An analysis of mergers in the private corporate sector in India

The liberalised economic policies have exposed Indian industry to several challenges. In response to this, the Indian economy has witnessed a sharp increase in mergers and acquisitions. An attempt has been made in this paper to analyse the significance of such mergers and its characteristics. The study suggests that acceleration of the merger movement in the early 1990s is accompanied by the dominance of mergers between firms belonging to same business group or house with similar product lines. So it is argued that though the merger movement in the early 1990s might have contributed to an increase in product or asset concentration measured on a firm-wise basis, it could not have contributed to an increase in concentration as measured by relative shares of business groups. But, there are signs that mergers between unrelated firms, though numerically less significant, have been gaining ground. This is especially true of mergers involving foreign-owned firms. The participation of foreign-controlled firms in the merger process has increased significantly since 1992-93. However it is evident that mergers contributed significantly to asset-growth in only one fifth of the sample firms studied. Most of these firms mobilised a large share of resources through capital markets, to finance their expansion during 1989-90 to 1994-95. Therefore the study argues that the merger wave in the early 1990s was more a means of internal restructuring rather than an instrument to further product market or asset share. JEL Classification : D43, G34, L41 Key Words: mergers and acquisitions; horizontal merger, vertical merger, conglomeration, private corporate sector, India