Merger and Acquisition

Yash Raj Chaudhary



Merger and acquisition are the most efficient and effective ways to advance growth the implementation plan of industries. All the companies have been using M&A as a strategy for growth. Merger and acquisition is not a new concept and break out of M&A have given the industries to look for integration for the growth and market coverage or any other strategic requirement. This process is largely used for the reformation of the business organization. In India, the concept of merger and acquisition was started by government bodies. Some well known financial organization also reformed themselves in the corporate sector by adopting merger and acquisition policies. The Indian economic reforms, 1991 has opened up a lot of challenges in both domestic and international level.

The competition has been increased in the global market which has given rise to the Indian companies to go for the merger and acquisition as an important tactical choice. The instant results of merger and acquisition have been varied across the different sectors of the Indian economy.

Up till now, the incidence of Indian entrepreneurs taking over foreign enterprises was not so common. In the Indian corporate sector, there has been the latest trend of acquiring foreign companies by the Indian business. The Indian ITES and IT sector have proved their success in the global market. The other Indian sectors are also showing a great sign of success. The factors facilitating merger and acquisition in India are favorable government policy and programs, floatability in the economy, high liquidity in the corporate sector and dynamic change in the attitudes of Indian entrepreneurs.

Even though merger and Acquisition (M&A) have played an important role in corporate strategies all over the world but reports and researches show that M&A has not been able to provide conclusive evidence on whether it enhances efficiency or destroy wealth. This article studies merger and acquisition as well as its impact on society, and how Covid-19 has affected it.

Keywords: Mergers, Acquisitions, Corporate, Globally, Covid-19, India



Abstract….………….………………………………………………….... 1

Table of Content…….…………………………………………………... 2

Abbreviation………...…………………………………………………… 3

Introduction……………………………………………………………… 4

Evolution and development of M&A…………………………………….5-6

Reasons for Merger and Acquisition…………………………………….. 7

Impact of Covid-19 on Merger and Acquisition………………………….7-8

Conclusion………………………………………………………….......... 9

References………………………………………………………………. 9-10













The term merger and acquisition refers to the facet of corporate strategy, corporate finances and management dealing with selling, buying and combining of different companies or firms that can aid, finance, or help a growing company in a given industry to grow instantly without creating another business entity. In economics or business a merger is an amalgamation of two companies into one larger company. Such actions involve stock swap or cash payment to the target. Stock swap allows the shareholders to share the risk involved in merger of two companies. A merger results in a new company name or in new brand.

Merger is broadly divided into three categories which are as follow[1]:

Horizontal merger: Two companies that are in direct competition and share the same product lines and markets.

Vertical merger: A customer and company or a supplier and company. Think of an ice cream maker merging with a cone supplier.

Congeneric mergers: Two businesses that serve the same consumer base in different ways, such as a TV manufacturer and a cable company.

● Market-extension merger: Two companies that sell the same products in different markets.

● Product-extension merger: Two companies selling different but related products in the same market.

Conglomeration: Two companies that have no common business areas.

The word acquisition means takeover or a buyout, buying of one company by another. An acquisition may be friendly or hostile in nature. In a simple acquisition, the acquiring company obtains the majority stake in the acquired firm, which does not change its name or alter its organizational structure, an example of this type of transaction is Manulife Financial Corporation's 2004 acquisition of John Hancock Financial Services, where both companies preserved their names and organizational structures.[2] Acquisition in simple terms can be understood as purchase of smaller firms by the larger one. Reverse merger is a merger in which enables a private company to get publicly listed in very short period of time. A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publicly listed shell company, usually one with no business and limited assets.[3]

Reasons for Merger and Acquisition:

▪ Operating synergies: The combining of two or more firms improve productivity or cut cost which increases the money flow of the combined firm.

▪  A vertical merger between a supplier and a customer removes various bargaining problems and create harmonize situation.

▪ A horizontal merger between competitors creates a less competitive product market and saves the cost of R&D facilities and sales force.

▪ Reduce the chances of bankruptcy

▪ Improve the flexibility of the organization


In this article an attempt has been made:

⮚ To provide the reader with a clear understanding of M&A

⮚ Effect of Covid-19 on Merger and Acquisition

Evolution and development of M&A:

Most of the merger and acquisition are the results of suitable economic conditions like fiscal policies, rapid increase in the GDP, higher rate of interest, macro-economic setting. These factors played an important part in laying merger and acquisition strategies between bidding and target companies.

The history of merger and acquisition can be tracked down to the 19thcentury which has progressed in different periods mentioned as under:

From 1897 – 1904
During this period merger happened between two firms that were anti-competition and developed their monopoly in the market and dominated their productivity in sectors like electricity, railways, etc. Most of the merger during this period occurred between steel, mental and construction industries and were horizontal in nature.

From 1903 – 1905
Most of the mergers which took place during the first phase were considered unsuccessful for not being efficient enough to attain the required competence.[4]The crash was restored by the reduction of the world’s financial system in 1903, which was stimulated by a stock market collapse in 1904. During this period the authorized structure was also uplifted either. Later the Supreme Judiciary bodies issued its directive on the anti-competitive mergers stating that they could be demerged by implementing the Sherman act.

From 1916 – 1940
Unlike the previous period, this period focused on mergers between oligopolies, rather than anti-competitive companies or firms. The merger and acquisition process was set off by the financial boom which was noticed after the first World War. The growth of M&A leads to the development in the field of technology and science and the emergence of infrastructure firms which gives services for required growth in railways, roadways and transportation by automobiles. The government strategies laid in the 1920s made the corporate ambience supportive enough for firms to work in harmony. Financial institutions like government and private banks also played a significant part in aiding the mergers and acquisitions process.[5]

The merger that took place during 1916-1929 was multi-national and horizontal in nature. Most of the industries manufactured metals, automobile tools, chemicals, food commodities etc during this period. This period ended in 1929 with a massive fall in the stock market followed by the great depression. Though, the tax exemption in 1940 encouraged the conglomerates to involve themselves in merger and acquisition activities.

From 1965 – 1970
Most of the merger during this period were horizontal merger and were uplifted by elevating stock, implementation of anti-trust rules and regulation and interest rates. During this period the bidding companies were small in size and more fiscal power than the target companies. These mergers eliminated the roles of banks which actively played in investment early on as mergers were sponsored by equities. Some of the mergers which made their mark by performing efficiently during this period were INCO merging with ESB, OTIS Elevator with United Technologies and Colt Industries with Garlock Industries.

From 1981 – 1989
This period saw the acquisition of the firms which were much bigger in size as compared to the firms in the preceding period. Industries like oil and gas banking, pharmaceutical, and aviation combined their business with their national and international counterparts. Cross border purchases became more regular with most of them being unfriendly in nature. This period came to an end due to the Gulf war as well as the introduction of anti acquisition laws and restructuring of the fiscal organization.

From 1992 till present
This period was stimulated by globalization, an upsurge in the stock market boom and deregulation policies.[6]Major mergers were seen taking place between telecom and banking giants out of which most were sponsored by equities.[7]
There was a change in the attitude of the industrialists, who decided on M&A for the longer term than the short term benefits. Revised government policies and change in the economic trends encouraged the participation of many conglomerates to contribute to the acquisition trend.

Reasons for Merger and Acquisition:

a. Synergy: The common reason for merger and acquisition is to unlock synergies in which the combined company’s value is more than the two companies are individual. Synergies can be due to reduction of cost by creating economies of scale and due to higher revenue by creating cross-selling, increased market share or higher prices.

b. Tax benefits: These are looked into where one company realizes taxable income while the other suffers tax loss carrying forwards. Acquiring the firm with tax losses enable the acquirer to use tax loss to lower tax liability. Though merger is not done just to avoid taxes.

c. Higher Growth: Merger and acquisition is considered as a faster way for a firm to achieve higher revenues as compared to grow organically. A firm can gain by merging or acquiring a company with the latest capabilities without having to take the risk of forming the same internally.

  1. Diversification: firms that operate in cyclical      industries feel the need to change their cash flow to avoid losses during      the slowdown of the market. Acquiring a non-cyclical company enables other      company to diversify and reduce the risk of losses.

Impact of Covid-19 on Merger and Acquisition:

The Coronavirus (covid-19) crisis is having and will continue to have an impact on merger and acquisition. On a large scale and in a very short period of time, thousands of business have shuttered or cut off their activities significantly, millions of workers have been laid off, the supply chain has been disordered, demand for oil and other energy sources has been dropped, consumer spending has been reduced.

The M&A industry has encountered and recovered from the past economic crisis, including the Great Recession of 2007-2009, and the burst of the dot-com bubble in 2000-2002. This time things are different, the pandemic not only affected the financial system but on the valuation of sellers, the appetite of buyers to get deals done in the shorter term and other factors affecting M&A deals.

These include deal terms themselves, new due diligence issues that have arisen, the manner in which due diligence is conducted, the availability, pricing and other terms of deal financing, and the time it will take to obtain necessary regulatory and other third-party approvals for transactions.[8]

The following are some of the observation made so far in the market:

Deal Activity –

Since Coronavirus was first publicized through different media outlets, dealing activities has been dropped. Reports show that about 25% to 30% of deals in the Pacific region have been laid aside as a result of Covid-19 concerns. A key observation for these deals is that any valuation gaps between seller and buyer have been worsened by the uncertainty connected with Covid-19, especially when two parties outlook for the target business in the short term and long term.

It is likely that there will be an increase in deal activity from the opportunistic business. In certain business industries such as travel and leisure sectors which are suffering huge financial losses are likely to be vulnerable. It is believed that traditional investors may seek to tackle transaction involving distressed assets when the golden opportunity present and there is a clear strategic fit.

Risk Management Concerns -

It has become clear that investors are concerned with risk management. Warranty and Indemnity (W&I) and specific tax insurance are the solutions being used as tools to cover investors and their portfolio companies in risk management strategies. It is also likely that W&I insurers might request for a new exclusion in regard to business or damages caused by Covid-19. We expect this to result in more diligence efforts in merger and acquisition.

We also observed that portfolio companies are looking to make their own operations more efficient, reduce cost and safeguard interest against any additional financial uncertainties during this period.

MAC Clauses

Material Adverse Change (MAC) clauses have been triggered for the transactions that have been signed already and we will notice this trend to continue. In regard to this, W&I insurers are very careful in offering coverage of new breaches like warranty breaches that take place and discovered between the signing and completion of the deal. However, insurers are not willing to offer this coverage as new breach coverage contains an exclusion related to matters that constitute a MAC.

Tax Insurance Implications

For coverage of specific tax risk in the M&A transaction, it is not expected that access to the insurance market will be affected by Coronavirus, or any material change will be made in policy terms.

This largely indicates the bespoke nature of tax insurance policies, and the risk profile for insured tax liabilities will not be any higher in consequences of the current environment.

Employee Retention

It is clearly evident that Covid-19 has an extreme impact on employees. As a result of the pandemic, it's important that employee retention, including that of key force, is correctly considered when undertaking due diligence during a transaction, as a deficiency in the in-house capability of an acquired business can significantly impact operations going forward.


Merger and acquisition activities play a key role in industries growth and development. The benefits of M&A really enhance and bolster up for the long term development schemes. Therefore effectiveness and efficiency of M&A depend on the strategies of the board, keenness of parties, the flexibility of negotiation but they could achieve the target if they are well prepared and conduct merger and acquisition successfully.

I want to stress the importance of M&A to the event of corporations. M&A is basically confirmed to be one of the foremost useful methods to beat current difficulties and improve the event of companies. Merger and acquisition really support the expansion of the world’s economics, for it makes companies in crisis become bigger in capitals, human resources. Therefore, the competitive advantages of companies bring them to success and prosperity. Mergers and acquisitions are extremely noticeable ways to tackle difficulties within the 21st century.

COVID-19 has had far-reaching impacts beyond people who are regularly discussed. As the virus worsens all over the world, it's expected that the impact of the coronavirus on M&A activity will still change over a while. Businesses will enjoy monitoring trends around the world closer to guide steps that will be taken during this point of uncertainty.


1. Boston Consulting Group research report, ‘The Brave new world of M&A – How to create value from Mergers and Acquisitions’, July 2007, International Research Journal of Finance and Economics - Issue 22 (2008) 203.

2. Campa, Jose and Simi Kedia. 1999. “Explaining the diversification discount.” Working paper, Harvard Business School.

3. Donaldson, G. 1994. Corporate Restructuring. Harvard Business School Press, Boston, MA.

4. Dolbeck, Andrew "Mergers and Acquisitions in India: A Different Story". Weekly Corporate Growth Report. 08 Oct, 2009

5. Ghosh, A., (2001): ‘Does operating performance really improve following corporate acquisitions?’ Journal of Corporate Finance 7 pp 151-178.

6 Hansen R.G., (1987) ‘A Theory for the Choice of Exchange Medium in Mergers and Acquisitions’, Journal of Business, 60 , 75-95.

7. Healy, P., K. Palepu, and R. Ruback. 1992. “Do Mergers Improve Corporate Performance?” Journal of Financial Economics.

8. Jhunjhunwala, Bharat, Protectionism, Free Market and Global Regulator, Business Line, August 27, 2003.

9. Katsuhiko Ikeda and Noriyuki Doi (1983): ‘The Performances of Merging Firms in Japanese Manufacturing Industry: 1964-75’, The Journal of Industrial Economics, Vol. 31, No. 3, March,pp 257-266.

10. Lubatkin, M., (1983): ‘Mergers and Performance of the Acquiring Firm’, Academy of Management Review, Vol. 8, No. 2, April, pp 218-225.

11. Matsusaka, J. 1993. “Takeover Motives During the Conglomerate Merger Wave.” Rand Journal of Economics. 24, pp. 357-379.

12. Marina Martynova, Sjoerd Oosting and Luc Renneboog, (2007): ‘The long-term operating performance of European Acquisitions, International Mergers and Acquisitions Activity since 1990: Quantitative Analysis and Recent Research’, G. Gregoriou and L. Renneboog (eds.), Massachusetts: Elsevier, pp 1-40.

13. Michail, Pazarskis, Manthos Vogiatzogloy, Petros Christodoulou and George Drogalas (2006):‘Exploring the Improvement of Corporate Performance after Mergers – The Case of Greece’, International Research Journal of Finance and Economics, Issue 6, pp 184-92.

14. Montgomery, C. 1994. “Corporate Diversification.” Journal of Economic Perspectives. pp. 163-178.

15. Morck, R., A. Shleifer, and R. Vishny. 1989. “Alternative Mechanisms for Corporate Control.” American Economic Review.

[1] Corporate Finance Institute. “What Are Mergers & Acquisitions (M&A)?

[2] Manulife. "Our Story” -







Yash Raj Chaudhary