Mergers & Acquisitions – Meaning, Reasons & Market Trends

Mergers and acquisitions (M&A) are important tools for corporate restructuring and growth.

1. Meaning / Definition

(a) Merger

A merger is a combination of two or more companies into a single company, where one company survives and others lose their separate identity.

Example: Company A and Company B merge; A survives and B’s business is absorbed into A.

(b) Acquisition (Takeover)

An acquisition (or takeover) occurs when one company acquires controlling interest in another company, which may continue to exist as a separate legal entity.

2. Types of Mergers (Brief Overview)

1. Horizontal Merger – between firms in same line of business (e.g., two cement companies).
2. Vertical Merger – between firms at different stages of production (e.g., manufacturer and supplier/distributor).
3. Conglomerate Merger – between firms in unrelated businesses (diversification).

3. Reasons / Motives for M&A

1. Economies of Scale

   • Larger size reduces average cost in production, purchasing, marketing and finance.

2. Synergy (2 + 2 > 4)

   • Combined firm may be stronger than individual firms due to complementary strengths (technology + distribution network, etc.).

3. Market Power and Competition

   • Horizontal mergers may allow firms to increase market share and bargaining power.

4. Access to New Markets and Products

   • Acquisitions in new regions or segments help faster expansion than starting from scratch.

5. Tax and Financial Considerations

   • Merging with a loss‑making firm may provide tax shield; easier access to finance.

6. Managerial and Strategic Reasons

   • Desire to diversify risk, acquire patents/brands, or restructure group companies.

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4. Market Trends in India (Conceptual)

• Increase in domestic M&A in sectors like banking, telecom, steel, cement, FMCG.
• Growing cross‑border deals – Indian firms acquiring abroad and foreign firms acquiring in India.
• Bank consolidation driven by policy to create stronger, larger banks.

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5. Quick Revision Points

• Merger = combination into one firm; acquisition = one firm gaining control over another.
• Types: horizontal, vertical, conglomerate.
• Motives: economies of scale, synergy, market power, access to markets/technology, tax and strategic reasons.
• India has seen rising M&A activity in many sectors after liberalisation.

6. Quiz Time 🎯

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