Mergers and Acquisitions in the Real Estate Sector in India
MERGERS AND ACQUISITIONS IN THE REAL ESTATE SECTOR IN INDIA
EXECUTIVE SUMMARY
Mergers are important corporate strategy actions that, among other things, aid the firm in external growth and provide it competitive advantage over other firms through gaining greater market share, broadening the portfolio to reduce business risk, entering new markets and geographies, and capitalising on economies of scale etc.. This area has spawned a vast amount of literature over the past half a century, especially in the developed economies of the world. India too has been seeing a growth in the number of mergers over the past one-and-a-half decades since economic liberalization and financial reforms were introduced in 1991. Indian companies have been actively involved in mergers and acquisitions in India domestically as well as internationally.
Even though mergers and acquisitions (M&A) have been an important element of corporate strategy all over the globe for several decades, research on M&As has not been able to provide conclusive evidence on whether they enhance efficiency or destroy wealth. There is thus an ongoing global debate on the effects of M&As on firms. Mergers and acquisitions have become common in India today. However, very little appears to be known about the long-term post-merger performance of firms in India, and the strategic factors that affect this performance. The analysis is carried out on financial data pertaining to 10 pairs of merged firms. These mergers took place in the period 2005. The performance of mergers has been gauged by analysing the financial ratios of the companies for three years pre and post merger. It is found that the merged firms demonstrate improvement in long-term financial performance after controlling for pre-merger performance. There has been efficient utilization of assets after the merger has taken place resulting in improvement in the financial ratios under analysis. For the takeover, it is
EXECUTIVE SUMMARY
Mergers are important corporate strategy actions that, among other things, aid the firm in external growth and provide it competitive advantage over other firms through gaining greater market share, broadening the portfolio to reduce business risk, entering new markets and geographies, and capitalising on economies of scale etc.. This area has spawned a vast amount of literature over the past half a century, especially in the developed economies of the world. India too has been seeing a growth in the number of mergers over the past one-and-a-half decades since economic liberalization and financial reforms were introduced in 1991. Indian companies have been actively involved in mergers and acquisitions in India domestically as well as internationally.
Even though mergers and acquisitions (M&A) have been an important element of corporate strategy all over the globe for several decades, research on M&As has not been able to provide conclusive evidence on whether they enhance efficiency or destroy wealth. There is thus an ongoing global debate on the effects of M&As on firms. Mergers and acquisitions have become common in India today. However, very little appears to be known about the long-term post-merger performance of firms in India, and the strategic factors that affect this performance. The analysis is carried out on financial data pertaining to 10 pairs of merged firms. These mergers took place in the period 2005. The performance of mergers has been gauged by analysing the financial ratios of the companies for three years pre and post merger. It is found that the merged firms demonstrate improvement in long-term financial performance after controlling for pre-merger performance. There has been efficient utilization of assets after the merger has taken place resulting in improvement in the financial ratios under analysis. For the takeover, it is