Doesn’t it give goosebumps to the market observers when there is the formation of some union between two superpowers in the same market? Recently, when Flipkart and Myntra merged, they, in turn, emerged to be more powerful and resourceful. So let us go through these fine concepts of clubbing or merging, which are the face turners of any business around the globe. It is a transaction based on the purchasing or clubbing with the mutual consent of a couple of firms. A vibrant example of a merger in India is that of Rajasthan Bank- ICICI Bank and Renault- Nissan. Essentially, there are three types in which the mergers can be classified upon, as follows

– Horizontal Merger

– Vertical Merger

– Conglomerate Merger

Horizontal Mergers:

Mergers happening between companies producing similar products, goods and services with the intent of

– widening the scope

– creating more effective economies of scale

– Reduce Competition

Vertical Mergers:

It is created between two companies producing different goods but one specified finished product

The best example of it is a car manufacturing company purchasing or making a deal with a tyre company

Conglomerate Mergers:

These type of mergers are basically of two different types:

– Pure Conglomerate: Wherein the companies have nothing in common

– Mixed Conglomerate: Wherein there is an extension of product or market as a whole

The best example of conglomerate merger is that of Pepsico- Pizza Hut.

Qualitative Reasons Leading To Any Merger

Service Enhancement on both the company fronts, which means that the merger happened with the goal of achieving that milestone, which could have been impossible for the firms to achieve, individually

Incrementing collective profit margin so that both the firms earn a bilateral and bigger margin of benefit thereby, leading to their overall development

Risk Division- As it is always very crucial while moving onto a new front on the business waves, it becomes highly supportive for both the firms as the risks are divided and they continue to have a strong backup

Mutual Advantage and combined thrust in the market.

Acquisitions

We all have heard about how Facebook purchased Whatsapp and Microsoft purchased Linkedin but there is a defined phenomenon which leads to this purchasing, commonly known as the acquisition. The acquisition is an act of acquiring effective control by one company over assets or management of an another firm directly or with formal consent.

Some of the examples of the same are:

– Godrej consumer care acquired keyline brands

– Dabur acquired Balsara

There are two types of Acquisitions:

– Friendly

– Hostile (HP taking over COMPAQ)

Quantitative Reasons Leading To Acquisition

Enhancement and extension of opportunities by the acquiring company

Intent of dominating the market

To open and flourish itself multidimensionally

Statistics Of Some Of India’s Largest M & A Deals

Tata Steel- Corus: $12.2 bn

Vodafone- Hutchison: $11.1bn

Hindalco- Novelis: $6.1 bn

Tata Motors- Jaguar Land Rover: $2.3 bn

RIL- RPL Merger: $1.68 bn

Interesting Examples of Recent M & A

Flipkart- Myntra deal: $300 mn deal estimated value (as per trak.in)

RIL- Network 18 media and investments: RIL took over 78% shares in Network 18 for 4000 crores INR

TCS- CMC: Merger to consolidate IT business under a single entity

Tirumala Milk- Lactalis: Group Lactalis SA acquired 18-year-old Hyderabad-based Tirumala milk products for $275 Mn in 2014

Yahoo- Bookpad: Yahoo acquired Bangalore-based startup bookpad for a little under $15 million and turned out to be the first ever acquisition by Yahoo

Acquisition of Cozilla by BuildTraders: Acquisitions are not limited to the world of big corporates, it also happens with startups, to acquire technology, human resources and business resources

Statistics Responsible For The Mergers

In August 2005, German Adidas-Salomon AG announced plans to acquire Reebok at an estimated value of € 3.1 billion ($3.78 billion)

At the time, Adidas had a market capitalization of about $8.4 billion and reported net income of $423 million a year earlier on sales of $8.1 billion

Both companies competed for No. 2 and No. 3 positions following Nike (NKE)

According to 2004 figures by the Sporting Goods Manufacturers Association International, Nike had about 36%, Adidas 8.9% and Reebok 12.2% market share in the athletic-footwear market in the U.S. Adidas was the No. 2 sporting goods manufacturer globally, but it struggled in the U.S. – the world’s biggest athletic-shoe market with half the $33 billion spent globally each year on athletic shoes

Clearly, the chances of competing against Nike were far better together than separately

For a successful merger, the challenge was to integrate Adidas’s German culture of control, engineering, and production and Reebok’s U.S. marketing- driven culture

On January 31, 2006, Adidas closed its acquisition of Reebok International Ltd. The combination provided the new Adidas Group with a footprint of around €9.5 billion ($11.8 billion) in the global athletic footwear, apparel and hardware markets

Adidas was of the view that by combining two of the most respected and well-known brands in the worldwide sporting goods industry, the new Group will benefit from a more competitive worldwide platform, well-defined and complementary brand identities, a wider range of products, and a stronger presence across teams, athletes, events and leagues

Conclusion

As Adidas and Reebok were in the domains, wherein, rather than surviving separately and competing, it was a better choice for both the giants to unite and give a tough competition to their rivals in the market and thereby, increasing and advancing the quality of the products, in turn, creating a more user friendly dimension, productwise. Hence, this merger had all the positive aspects to be formed and essentially, be a global leader, not just individually, but collectively. Owing to all the reasons and statistics mentioned above, this merger promised to have a successful trajectory.

Future Avenues of M & A In India

After the economic reforms that took place in 1991, there were huge challenges in front of Indian industries both nationally as well as internationally. The intense competition compelled the Indian companies to opt for M&A’s which later on became a vital option for them to expand horizontally and vertically. (Source: educba.com)

Domestic M&As (Geographical)

Indian corporate enterprises started refocusing in the lines of core competence, market share, global competitiveness and consolidation. . One of the major avenues of M&A is merger for the purpose of geographical expansion within India. There are a number of businesses which are leaders in their respective states. Such businesses can never become national unless they come under a common umbrella, and once they do, its a win-win for all. For example, one of the last mile companies associated with Idein Ventures is currently trying to expand its local footprint through acquisitions of local leaders in different geographies.

International M&As (Geographical)

Acquisitions that take place abroad permit Indian companies to gain access to developed markets across the globe. Investors such as Idein Ventures and several others help in such expansion because returns of such mergers can be huge.

Technology need driven M&A

Many times corporations require technologies to manufacture the particular product or a service which is not available in India. In such situations, by acquiring/collaborating companies abroad they get access to the technologies. Acquisitions that take place abroad permit Indian companies to gain access to developed markets across the globe.

Manufacturing need driven M&A Many times it is not profitable for companies to manufacture products themselves either due to cost constraints or requirement of huge investments. In such a scenario alliance with another company can give them the right to sell and diversify their product range.