Why are so many mergers happening?
Do you remember the Great Recession of 2008? What started in 2007 and ended in 2009 but its side-effects till 2013 did get it? Well, no one wants to remember that time, but unfortunately, just before the 2008 financial crisis in the US, there were a lot of big mergers and acquisitions happening in the US too. Interestingly, the March quarter also saw mergers and acquisitions of $30.3 billion – where deal activity grew some 5.6% in value and some 29.6% in volume.
Let's see, merger and acquisition funds – what are their advantages and disadvantages and some recent Indian mergers.
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Mergers and acquisitions can be best explained by the merger of Indian banks
The merger of India Banks happened like this –
- Dena Bank and Vijaya Bank merged with Bank of Baroda Corporation Bank and Andhra Bank with Union Bank of India
- Syndicate Bank with Canara Bank
- Oriental Bank of Commerce and United Bank of India with PNB and
- Allahabad Bank was merged with Indian Bank.
- Apart from this, all the associate banks were acquired by the State Bank of India.
And this way all the small banks got merged with the big size banks and many public sector banks got dissolved. The benefits of such a merger have been brought before us many times, but every customer is aware of its disadvantages.
Now you think that the ‘Bharatiya Mahila Bank, which had the power to provide loan, credit, and micro-finance facilities for women, will be able to get it from the State Bank of India after the merger? Just as small banks always prioritize the wealth and needs of the small investor, will it be able to maintain the same niche customer-oriented approach once it merges with a larger organization?
Often big companies and corporations become so big after the merger that the priorities change – then they start giving more importance to the blind development rather than the common man or common investors – which may not be the best option for small investors.
Speaking of banks, quite often even two large corporations have merged out of increasing competition, to compete with the bigger fish in the market, or to swim somehow in the midst of a decline – but not necessarily to be a hit.
For example, look at the merger of Vodafone and Idea – both companies have merged due to cutthroat competition after Jio came in, the only loss has happened, and even today VI is sinking.
In exchange for research, about 50% of the times mergers and acquisitions fail due to –
- Loss of focus on desired objectives
- The poor integration process
- high recovery costs, negotiation errors
- Failure to formulate a concrete plan with appropriate controls
- Overpaying, underestimating synergies
- The lack of establishment of necessary integration procedures can lead to the failure of any merger and acquisition deal
However, there are also very profitable and successful mergers in the Market – such as ExxonMobil (Exxon and Mobil), Maruti Suzuki, Google Android (Google and Android Inc.), Flipkart, and eBay India – that have shaken their markets. No wonder, everything goes well when done in moderation within corporate guidelines and compliance rules – be it a merger or an acquisition!
Finally, in the decision that led to the “March Quarter of $30.3 Billion Mergers”, it remains to be seen how many will float successfully and how many will sink the economy.