Indian Mergers and Acquisitions Market: Far from Mature

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The Indian M & A market is far from mature ; IPOs are a better bet for most industries ‘The only constant is change.’ This adage holds very well in the corporate sector. Yes, it is true that Indian market is in nascent stage and from decades, the rule followed in the business is to grow or die. Companies that do not grow tend to stagnate and destroy the shareholders fund. The need of the hour is either going for public or opt for some strategic M&A. Going public for a company is changing from private ownership to public ownership through initial public offering. M&A and IPO are considered as a vital part of a healthy economy and are the preferred ways of obtaining growth. The fund raising strategies are governed by market conditions. Generally, it is seen that in a bull market the number of IPOs increases while in a bear market, the number falls due to poor response of the investors using IPO. But M&A activities are governed by competition with the strategies of own-them-if-can’t-beat-them or dual-benefit. The terms merger and acquisition are completely different although they have common motive of “creating value for stakeholders”. In 2009, public issues remained stagnant for most part of the year sowing the decline of 55% (in numbers) over 2008. Total proceed in the IPOs were of INR 15675M, with the major contribution of Real Estates (30%), Industries and Telecom (19%) and Media and technology (17%). The IPO market got active in 3rd and 4th quarter, while almost all the IPO are subscribed at higher band. In the first half of 2010, India accounted for 2% of the global IPO funds raised. With the total of $2.1billion 27 deals have been made. Coal India is set to begin a road show to promote what is expected to be India’s biggest stock listing worth $2.1 billion, which is likely to be released by October. The flood of emerging markets IPOs was also largely fuelled by excess liquidity in the global markets. There has been a dramatic increase in the money supply in the India, China and other countries. The best reason to buy an IPO is to partake in the growth of a small, young company, to hold a chance to get in on small, fast-growing companies at the bottom floor. During the financial year 2009-2010 a total of 35 IPO’s listed. Of the 35 issues as many as 24 or 68.57% ended in positive territory. The ability for larger firms to go public may be driving some of the acquisitions of more mature startups, as any acquirer that can buy before an initial public offering has a less complicated deal on its hands — although the threat of an IPO can also drive up the price, along with the enhancement in the brand value and wealth of the company. With the blend of proper knowledge, investment in IPO can lead to expansion without necessary operations and working. It has been seen by the stake of Reliance Industry Limited in East India Hotel, thus enabling reliance to enter in an oligopolositic market structure of hotel industry. But the other phase cannot be ignored. The IPOs can be detrimental with respect to the time taken by SEBI in approval, cost of issuing and disclosure of information to the competitors. Also, the strict guidelines of SEBI are another major issue. An IPO should only be an option for the few companies that have stellar growth records. The companies with excess of revenues $100 million and management teams that have the experience and fortitude to operate public companies in today's public markets. These are the companies that will attract the attention of underwriters capable of generating fees sufficient to maintain their interest and the coverage of security analysts that will promote the company's stock through the recapitalization process. Furthermore, since the IPO market is cyclical, it may not always be open, even for the most suitable companies. Due to the rejection on the grounds of bad market conditions, in real estates, the line-up includes a long-delayed IPO from Emaar MGF, the Indian JV of...
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