‘The only constant is change.’ This adage holds very well in the corporate sector. Big companies are lost in no time when they are eaten away even by small companies. Mergers and acquisitions are done on basis that companies together are more valuable than two separate companies .The terms merger and acquisition are completely different although they have common motive of “creating value for stakeholders”. Acquisitions involve one or many companies purchasing all or part of another company. In legal terms, the target company ceases to survive. The mode of financing may involve cash and debt combination, all cash, stocks or additional equity of the company. A merger is a result of two firms agreeing to move ahead and exist as a single new company. In ‘Mergers’, both companies surrender their stocks and stock of the new company is issued as a replacement. A single administrative section then manages the new union.

By gelling together, the companies benefit greatly from synergy. Synergies result in staff reductions, acquiring new technology, improved market reach and industry visibility and definitely economies of scale. When the CEO and top managers of a company decide that they want to do a merger or acquisition, they start with a tender offer. The process typically begins with the acquiring company buying up shares in the target company, or building a position. Once the acquiring company starts to purchase shares in the open market, it is restricted to buying 5% of the total outstanding shares before it must file with the regulator.

In recent years India Inc. has been high on mergers and acquisitions. Nowadays, news of Indian Companies acquiring foreign businesses is more common than other way round. Buoyant Indian Economy, extra cash with Indian corporate, Government policies and newly found dynamism in Indian businessmen have all contributed to this new acquisition trend. Indian outbound deals, which were valued at US$ 0.7 billion in 2000-01, increased to US$ 4.3 billion in 2005, and further crossed US$ 15 billion-mark in 2006… They went shopping across the globe and acquired a number of strategically significant companies. Almost 99 per cent of acquisitions were made with cash payments. It certainly seems a merry time for Indian corporate!! One of the biggest examples of an Indian acquisition (he is an Indian after all!!) is that of Arcelor-Mittal. Even after facing many hurdles Mittal managed to acquire Arcelor creating a milestone in the consolidation of the global steel industry.

Mostly acquiring companies nearly always pay a substantial premium on the stock market value of the companies they buy. The justification for doing so always boils down to synergy; a merger benefits shareholders. There is flip side to mergers. Historical trends show that roughly two thirds of big mergers will disappoint on their own terms, which means they will lose value on the stock market. The executive ego, which is boosted by buying the competition, is a major force in M&A, especially when combined with the influences from the bankers, lawyers and other assorted advisers who can earn big fees from clients engaged in mergers.

On the other side of the coin, mergers can be driven by generalized fear. Globalization, the arrival of new technological developments or a fast-changing economic landscape, that makes the outlook uncertain, are all factors that can create a strong incentive for defensive mergers. Merging companies can focus on integration and cost-cutting so much that they neglect day-to-day business, thereby prompting nervous customers to flee.

But remember, not all mergers fail. Size and global reach can be advantageous, and strong managers can often squeeze greater efficiency out of badly run rivals. The success of mergers depends on how realistic the deal makers are and how well they can integrate two companies while maintaining day-to-day operations.