the new entity

Shareholders of the acquired company may receive payment or shares from the acquiring company

Decision Making

Decision-making power is shared between the merging entities

Decision-making power usually shifts to the acquiring company


Usually aimed at achieving synergy, cost savings, or market dominance

Can be strategic (e.g., entering new markets, gaining technology) or financial (e.g., increasing shareholder value)

Legal Requirements

May require approval from regulatory bodies and shareholders of both merging companies

Typically requires approval from regulatory bodies and shareholders of the acquired company

Types of M&As

Here are the different types of mergers:

  • Horizontal Merger: It occurs when two companies competing in the same industry merge. The goal is to eliminate competition, gain market share, and potentially achieve economies of scale.
  • Vertical Merger: This involves the merger of companies at different stages of the production process for a particular good or service. For example, a steel producer merging with an auto manufacturer. The aim is to gain greater control over the supply chain and potentially improve efficiency.
  • Conglomerate Merger: This type of merger combines companies in entirely unrelated industries. The rationale behind this can be diversification to reduce risk or acquiring a company with undervalued assets.
  • Congeneric Merger: This involves the merger of companies in related industries that don't directly compete but might serve similar customer segments. For example, a bank merging with an insurance company. This can allow for cross-selling opportunities and potential synergies.

Here are the different types of acquisitions:

  • Stock Acquisition: The acquiring company issues its own shares to purchase the target company. This can be a cost-effective way to finance the acquisition but can dilute the ownership stake of existing shareholders in the acquiring company.
  • Asset Acquisition: In this scenario, the acquiring company purchases specific assets of the target company, such as factories, equipment, or intellectual property, rather than the entire company itself.
  • Cash Acquisition: The acquiring company uses its own cash reserves to purchase the target company. This is a simpler and faster approach but can significantly impact the acquirer's cash flow.

Process of M&A

The process of M&A has a number of steps. We won't go into the details of each step but will give you an overview of different activities in each step:

Step 1: Strategic Planning and Evaluation

First, the objective is defined, and then target identification happens. Post which initial evaluations of target companies happen.

Step 2: Valuation and Due Diligence

The target company's value is determined, and then comprehensive due diligence is done. In the final step of this stage, companies negotiate the terms of the transaction, including the purchase price, payment structure, and any contingencies or conditions.

Step 3: Transaction Structuring and Documentation

The structure of the deal, such as asset purchase, stock purchase, or merger, considering tax implications, regulatory requirements, and financing options is determined. Once done, legal documentation happens.

Step 4: Regulatory and Shareholder Approvals

In this stage, companies obtain necessary regulatory approvals and clearances from government authorities, antitrust agencies, etc. Next, they seek approval from shareholders of both the acquiring and target companies.

Step 5: Financing and Closing

Financing is secured, and the transaction is executed by completing all legal and financial formalities.

Step 6: Post-Merger Integration

The company develops a comprehensive integration plan outlining the steps, timelines, and responsibilities for integrating the operations, systems, processes, and cultures of the acquiring and target companies. In this final phase of this stage, the final implementation happens.

Step 7: Monitoring and Evaluation

The company continues to monitor the performance of the merged entity against predefined targets and benchmarks, tracking financial metrics, operational efficiency, customer satisfaction, and market share.

Recent M&As in the Indian market

Here are a few examples of M&As in the Indian market from the recent past:

  • Fincare's Merger with AU Small Finance Bank: The merger was announced in April 2024 to create a stronger combined entity in the growing Indian small finance bank space.
  • Happiest Minds Acquires PureSoftware Technologies: The acquisition was done to strengthen Happiest Minds' digital transformation solutions portfolio.
  • Reliance Industries Acquires Petrochemical Subsidiary: It is a strategic move by Reliance to further integrate its petrochemical value chain.

Why do companies opt for Merger and Acquisition?

We have covered everything related to M&A you should know, but you may still be wondering: Why do companies opt for these options? We try to answer that in this section. Here are a few reasons:

Economies of Scale and Scope: Merging or acquiring another company can create cost efficiencies by combining resources, eliminating redundancies in operations, and potentially achieving better negotiating power with suppliers. This can lead to increased profitability. As discussed earlier, Fincare Small Finance Bank merger. Its merger with AU Small Finance Bank is expected to create significant economies of scale. The combined entity will benefit from a larger branch network, a broader customer base, and potentially lower operating costs.

Increased Market Share and Competitive Advantage: Combining forces can allow companies to gain a larger market share and a stronger competitive position within an industry. This can lead to higher sales and profitability. Reliance Industries has a history of strategic acquisitions. For instance, their acquisition of niche players in the petrochemical sector helps them consolidate their market dominance and potentially influence pricing.

Diversification: M&A can be a way for companies to diversify their product offerings or revenue streams, potentially reducing risk by not being overly reliant on a single market or product line. The trend of conglomerates like Aditya Birla Group or Tata Group making acquisitions in diverse sectors like IT, telecom, and retail exemplifies this strategy. Diversification helps them spread risk and potentially benefit from growth opportunities across different industries.

Innovation: The combined resources and expertise of two companies can lead to increased innovation and development of new products or services. This can give them a competitive edge in the marketplace. Many Indian pharmaceutical companies are actively acquiring or merging with biotech startups to gain access to cutting-edge research and development capabilities in areas like biosimilars or gene therapy.

Before you go

We hope you learned something new today. Do remember, as an investor, you should monitor the M&A stories as M&A transactions have the potential to create value for investors by leveraging synergies, increasing market share, and enhancing profitability. Depending on the structure of the M&A transaction, you may benefit from dividend payments, share buybacks, or capital gains resulting from the appreciation in stock prices.

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