Determinants of M&A Success & Failure: Evidence from Indian Corporate Sector

Abstract

The business scenario has become dynamic and competitive by providing challenges to the companies for their survival in today's economic era. For avoiding such type of competitive pressure, companies adopt several strategic development approaches, and Merger & Acquisition (M&A) is one of them. M&A strategy helps companies to generate revenue for their growth and development by integrating with other companies. It also helps in achieving the market power, acquiring new customers, gaining new technology along with maximising the profit. Because of these benefits of M&A, companies of many countries want to go for such transactions. India as an emerging economy is also hugely going for M&A deals. But it is noticed that, during such transactions, companies are facing numerous problems. Some determinants and factors affect the performance of the company throughout the pre and post-M&A period. As a result, maximum numbers of M&As are considered as unsuccessful. In this context, the study proposed to find out the crucial factors that have their positive and negative impact on the deals and posses a vital role in the success and failure of M&A. Further, this research studied the psychological inferences of people towards a merger and found out the crucial factors related to a deal. Design/Methodology/Approach This research is primarily based on both qualitative as well as quantitative approach. Further, data were collected from both primary and secondary sources to resolve the proposed research questions and to find the results. The secondary data were collected from various M&A databases viz Bloomberg, CMIE (Centre for Monitoring Indian Economy) Prowess database and CMIE Economic Outlook. Additionally, secondary information related to deal were collected from the involved company websites, print and electronic media sources, BSE (Bombay Stock Exchange) and NSE (National Stock Exchange) websites, published reports and other government reports and websites. Further, data from social media like Twitter was collected to study the practical scenario of M&A deals along with measuring the psychological presumptions of the customers and the general public towards a deal. Primary data was collected through interview and questionnaire method from M&A experts, deal makers and leading management of companies to determine the M&A motives of Indian companies and to identify the critical factors of a deal. Besides these, three case studies were developed to analyse the practical scenario of an M&A deal firmly and to discover the success and failure determinants associated with those deals. Methodologies like Paired t-test, Analytical Hierarchy Process (AHP), Relative to an Identified Distribution (RIDIT) and Sentiment Analysis using R programming language techniques were used to derive results. Findings This study critically analysed the merger situations and found out some factors associated with the M&A deal. Further, the past and present situation of M&A, along with the motives of M&A in India is determined in this research. From this study, we observed that the number of acquisitions in India is higher than the number of merger deals from 2000 to 2017. During this period, maximum numbers of M&A were registered in the chemical and chemical product industry of the manufacturing sector, and the same scenario was also observed in the miscellaneous and information technology industry of the service sector. Further, by analysing the motives behind M&A in India, this study found out that, Indian companies go for M&A transactions with other companies to achieve the operating synergies. Besides, this research also derived some success and failure factors of M&A. By critically analysing the factors of M&A, we found out that, inefficiency in handling the human resource issues, late integration procedure, fail to combine the culture of the organisations and improper pre-merger planning lead the deal towards failure. In the same time, it is also observed that proper deal-related communication with the employees and shareholders of the organisation, a quick and efficient technological integration, and efficient management of the post-merger related issues help to execute the deal successfully. Further, this research suggests measuring the sentiment and feelings of the stakeholders of the companies correctly both in the pre and post-deal duration to understand their sufferings because of the M&A deal and help them to come across from the problem. Academic/Practical/Social Implications This research is an endeavour to enrich the existing academic literature by collecting a large number of factors from previous studies and analysing their level of importance while finalising an M&A deal. Besides, judging the impact of a transaction on different components of the society is another novelty of this study. The findings of this study would be beneficial for managers, investors, policymakers, and the stakeholders of the companies to judge a deal from its financial, operational, managerial, legal, and social prospects. Finding out critical factors may be helpful for the companies to increase their financial performance by reducing unnecessary expenditures, to enhance operating performance by applying innovative strategies, and to improve managerial performance by adding skilled workforce. Originality/Value Earlier studies in India have focused only on a single specific industry to determine the critical factors and compare the financial performance of companies in the pre and post-M&A period. This study is not limited to any particular industry or sector. Perhaps this is the first study in the case of M&A in India to evaluate the importance of critical factors of M&A by collecting data from M&A experts in India. Further, as per the researcher’s knowledge, evaluating the psychological impact of M&A on the stakeholders of the involved company with the help of the social media data is a unique study and perhaps the first to be conducted in India.