Cross-border mergers and acquisition in India : extent, nature and structure

Abstract

The corporate sector all over the world is restructuring its operations through mergers and acquisitions in an unprecedented manner in order to successfully overcome the challenges posed by globalization. One of the striking features of the present mergers and acquisitions scenario is the presence of a large number of cross-border deals, which is an easier way of internationalization comparing Greenfield mode of entry. Further, this is leading to a gradual shift in the organic ways of foreign investment into inorganic means of brownfield investment. In this context, the present study tries to understand the nature and extent of such deals in India in the backdrop of global scenario. The present study also suggests that like the overall FDI, there has been high national difference in attracting brownfield investment. Not only the world FDI is moving in tandem with the incidence of cross-border mergers and acquisitions, but also the service sector mergers and acquisitions are the major force driving world FDI during the study period. Even though Indian merger scenario is still in a nascent stage, a substantial proportion of FDI came through this route in recent period. With the help of a firm level database on mergers and acquisitions we have observed three distinct phases of merger activity in India. The pre mid 1990s merger scenario was dominated by domestic deals, while there is an increasing presence of cross-border deals within India since the mid 1990s. Finally, we witness another stage of overseas deals during the post 2000 period, which shows that the overall macro economic scenario over the years is shaping the motives of merger. The study also tries to understand the nature, extent and structure of these deals in India. In this paper we argue that the current surge in cross-border deals should be viewed in a multi-factor dimension, which involves the push factors from home country such as market constraint, need for low priced factors of production, increasing global competition as well as the pull factors from foreign firms such as the wider market, technology and efficient operation. Key words: Market structure, Mergers and acquisitions, Anti trust Issues, Multinational firms JEL classification: D43, G37, L40, F23