Mergers and acquisitions
have gained importance in recent times. Businessconsolidation by large industrial houses, consolidation of business by multinationalsoperating in India, increasing competition amongst domestic companies and competitionagainst imports have all combined to spur
mergers and acquisitions activities in India.
Mergers and acquisitions take the form of
Substantial sale of equity
Sale of distressed assets by financial intermediaries
Schemes of arrangement by companies, etc.
The last 2 years have seen a spur in the number of merger deals and also the average sizeof the deal has been increasing year after year. To give a perspective, the month of August saw 41 deals worth $ 2.17 billion.The historical data shows that roughly two-third of the big mergers and acquisitions failas the value of stock declines in the stock market. The value may increase immediatelyafter the announcement of merger; it starts declining soon after the market comes torealize that the assumptions behind the merger were flawed.We will have a look at few of the live examples from the industry and look at the reasonsas to why do the mergers fail.
Importance of Valuation
A valuation of a target company or business in needed to decide the maximum price thata purchaser should be willing to pay for control. The seller responds to the offer that abidder makes, based on the bidder’s valuation. However, a seller also could make his