Admin, AJMR Journal 2020-25-43

EFFECT OF MERGERS AND
ACQUISITIONS ON FINANCIAL PERFORMANCE OF FIRMS

ACROSS DIFFERENT SECTORS IN INDIA
* Dr. Bisma Afzal Shah ** Dr. Khursheed Ahmad Butt
Abstract :
Mergers and acquisitions are an integral and big part of corporate finance world. Mergers and
acquisitions play a vital role in corporate finance by enabling firms achieve varied objectives and
financial strategies. The objective of the study is to examine the impact of mergers and acquisitions on
the financial performance of the various companies that have undergone merger or an acquisition
across different sectors in India. The aim of the present study is to investigate whether there is any
significant difference in the performance of the firms pre-merger/acquisition and post-
merger/acquisition periods. Financial ratio analysis has been used to calculate change in the financial
position of the companies during the period 2004-2009 has been calculated. The data has been
collected from Centre for Monitoring Indian Economy. A paired sample t-test is adopted to check for
any statistically significant difference between the means pre and post the deals. Besides, a regression
analysis has been done to test the relationship between the dependent variable and the independent
variable.The results revealed that M&A’swere not able to create significant changes in financial
performancefor the individual firms. Majority of the changes in the financial ratios was found to be
positive but the change was not found to be statistically significant.
Keywords : Mergers and Acquisitions, Financial Performance, Financial Ratio Analysis
INTRODUCTION process by gaining at a macro level. This would

Wi t h g l o b a l i z a t i o n a n d t e c h n o l o g i c a l in turnraise the shareholders wealth. In order to
advancement, survival and sustaining of attain the vision of the organization and to
companies has become a big challenge. maintain sustainability, companies need to
Companies are forced to rework on its strategies restructure their strategies. Corporate
to survive in current market scenario. Routine restructuring has facilitated thousands of
activity in long term leads to a failure of the companies to re-establish their competitive
organization in no time. Hence, to survive in this advantage and respond more quickly and
highly competitive environment expanding at an effectively to new opportunities and unexpected
explorative pace, it is necessary to diversify and challenges. Under different dynamic situations,
explore the underutilized markets where by it a profitable growth of business can be achieved
would facilitate in enhancing its developmental successfully, if as a proper strategic tool is
I Author : II Author :
Dr. Bisma Afzal Shah Dr. Khursheed Ahmad Butt
Assistant Professor Professor, Dept of Commerce
Management Studies University of Kashmir
Central University of Kashmir
Adarsh Journal of Management Research (ISSN 0974-7028) - Vol. : 12 Issue : 1 Sep 2018 - Sep 2020 20
adopted. A corporate may grow either by way acquisitions. In fact, since the past two
organically or inorganic mode expansion decades,there has emerged a phenomenon
strategy. Historically seen, companies achieve called merger wave. Indian enterprises were
growth and expansion through Merger & subjected to strict control regime before 1990’s.
Acquisitions. Since last twenty years, This led to haphazard growth of Indian
globalization and privatization have resulted corporate enterprises during that period. In
into powerful competition not solely in Indian Indian industry, mergers and acquisitions
business but globally as well. In the modern activity picked up in response to various
global economy, mergers and acquisitions are economic reforms introduced by the
being increasingly used world all over for Government of India since 1991, in its move
improving competitiveness of companies towards liberalization and globalization.The
through gaining greater market share, cut-throat competition in international market
broadening the portfolio to reduce business compelled the Indian firms to opt for mergers
risk, for entering new markets and geographies, and acquisitions strategies, making it a vital
attaining tax benefits, capitalizing on premeditated option.
economies of scale etc. The reason behind any Mergers and acquisitions decisions are critical
corporate merger or acquisition is that two to the success of corporations and their
companies are better than one because they managers. The growing tendency towards
increase shareholder value over and above that mergers and acquisitions world-wide, has been
of the two separate firms. Financially strong driven by intensifying competition. There is a
companies comes forward to acquire other need to reach global size, to reduce costs, take
companies to create a more competitive, cost advantage of economies of scale, increase
efficient company, to capture a great market investment in R&D for strategic gains, expand
share globally. The desire to sell parts of a business into new areas and improve
company may come from poor performance of shareholder value which is the ultimate goal of
a division, or a change in the strategic every organisation. Investors need to consider
orientation of the company. Because of these the complex issues involved in such deals and
reasons, target companies will often agree to be as such, a proper cost-benefit analysis is
acquired, knowingly unable to compete and required for the success of such deals.
survive alone in the cutthroat competitive
market. LITERATURE REVIEW
Mergers and acquisitions are one of the most There have been numerous studies on mergers
effective and efficient way to survive and grow. and acquisitions in India as well as abroad. An
India has emerged as one of the top countries extensive review of literature has been carried
with respect to merger and acquisition (M&A) out in order to enhance the level
deals. Indian corporate firms have been ofunderstanding in the area of mergers and
actively involved in merger and acquisition acquisitions and gain insight into the impact of
deals, domestically as well as internationally. mergers and acquisitions on financial
Today mergers, acquisitions and other types of performance of firms across different sectors.
strategic alliances are on the agenda of most Kithinji (2007) analysed the effects of mergers
industrial groups intending to have an edge on financial performance of non-listed banks in
over their competitors. Different companies in Kenya by focusing on the profitability of banks
India are expanding through mergers and that merged between 1994 and 2001. The
results revealed significant improvements in The study showed that there were significant
performance of non-listed companies that had improvements in total revenue, profit margin,
not merged within the same period. Despite and return on assets following mergers and
findings in previous researches on mergers, acquisitions but there was no evidence of any
there is conflicting evidence on the financial significant impact on asset turnover ratio. They
implication of mergers in the banking industry results also found evidence of significant
in Kenya. market anticipation and over reaction to the
Yusuf (2016), in his study evaluated the post- mergers and acquisitions announcements.
merger financial health of Jordanian industrial Selvam et al.,(2009), conducted a study on the
sectors where in seven firms were selected as impact of mergers on the corporate
sample size for study involved in financial performance of acquirer and target companies
restructuring deal from period 2000 and 2014. in India. A sample of companies which
Financial ratios and parametric t test was used underwent merger in the same industry during
to assess the significance of pre-post financial the period of 2002-2005 listed on the Bombay
performance of selected firms. The study Stock Exchange were studied. The study
concluded that there was insignificant compared the liquidity performance of the
improvement seen in the post-merger period. thirteen sample acquirer and target companies
Liquidity, profitability and market share before and after the period of mergers by using
showed no improvement in the selected ratio analysis and t-test. It was found that the
manufacturing firms after merger deals. shareholders of the acquirer companies
Moctar & Chen (2014), examined the impact of increased their liquidity performance after the
merger and acquisitions on financial merger event.
performance of commercials banks in West Ullah et al., (2010), evaluated whether merger
Africa. Two groups of banks that experienced delivers value, taking the case of Glaxo
mergers and acquisitions in economic Smith/cline Merger. They analysed the pre and
community of West African states were post-merger performance of the firm by
selected as sample. Secondary data was applying the net present value approach of
collected through annual financial statement valuation. The study revealed that mega
reviews of selected banks. To analyse the data, pharmaceutical merger failed to deliver value.
financial ratios viz liquid ratio, return on equity The stock prices underperformed both in
(ROE) and return on investment (ROI) were absolute and relative terms against the index.
used to analyse the performance. The study The merger resulted into substantial research
revealed negative impact of mergers and and development reduction and downsizing
acquisitions on the financial performance. instead of a potential employment haven.
Jin et al., (2004), analysed the impact mergers Ismail et al.,(2010), conducted a study to
and acquisitions had on the operational aspects explore improvements in the corporate
of the publicly traded firms in China. The study performance of firms involved in merger and
used changes in revenue, profit margin, return acquisition deals, using a sample of Egyptian
on assets and the total asset turnover ratio companies in the period from 1996 to 2005 in
before and after the mergers and acquisitions as the construction and technology sector. The
proxies for firm performance and conducted results showed that merger and acquisition
tests to determine whether mergers and deals in the construction sector has contributed
acquisitions resulted in significant changes. in improving the profitability of firms while in
the technology sector, no improvements were to the performance of merging companies.
discovered. For both the sectors, M & A’s They studied the deals that occurred between
failed to improve efficiency, liquidity, solvency 1980 and 2002 and determined the factors that
and cash flow positions. might have affected post-merger and
Martynova, Oosting and Renneboog (2006), acquisition performance as: method of
analysed the long term operating performance payment, acquisition timing and transaction
of European acquisitions that have undergone size. The findings revealed that the firms
mergers and acquisitions during 1997–2001 experienced insignificant improvements in
and found that the profitability of the combined performance and the method of payment,
firm decreased significantly following the acquisition time, or target status, related
deals. Mode of payment, geographical scope diversifications, unrelated diversifications had
and industry relatedness did not have no impact on post-merger or acquisition
significant explanatory power on profitability. performance. Unlike the majority of studies
Companies with excessive cash holdings are that supported the method of payment as a
negatively related to performance while primary factor influencing mergers and
acquisitions of relatively larger targets result in acquisitions, Choi and Russell (2004) found no
better profitability of the combined firm evidence to support such results.
subsequent to the acquisition. OBJECTIVES OF THE STUDY
Liargovas and Repousis (2011), examined the The present study has been carried out with an
impact of mergers and acquisitions on the aim to access the impact of mergers and
operating performance of Greek banking sector acquisitions on the financial performance of
during 1996–2009 and found that bank mergers firms across different industries in India.
and acquisitions did not create value and RESEARCH METHODOLOGY
operating performance did not improve
following mergers and acquisitions. The present study is based on secondary data.
The annual reports of the companies has been
Markides and Oyon (1988), compared a sample collected from CMIE database. Besides, money
of 236 acquisitions by US firms of 189 control, sify finance and BSE & NSE
European and 47 Canadian acquisitions. The publications databases have also been used to
findings revealed positive announcement collect the required data. A total number of 50
effects for acquisitions of continental European sample companies that have undergone merger
targets but not for British or Canadian target or an acquisition from the period 2004-2009
firms. have been studied.
Shahrur (2005), examined the returns that Financial ratio analysis has been used to
occurred around the announcement of 463 calculate key financial ratios before and after
horizontal mergers and tender offers over the the merger or acquisition over an eight year
period 1987-1999. He found positive combined period, four years before the merger or
bidder and target returns and interpreted these acquisition and four years post-merger or
findings to imply that market perceived these acquisition. Gross Profit Margin Ratio (%), Net
deals as efficiency enhancing. Profit Margin Ratio (%), Return on Assets
Choi and Russell (2004), studied whether Ratio (%) and Return on Equity Ratio (%) are
mergers and acquisitions in the construction the ratios used for measuring financial
sector in U.S. made any positive contributions performance.
A “paired sample t-test” at 5% level of significance has been used to test for any statistical
difference between the means before and after the merger/acquisition. Besides, a cross-sectional
regression analysis has also been conducted to test the relationship between the dependent variable
and the independent variable.
This model takes the form:
AIAVPOST = a + b. AIAVPRE + e
AIAV denotes the aggregate industry-adjusted values of the variables and the subscripts POST and
PRE refer to the period after and before the deal. Alpha (α )is the intercept parameter, β, the slope
parameter and ε denotes the error term. This equation depicts the aggregate post-merger/acquisition
performance of the merging/acquiring firms using data pertaining to the aggregate pre-
merger/acquisition performance by interpreting slope (β). But here, the researcher is interested in
knowing the impact of an event i.e. merger or acquisition on post-merger/acquisition performance,
so regression equation has been interpreted on the basis of value of alpha. Alpha (α)denotes the
increase or decrease in post-merger/acquisition performance irrespective of the fact how the firm
was performing before merger or acquisition. A positive alpha (α ) implies positive impact whereas
a negative alpha means negative impact, reflecting a decline in post event performance.
SAMPLING
A total of 1,368 mergers and acquisitions have taken place during the reference period of 2004-09.
Due to time constraints and unavailability of financial data for a large number of companies, only
50 sample companies were analysed for the current study. Convenience sampling method was used
to arrive at the final sample. The sample companies were selected across different industries viz:
Banking, Computer Software, Cement, Drugs and Pharmaceuticals, Chemicals and Fertilizers,
Textiles, Infrastructure, FMCG and Others. “Others” included the firms belonging to the industries
like metal industry, paper industry, chemical industry beverage industry, and trading industry. Firms
belonging to the above industries were clubbed together under the name “others”, as fewer number
of mergers and acquisitions have taken place in these industries. The list of the industries along with
the merging/acquiring firms and merged/acquired firms is given in table below:
List of Merging/Acquiring and Merged/Target Firms Undertaken for the Study
S.No Industry Merging/Acquiring Firm Merged/Target Firm Year
1. Axis Bank Ltd. Shriram Investments Ltd. 2004

Centurion Bank of Punjab
2. HDFC Bank Ltd. 2006
Ltd.
3. Banking ICICI Bank Ltd. CMC Ltd. 2007
4. IDBI Bank Ltd. Gajra Bevel Gears Ltd. 2005
5. Oriental Bank of Commerce Global Trust Bank Ltd. 2004
6. ACC Ltd. Shiva Cement Ltd. 2007

Ambuja Cement Eastern
7. Cement Ambuja Cements Ltd. 2006
Ltd.
8. Keerthi Industries Ltd. Hyderabad Flextech Ltd. 2008
Chambal Fertilizers & India Steamship Company
9. 2004
Chemicals Ltd. Ltd.
10. Coromandel International Ltd. Ficom Organics Ltd. 2006
11. Grauer Weil (India) Ltd. Bombay Paints Ltd. 2006

Chemicals &
Fertilizers Ltd. Gujarat Narmada Valley Narmada Chematur
12. 2005
Fertilizers & Chemicals Ltd. Petrochemicals Ltd.
Gulshan Sugars &
13. Gulshan Polyols Ltd. 2007
Chemicals Ltd.
Southern Petrochemical
14. SPEL Semiconductor Ltd. 2004
Industries Corporation Ltd.
Orient Information
15. Commex Technology Ltd. 2007
Technology Ltd.
Relgare Technova Global
16. Dion Global Solutions Ltd. 2009
Solutions Ltd.
Computer
17. Software Glodyne Technoserve Ltd. Compulink Systems Ltd. 2009
Visualsoft Technologies
18. Megasoft Ltd. 2006
Ltd.
19. Mindtree Ltd. Aztechsoft ltd. 2008
20. Arch Pharmalabs Ltd. Avon Organics Ltd. 2007
21. Emami Ltd. Zandu Realty Ltd. 2008

Pharmaceuticals
22. IPCA Lab. Ltd. Tonira Pharma Ltd. 2007
23. Pfizer Ltd. Pharmacia Healthcare Ltd. 2004

Dalmia Bharat Sugar &
24. OCL India Ltd. 2009
Industries Ltd.
25. Golden Tobacco Ltd. GHCL Ltd. 2005
26. FMCG Hindustan Unilever Ltd. Vashiti Detergents Ltd. 2005
27. Mirc Electronics Ltd. Onida Savak Ltd. 2005
28. Videocon Industries Ltd. EKL Appliances Ltd. 2005
29. IVRCL Ltd. Hindustan Dorr-Oliver Ltd. 2005
30. Infrastructure Larsen & Tourbo Ltd. Data Switchgear Ltd. 2005
31. Peninsula Land Ltd. Piramal Holdings Ltd. 2004
32. Banswara Syntex Ltd. Banswara Textile Mills Ltd. 2004
33. GTN Industries Ltd. Patspin India Ltd. 2006

Nahar Industrial Enterprises
34. Nahar Polyfilms Ltd. 2006
Ltd.
35. Textiles RSWM Ltd. Cheslind Textiles Ltd. 2006
Shree Rajasthan Texchem
36. Shree Rajasthan Syntex Ltd. 2006
Ltd.
37. Spentex Industries Ltd. CLC Global Ltd. 2004
Glofame Cotspin Industries
38. Welpsun India Ltd. 2004
Ltd.
39. DCM Shriram Industries Ltd. Daurala Organics Ltd. 2004
40. Forbes Company Ltd. FAL Industries Ltd. 2005

Malabar Building Products
41. HIL Ltd. 2005
Ltd.
Indian Aluminium Company
42. Hindalco Industries Ltd. 2007
Ltd.
Indian Seamless Metal
43. ISMT Ltd. 2005
Tubes Ltd.
44. Supreme Petrochemical Ltd. SPL Polymers Ltd. 2007
Others
45. United Spirits Ltd. Balaji Distilleries Ltd. 2008
46. VIP Industries Ltd. Aristocrat Luggage Ltd. 2005
47. Pittsburgh Iron & Steel Ltd. Bellary Steels & Alloys Ltd. 2005
48. JL Morison (India) Ltd. Hindustan Composites Ltd. 2006

Seshasayee Paper & Boards
49. Ponni Sugars Ltd. 2008
Ltd.
50. West Coat Paper Mills Ltd. Shree Rama Newsprint Ltd. 2009
Source: CMIE firms has recorded an improvement. Somewhat

RESULTS AND DISCUSSIONS similar results are witnessed with respect to
NPM ratio which has shown an increase with
In the present study, an effort has been made to respect to 32 firms out of a sample of 50 firms.
assess the impact of mergers & acquisitions on The remaining firms viz. 21 (42 percent) and
the financial performance of individual sample 18 (36 percent) have witnessed a decline in
firms. Operating performance generally gets GPM ratio & NPM ratio respectively post
reflected in the financial performance keeping M&A, thus indicative of mixed results about
all the other things constant. The financial the impact of M&A’s on the profitability
performance is generally measured using expressed in relation to sales.
profitability ratios expressed in relation to sales
and investments. It is in view of this fact, the Mean differences of industry-adjusted pre and
impact of M&A’s on financial performance is post GPM ratio and NPM ratio is important.
assessed with the help of GPM, NPM, ROA What is more important is the statistical
and ROE. GPM and NPM measures significance of mean differences. Paired
profitability in relation to sales and the other sample t-test has been used to assess whether
two ratios viz. ROA and ROE assesses the mean differences are statistically
profitability in relation to investments in assets significant, the results of which have been
and equity. The values of financial ratios used shown in the below referred table. It can be
to analyse the impact on financial performance seen from the table that based on the GPM
of firms have been detailed out in tables I, II, ratio, out of 29 sample firms which recorded an
III and IV. improvement, the mean difference with respect
to 12 (41.37 percent) firms viz HDFC Bank
Perusal of ratios detailed out in table I and II Ltd., Chambal Fertilizers & Chemicals Ltd.,
reveals that the GPM ratio with respect to 29 Pfizer Ltd., Mirc Electronics Ltd., Videocon
Industries Ltd., Larsen & Tourbo Ltd., Welpsun have impacted industry-adjusted ROA in both
India Ltd., DCM Shriram Industries Ltd., ways i.e. positively and negatively. But the
Forbes Company Ltd., HIL Ltd., ISMT Ltd. positive impact in majority of the cases is
and VIP Industries Ltd. is found statistically found statistically insignificant. Similarly,
significant at 5 percent level of significance. negative impact was also found to be
Similarly on the basis of NPM ratio, the mean statistically insignificant for majority of the
difference is found statistically significant at 5 firms. All the sample firms in the banking
percent level of significance with respect to 10 industry, 5 out of 6 sample firms in chemical
(31.5 percent) sample firms, who have and fertilizer industry and 4 out of 5 firms in
recorded improvement in the ratio. With FMCG industry witnessed positive impact on
respect to the firms which have recorded industry-adjusted mean ROA, however, the
negative performance, 5 and 3 firms based on positive impact with respect to 3 sample firms
GPM and NPM ratio respectively has been only is found statistically significant. The
found statistically significant. This in other performance of only 1 firm namely Southern
words means that though good number of Petrochemical Industries Ltd. is found to have
sample M&A’s have witnessed decline in deteriorated and is statistically significant at 5
profitability but the decline in majority of the percent level of significance. Compared to the
cases is not found statistically significant. firms of these industries, majority of sample
Impact on financial performance also has been firms belonging to computer software industry
analysed using profitability expressed in have witnessed negative impact on industry-
relation to investment and assets by employing adjusted mean ROA, and the impact is found to
ROA and ROE ratios (table III and table IV). be statistically insignificant at 5 percent level
ROA depicts the return earned on the total of significance for all the firms. The firms
capital employed in different assets of a firm. belonging to other industry groups have
Whereas, ROE reveals the net return earned on witnessed mixed results with respect to the
the equity capital. Perusal of the data contained impact of merger or acquisition on industry-
in the below referred table brings to fore that adjusted ROA.
the industry-adjusted ROA has increased with Perusing the data about the ROE contained in
respect to 29 sample firms, which means 21 table IV has revealed that the industry- adjusted
firms have witnessed a decline in ROA out of mean ROE has increased in case of 29 sample
the total sample of 50 firms. With respect to firms out of the total sample of 50 firms
the firms whose ROA has increased post M&A, whereas, the industry-adjusted mean ROE has
the difference in industry-adjusted mean ROA declined post-merger or acquisition in case of
is found statistically significant at 5 percent 21 firms, accounting for 42 percent of the total
level of significance in case of 6 companies. In sample. From the paired t-test, the data of
case of the sample firms which have witnessed which is contained in the below referred table,
decline in industry-adjusted mean ROA after it becomes clear that in case of 29 sample
merger or acquisition, the difference in mean firms, whose ROE has increased post-merger
returns has been found statistically significant or acquisition, the industry-adjusted mean
at 5 percent level of significance in case of 3 difference in ROE is found statistically
sample firms only out of total 21 firms. significant only in case of 8 firms at 5 percent
The overall picture that emerges from the level of significance. This implies that though,
above is that the M&A’s has been found to it seems that merger or acquisition has
positively impacted ROE, yet in majority of the cases, the impact on ROE is not found statistically
significant. With respect to the companies which have witnessed negative impact on industry-
adjusted mean ROE, the difference in industry- adjusted mean ROE is not found statistically
significant in majority of the sample firms at 5 percent level of significance. It can be seen from the
below referred table that the negative performance in case of 2 firms only out of 21 firms is found
statistically significant, implying thereby, that though out of a sample of 50 firms, 21 firms have
revealed a decline industry-adjusted mean ROE, yet in majority of the case, the negative impact is
not found statistically significant.
Table I-Pre & Post Industry-Adjusted Mean GPM of the Sample Firms
Post Pre Change in Impact on T-Test
Firm
M&A M&A Performance Performance (P-Value)
AXIS Bank Ltd. 2.92 5.22 -2.31 Deteriorated 0.39
HDFC Bank Ltd. 13.88 -3.69 17.57 Improved 0.00*
ICICI Bank Ltd. -6.22 -5.27 -0.94 Deteriorated 0.82
IDBI Bank Ltd. -13.05 -13.20 0.15 Improved 0.40
Oriental Bank ofCommerce 0.36 -2.75 3.11 Improved 0.59
ACC Ltd. 30.22 6.39 23.82 Improved 0.48
Ambuja Cements Ltd. 4.53 8.95 -4.43 Deteriorated 0.21
Keerthi Industries Ltd. -7.23 -24.38 17.15 Improved 0.08

Chambal Fertilizers & Chemicals
0.50 -6.64 7.14 Improved 0.04*
Ltd.
Coromandel International Ltd. -7.69 -3.82 -3.87 Deteriorated 0.05*
Grauer Weil (India) Ltd. 6.44 7.68 -1.24 Deteriorated 0.16

Gujarat Narmada Valley
4.65 8.42 -3.78 Deteriorated 0.23
Fertilizers & Chemicals Ltd.
Gulshan Polyols Ltd. 7.22 11.26 -4.04 Deteriorated 0.40
Southern Petrochemical Industries
-11.47 -2.24 -9.23 Deteriorated 0.02*
Corporation Ltd.
Commex Technology Ltd. -9.20 -39.64 30.44 Improved 0.12
Dion Global Solutions Ltd. 27.67 45.85 -18.18 Deteriorated 0.18
Glodyne Technoserve Ltd. 2.47 8.85 -6.38 Deteriorated 0.29
Megasoft Ltd. 25.74 17.37 8.37 Improved 0.48
Mindtree Ltd. -10.70 -5.23 -5.47 Deteriorated 0.11
ARCH Pharmalabs Ltd. -7.31 -6.61 -0.70 Deteriorated 0.83
EMAMI Ltd. 13.82 5.89 7.93 Improved 0.24
IPCA Lab. Ltd. 4.54 4.14 0.40 Improved 0.49
Pfizer ltd 15.32 5.95 9.37 Improved 0.00*

Dalmia Bharat Sugar
-14.09 2.32 -16.40 Deteriorated 0.21
&IndustriesLtd
Golden Tobacco ltd 30.45 19.18 11.26 Improved 0.38
Hindustan Unilever Ltd 4.23 -4.13 8.36 Improved 0.35
Mirc Electronics Ltd -13.18 -22.96 9.79 Improved 0.03*
Videocon Industries Ltd -1.66 -25.50 23.85 Improved 0.01*
IVRCL Ltd -6.52 -10.07 3.56 Improved 0.29
Larsen & Tourbo Ltd 1.52 -32.80 34.32 Improved 0.05*
Peninsula Land Ltd. 28.02 31.87 -3.86 Deteriorated 0.83
Banswara Syntex Ltd. 9.85 23.70 -13.85 Deteriorated 0.01*
GTN Industries Ltd. 0.45 5.83 -5.38 Deteriorated 0.12
Nahar Industrial Enterprises Ltd 2.71 1.93 0.79 Improved 0.78
RSWM Ltd 5.30 4.73 0.57 Improved 0.76
Shree Rajasthan Syntex Ltd -0.43 0.26 -0.69 Deteriorated 0.81
Spentex Industries Ltd -1.21 -1.10 -0.11 Deteriorated 0.97
Welpsun India Ltd 16.20 6.40 9.80 Improved 0.01*
DCM Shriram Industries Ltd 11.14 2.36 8.78 Improved 0.04*
Forbes Company Ltd -0.38 -11.81 11.43 Improved 0.01*
HIL Ltd 12.13 -1.16 13.29 Improved 0.00*
Hindalco Industries Ltd 3.16 -0.33 3.49 Improved 0.16
Note: (*) Statistically significant at 5% level of Significance

Source: CMIE
Table II - Pre & Post Industry-Adjusted Mean NPM of the Sample Firms
Firm
Axis Bank Ltd. 4.83 -1.61 6.44 Improved 0.00*
HDFC Bank Ltd. 5.53 -4.88 10.41 Improved 0.04*
ICICI Bank Ltd. 2.44 1.45 0.99 Improved 0.51
Oriental Bank ofCommerce 2.85 -11.90 14.75 Improved 0.05*
ACC Ltd. 1.34 1.12 0.22 Improved 0.95
Ambuja Cements Ltd. 6.42 6.20 0.22 Improved 0.92
Keerthi Industries Ltd. -8.32 24.27 -32.59 Deteriorated 0.60

2.16 -2.94 5.10 Improved 0.09
Ltd.
Coromandel International Ltd. 0.60 -3.78 4.38 Improved 0.01*
Grauer Weil (India) Ltd. 0.82 -6.11 6.93 Improved 0.12

5.41 0.74 4.67 Improved 0.02*
Gulshan Polyols Ltd. 2.86 -1.33 4.19 Improved 0.06
Southern PetrochemicalIndustries
-26.60 -13.43 -13.17 Deteriorated 0.08
Corporation Ltd.
Commex Technology Ltd. -99.28 -84.47 -14.81 Deteriorated 0.90
Dion Global Solutions Ltd. -34.36 -23.28 -11.08 Deteriorated 0.71
Glodyne Technoserve Ltd. 0.05 -1.15 1.20 Improved 0.93
Megasoft Ltd. 7.87 3.45 4.42 Improved 0.44
Mindtree Ltd. 3.17 6.17 -3.01 Deteriorated 0.28
Arch Pharmalabs Ltd. -5.15 -0.73 -4.42 Deteriorated 0.01*
Emami Ltd. -1.22 4.80 -6.03 Deteriorated 0.04*
IPCA Lab. Ltd. 0.66 2.59 -1.93 Deteriorated 0.45
Pfizer Ltd. 7.30 -2.63 9.93 Improved 0.36

Dalmia Bharat Sugar &Industries
-4.02 6.30 -10.32 Deteriorated 0.14
Ltd.
Golden Tobacco Ltd. 0.23 -8.81 9.04 Improved 0.10
Hindustan Unilever Ltd. 6.43 0.82 5.61 Improved 0.03*
MIRC Electronics Ltd. -4.27 -7.38 3.11 Improved 0.50
Videocon Industries Ltd. 2.48 -23.30 25.78 Improved 0.03*
IVRCL Ltd. -1.60 1.37 -2.97 Deteriorated 0.02*
Larsen & Tourbo Ltd. 1.09 -215.81 216.90 Improved 0.00*
Peninsula Land Ltd. 22.35 -7.29 29.64 Improved 0.14
Banswara Syntex Ltd. 1.39 4.80 -3.41 Deteriorated 0.35
GTN Industries Ltd. -3.77 1.68 -5.45 Deteriorated 0.13
Nahar Industrial Enterprises Ltd. 1.62 -0.71 2.33 Improved 0.50
RSWM Ltd. -0.17 1.11 -1.28 Deteriorated 0.59
Shree Rajasthan Syntex Ltd. -1.20 -0.10 -1.10 Deteriorated 0.42
Spentex Industries Ltd. -0.33 -6.54 6.21 Improved 0.00*
Welpsun India Ltd. 4.50 -7.08 11.58 Improved 0.14
DCM Shriram Industries Ltd. -3.21 -1.91 -1.30 Deteriorated 0.19
Forbes Company Ltd. -9.17 -4.00 -5.17 Deteriorated 0.48
HIL Ltd. 0.20 -1.12 1.32 Improved 0.55
Hindalco Industries Ltd. 5.78 4.00 1.78 Improved 0.08
ISMT Ltd. 2.84 -7.13 9.97 Improved 0.02*
Supreme Petrochem ical Ltd. -2.31 -5.30 3.00 Improved 0.10
United Spirits Ltd. -3.97 -5.75 1.78 Improved 0.30
VIP Industries Ltd. -2.19 -3.40 1.21 Improved 0.22
Pittsburgh Iron & Steel Ltd . -44.45 -103.31 -452.36 Improved 0.33

Source: CMIE
Table III - Pre & Post Industry-Adjusted Mean ROA of the Sample Firms

Firm
Axis Bank Ltd. 0.32 0.06 0.26 Improved 0.00*
HDFC Bank Ltd. 0.68 -0.57 1.25 Improved 0.08
ICICI Bank Ltd. 0.26 0.10 0.17 Improved 0.53
ACC Ltd. 2.09 2.24 -0.15 Deteriorated 0.97
Ambuja Cements Ltd. 8.76 5.85 2.91 Improved 0.57
Keerthi Industries Ltd. -9.21 6.60 -15.81 Deteriorated 0.36

Chambal Fertilizers &
-0.62 -4.48 3.86 Improved 0.08
Chemicals Ltd.
Coromandel International Ltd. 2.75 -2.09 4.84 Improved 0.08
Grauer Weil (India) Ltd. -1.65 -5.96 4.31 Improved 0.38

2.89 -0.47 3.36 Improved 0.11
Gulshan Polyols Ltd. 3.10 -0.21 3.31 Improved 0.17
Southern Petrochemical
-19.10 -8.77 -10.33 Deteriorated 0.03*
Industries Corporation Ltd.
Commex Technology Ltd. -38.39 -16.04 -22.35 Deteriorated 0.31
Dion Global Solutions Ltd. -12.99 3.39 -16.38 Deteriorated 0.29
Megasoft Ltd. -1.64 -0.89 -0.75 Deteriorated 0.83
Arch Pharmalabs Ltd. -5.34 -4.66 -0.68 Deteriorated 0.75
Emami Ltd. 1.26 11.80 -10.54 Deteriorated 0.02*
IPCA Lab. Ltd. 2.68 -1.37 4.04 Improved 0.29
Dalmia Bharat Sugar
-4.18 1.60 -5.77 Deteriorated 0.14
&Industries Ltd.
MIRC Electronics Ltd. -0.98 -3.01 2.03 Improved 0.45
Videocon Industries Ltd. 1.08 -18.78 19.86 Improved 0.02*
Larsen & Tourbo Ltd. 1.34 -13.62 14.96 Improved 0.00*
Peninsula Land Ltd. 6.38 -9.45 15.83 Improved 0.13
Banswara Syntex Ltd. 1.39 21.34 -19.95 Deteriorated 0.29

Nahar Industrial Enterprises
0.45 -0.79 1.24 Improved 0.65
Ltd.
Shree Rajasthan Syntex Ltd. -1.36 0.05 -1.41 Deteriorated 0.39
Spentex Industries Ltd. 1.20 -4.42 5.62 Improved 0.06
DCM Shriram Industries Ltd. -2.39 -2.41 0.03 Improved 0.99
HIL Ltd. 3.14 -0.94 4.08 Improved 0.24
Hindalco Industries Ltd. 1.59 0.87 0.72 Improved 0.47
Supreme Petrochem ical Ltd. 1.32 -4.46 5.78 Improved 0.01*
VIP Industries Ltd. -1.00 -4.70 3.70 Improved 0.06

Source: CMIE
Table IV- Pre & Post Industry-Adjusted Mean ROE of the Sample Firms
Firm
Axis Bank Ltd. 6.79 -1.97 8.76 Improved 0.02*
HDFC Bank Ltd. 4.76 -43.01 47.77 Improved 0.25
ICICI Bank Ltd. -1.88 4.61 -6.49 Deteriorated 0.26
IDBI Bank Ltd. -1.48 -5.34 3.86 Improved 0.02*
ACC Ltd. 8.20 5.91 2.29 Improved 0.80
Ambuja Cements Ltd. 13.30 19.04 -5.74 Deteriorated 0.59
Keerthi Industries Ltd. -4.82 -15.18 10.37 Improved 0.95

2.43 -17.15 19.58 Improved 0.01*
Ltd.
Coromandel International Ltd. 16.57 -9.82 26.39 Improved 0.03*
Grauer Weil (India) Ltd. -5.00 -16.00 11.00 Improved 0.11

2.47 -3.28 5.75 Improved 0.17
Gulshan Polyols Ltd. 3.47 7.02 -3.56 Deteriorated 0.67
Southern PetrochemicalIndustries
-115.64 -79.46 -36.18 Deteriorated 0.69
Corporation Ltd.
Commex Technology Ltd. -18.22 -18.66 0.45 Improved 0.89
Dion Global Solutions Ltd. -46.67 -80.22 33.55 Improved 0.25
Megasoft Ltd. -7.53 -4.50 -3.03 Deteriorated 0.55
Arch Pharmalabs Ltd. -6.59 8.40 -14.99 Deteriorated 0.35
Emami Ltd. 1.58 16.63 -15.05 Deteriorated 0.04*
IPCA Lab. Ltd. 4.73 -6.39 11.12 Improved 0.15

Dalmia Bharat Sugar &Industries
-11.30 10.95 -22.25 Deteriorated 0.12
Ltd.
MIRC Electronics Ltd. -3.00 16.70 -19.70 Deteriorated 0.79
Videocon Industries Ltd. -0.27 -93.72 93.45 Improved 0.08
Larsen & Tourbo Ltd. 7.19 -44.00 51.19 Improved 0.10
Peninsula Land Ltd. -133.87 -62.65 -71.22 Deteriorated 0.68
Banswara Syntex Ltd. 8.00 -21.97 29.97 Improved 0.51
Nahar Industrial Enterprises Ltd. -0.54 -4.44 3.90 Improved 0.58
Shree Rajasthan Syntex Ltd. -6.97 -1.50 -5.47 Deteriorated 0.47
Spentex Industries Ltd. 2.17 -98.41 100.58 Improved 0.25
DCM Shriram Industries Ltd. -1.00 -0.45 -0.55 Deteriorated 0.93
HIL Ltd. 8.45 -6.87 15.32 Improved 0.16
Hindalco Industries Ltd. -1.54 -1.82 0.28 Improved 0.90
Supreme Petrochem ical Ltd. 8.19 -9.45 17.64 Improved 0.03*
VIP Industries Ltd. 1.99 -12.66 14.65 Improved 0.27
Pittsburgh Iron & Steel Ltd. -51.24 -73.61 22.37 Improved 0.02*

Source: CMIE
REGRESSION ANALYSIS
The paired sample t-test has been used to analyse the statistical significance of the difference
between pre and post-merger or acquisition performance. A cross-sectional regression analysis has
also been used as a confirmatory tool for the findings based on paired sample t-test. The cross-
sectional regression is used to determine whether post- merger or acquisition performance of
sample firms improves irrespective of the possible impact of the performances of pre-merger or
acquisition period. The results of cross-sectional regression model has been illustrated in table given
below. The intercept or alpha (α) shown in column 2 reflects the change in controlled annual
industry-adjusted performance due to merger/acquisition and is independent of the pre-
merger/acquisition performance as its value is obtained when the value of pre-merger industry-
adjusted performance is zero. The beta reflects the slope i.e. the correlation between the
performance measures in the pre and post M&A years. In other words, it depicts how much each
unit change in a given measure before merger or acquisition changes its value post-
merger/acquisition. Further an R2 shows to what extent variation in dependent variable is explained
by the independent variable.
The impact of M&A’s on the financial performance of sample firms has been assessed. Perusal of
the results of the ratios used for measuring financial performance has revealed that with respect to
GPM and ROE, the aggregate intercept is positive with 2.771 for GPM and 0.305 for ROE. This is
indicative of the fact that the sample mergers/acquisitions have positive impact on the post M&A
financial performance of sample firms reflected by these two measures. The beta of GPM ratio is
0.519 with R2 of 0.270 implying average correlation between pre and post M&A aggregate GPM
and only 27 percent variation in the dependent variable is explained by the independent variable.
The beta and R2 for ROE is low as compared to GPM ratio which is evident from the difference in
statistical significance of the two measures.
Compared to GPM & ROE ratios, the impact of M&A on financial performance revealed by the
aggregate NPM and ROA ratios is found negative as the intercept (α) of these two ratios is found to
be negative. As can be seen from the table, the intercept (α) for the aggregate NPM and ROA ratios
is -1.226 & -0.542 respectively. However, the negative impact of M&A’s on post-
merger/acquisition aggregate NPM and ROA ratios is not found statistically significant at 5 percent
level of significance as revealed by the p-values of their t-static. The differing results of aggregate
profitability ratios expressed in relation to sales and also the ratios expressed in relation to
investments may be attributed to the differences in the financial structure of the sample firms.
Positive impact on the aggregate GPM ratio is expected to get reflected in aggregate NPM ratio. But
the aggregate NPM ratio turns out to be negative, this may be attributed to the changes in financial
structure of the sample firms post-merger or acquisition i.e. increased financial expenses. The
similar explanation may apply to the differing results of ROA and ROE ratios.
Regression Analysis of Financial Performance of Sample Firms
Ratios Constant Sig. (t) Beta (R) Sig. (t) R2 Sig. (F)
GPM (%) 2.771 0.079 0.519 0.000 0.270 0.000
NPM (%) -1.226 0.601 0.400 0.004 0.160 0.004
ROA (%) -0.542 0.658 0.407 0.003 0.165 0.003
ROE (%) 0.305 0.954 0.225 0.117 0.050 0.117
a. Dependent Variable: Post industry -adjusted mean value
b. Predictors: (Constant): Pre industry-adjusted mean value
Note: (*) Statistically Significant at 5% Level of Significance

Source: CMIE
CONCLUSION is found statistically significant only with
The overall picture that emerges from the respect to few of the sample firms of these
above is that M&A’s have impacted industries. The firms belonging to other sample
profitability of sample firms in some cases industries have recorded mixed results with
positively and in some cases negatively, respect to positive or negative impact of merger
therefore, revealing mixed results. However, or acquisition on ROE. With respect to ROA,
most of the sample firms have been found to M&A’s have impacted profitability of sample
have witnessed positive impact. The financial firms both positively and negatively, therefore,
performance of all the sample firms belonging revealing mixed results. However, more sample
to banking industry have registered firms have been found to have witnessed
improvements in GPM and NPM ratios after positive impact. While comparing industry-
merger or acquisition and in most of the cases, adjusted ROA and ROE, it becomes clear that
the improvements in financial performance is the results of ROA are not fully reflected in
found statistically significant with respect to ROE in all the sample firms. This is mainly due
NPM ratios. With respect to the firms to changes or difference in financial structures
belonging to other sample industries, mixed of these firms. The regression results were
results were obtained. It has been found that found to be insignificant which in turn confirm
M&A’s has been found to have impacted the earlier findings.
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EFFECT OF MERGERS AND

ACQUISITIONS ON FINANCIAL PERFORMANCE OF FIRMS

INTRODUCTION process by gaining at a macro level. This would

S.No Industry Merging/Acquiring Firm Merged/Target Firm Year

1. Axis Bank Ltd. Shriram Investments Ltd. 2004

4. IDBI Bank Ltd. Gajra Bevel Gears Ltd. 2005

5. Oriental Bank of Commerce Global Trust Bank Ltd. 2004

6. ACC Ltd. Shiva Cement Ltd. 2007

11. Grauer Weil (India) Ltd. Bombay Paints Ltd. 2006

20. Arch Pharmalabs Ltd. Avon Organics Ltd. 2007

21. Emami Ltd. Zandu Realty Ltd. 2008

23. Pfizer Ltd. Pharmacia Healthcare Ltd. 2004

26. FMCG Hindustan Unilever Ltd. Vashiti Detergents Ltd. 2005

27. Mirc Electronics Ltd. Onida Savak Ltd. 2005

28. Videocon Industries Ltd. EKL Appliances Ltd. 2005

29. IVRCL Ltd. Hindustan Dorr-Oliver Ltd. 2005

31. Peninsula Land Ltd. Piramal Holdings Ltd. 2004

32. Banswara Syntex Ltd. Banswara Textile Mills Ltd. 2004

33. GTN Industries Ltd. Patspin India Ltd. 2006

40. Forbes Company Ltd. FAL Industries Ltd. 2005

46. VIP Industries Ltd. Aristocrat Luggage Ltd. 2005

48. JL Morison (India) Ltd. Hindustan Composites Ltd. 2006

Source: CMIE firms has recorded an improvement. Somewhat

HDFC Bank Ltd. 13.88 -3.69 17.57 Improved 0.00*

ICICI Bank Ltd. -6.22 -5.27 -0.94 Deteriorated 0.82

IDBI Bank Ltd. -13.05 -13.20 0.15 Improved 0.40

Oriental Bank ofCommerce 0.36 -2.75 3.11 Improved 0.59

ACC Ltd. 30.22 6.39 23.82 Improved 0.48

Ambuja Cements Ltd. 4.53 8.95 -4.43 Deteriorated 0.21

Keerthi Industries Ltd. -7.23 -24.38 17.15 Improved 0.08

Grauer Weil (India) Ltd. 6.44 7.68 -1.24 Deteriorated 0.16

Dion Global Solutions Ltd. 27.67 45.85 -18.18 Deteriorated 0.18

Glodyne Technoserve Ltd. 2.47 8.85 -6.38 Deteriorated 0.29

Megasoft Ltd. 25.74 17.37 8.37 Improved 0.48

Mindtree Ltd. -10.70 -5.23 -5.47 Deteriorated 0.11

EMAMI Ltd. 13.82 5.89 7.93 Improved 0.24

IPCA Lab. Ltd. 4.54 4.14 0.40 Improved 0.49

Pfizer ltd 15.32 5.95 9.37 Improved 0.00*

Hindustan Unilever Ltd 4.23 -4.13 8.36 Improved 0.35

Mirc Electronics Ltd -13.18 -22.96 9.79 Improved 0.03*

Videocon Industries Ltd -1.66 -25.50 23.85 Improved 0.01*

IVRCL Ltd -6.52 -10.07 3.56 Improved 0.29

Larsen & Tourbo Ltd 1.52 -32.80 34.32 Improved 0.05*

Peninsula Land Ltd. 28.02 31.87 -3.86 Deteriorated 0.83

Banswara Syntex Ltd. 9.85 23.70 -13.85 Deteriorated 0.01*

GTN Industries Ltd. 0.45 5.83 -5.38 Deteriorated 0.12

Nahar Industrial Enterprises Ltd 2.71 1.93 0.79 Improved 0.78

RSWM Ltd 5.30 4.73 0.57 Improved 0.76

Shree Rajasthan Syntex Ltd -0.43 0.26 -0.69 Deteriorated 0.81

Spentex Industries Ltd -1.21 -1.10 -0.11 Deteriorated 0.97

Welpsun India Ltd 16.20 6.40 9.80 Improved 0.01*

DCM Shriram Industries Ltd 11.14 2.36 8.78 Improved 0.04*

Forbes Company Ltd -0.38 -11.81 11.43 Improved 0.01*

HIL Ltd 12.13 -1.16 13.29 Improved 0.00*

Hindalco Industries Ltd 3.16 -0.33 3.49 Improved 0.16

Note: (*) Statistically significant at 5% level of Significance

HDFC Bank Ltd. 5.53 -4.88 10.41 Improved 0.04*

ICICI Bank Ltd. 2.44 1.45 0.99 Improved 0.51

IDBI Bank Ltd. -0.99 -4.13 3.14 Improved 0.06