Mergers, Acquisitions and the Financial Performance: An Empirical Analysis from Indian Manufacturing Sector

Abstract

Mergers and Acquisitions (MandA) are one of the most preferred strategies of corporate restructuring across the globe. Companies opt for MandA as they tend to generate operational synergies as well as improve the financial performance of the firms. The present study evaluates the financial performance of fifty four acquiring manufacturing firms in India that occurred between the financial year 2006-07 and 2013-14. The study follows positivist approach with focus on quantitative analysis of financial data over the period of ten years (five years pre and five years post) for five parameters. Determinants of financial performance of acquiring firms before and after the MandA have also been examined. Paired Samples t-test, Principal Component Analysis and Principal Component Regression have been employed for the analysis. Findings suggest that profitability and cost of utilization significantly decline after MandA. Efficiency, Profit Margin, Cost of Utilization, Interest Cover have remained significant factors contributing to the Return on Capital Employed both pre and post MandA. Failure of MandA in creation of synergies in Indian manufacturing sector suggests lack of strategic fit between the firms. It is important for managers to clearly define the motives behind the MandA not just for growth but survival as well.