Mergers and Acquisitions in Indian Banking Sector

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Page 1.1

CHAPTER

1

MERGERS AND ACQUISITIONS: AN OVERVIEW1
Patrick A. Gaughan, Ph.D.
College of Business, Fairleigh Dickinson University Economatrix Research Associates, Inc.

INTRODUCTION

The 1990s featured the most intense period of mergers and acquisitions in U.S. economic history. This period is now recognized as the fifth merger wave in U.S. history. Merger waves are periods of unusually intense merger and acquisition activity.2 There have been five such periods since the start of the twentieth century, with the previous one occurring in the 1980s. This wave featured many record-breaking mergers. When it ended in the late 1980s, many thought that there would be an extended period of time before another one began. However, after a short hiatus, an even stronger merger wave took hold, far eclipsing that of the 1980s. The merger wave of the 1990s was path breaking due to the dollar value of the transactions and the unusually high number of deals (see Exhibits 1.1a and 1.1b). While the fourth wave of the 1980s was known for both its megamergers and its colorful hostile deals, the fifth wave has featured far larger deals, as well as a good supply of hostile transactions. Fifth Merger Wave Exported to Europe.

While the fourth merger wave of the 1980s was largely confined to the United States, large-scale mergers and acquisitions finally made their way to Europe in the mid-1990s.3 In recent years, cross-border deals within Europe have grabbed the headlines. Even hostile takeovers, long thought to be an exclusively American phenomena, started becoming more common in Europe. This is underscored by the fact that the biggest deal of all time was the Vodafone– Mannesmann $183 billion hostile takeover. In addition to deals within Europe, transAtlantic deals, with European buyers of U.S. companies and vice versa, started to become commonplace. With the development of the European Union and the erosion of nationalistic barriers as the continent moved to a unified market structure with a common currency, companies began to see their market as all of Europe and more. It became clear that a European consolidation was in order. Although there are many indications that there will be realizable benefits from such a consolidation, only time will reveal the magnitude of these benefits. 1.1

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1.2

MERGERS AND ACQUISITIONS: AN OVERVIEW

10,000

8,000

6,000

4,000

2,000

0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1998 1999 1999 2000 2000

Exhibit 1.1a

Merger and Acquisition Transaction, 1980–2000

Source: Mergerstat Review, various years

200

150 $ Billions

100

50

0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

Exhibit 1.1b

Dollar Value of U.S. Acquisitions of Foreign Companies, 1980–2000

Source: Mergerstat Review, various years

The main volume of non-U.S. mergers and acquisitions is taking place in Europe, with Asia well behind (see Exhibits 1.2a and 1.2b). However, the fact that corporate restructuring is taking place in nations such as Japan and Korea is reflective of their pressing need to revamp their conservative and poorly performing corporate structures

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INTRODUCTION
350 300 250 $ Billions 200 150 100 50 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

1.3

Exhibit 1.2a

Dollar Value of Foreign Acquisitions of U.S. Companies, 1980–2000

Source: Mergerstat Review, various years

200

150 $ Billions

100

50

0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Exhibit 1.2b

Dollar Value of U.S. Acquisitions of Foreign Companies, 1980–2000

Source: Mergerstat Review, various years

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