Mergers, Acquisitions and the Financial Performance: An Empirical Analysis from Indian Manufacturing Sector

Abstract

Mergers and Acquisitions (M&A) are one of the most preferred strategies of corporate restructuring across the globe. Companies opt for
M&A as they tend to generate operational synergies as well as improve the financial performance of the firms. The present study evaluates
the financial performance of fifty-four acquiring manufacturing firms in India that occurred between the financial year 2006-07 and 2013-
14. The study follows a positivist approach with a focus on quantitative analysis of financial data over the period of ten years (five years pre
and five years post) for five parameters. Determinants of financial performance of acquiring firms before and after the M&A have also
been examined. Paired Samples t-test, Principal Component Analysis, and Principal Component Regression have been employed for the
analysis. Findings suggest that profitability and cost of utilization significantly decline after M&A. Efficiency, Profit Margin, Cost of
Utilization, Interest Cover has remained significant factors contributing to the Return on Capital Employed both pre and post-M&A.
Failure of M&A in the creation of synergies in the Indian manufacturing sector suggests a lack of strategic fit between the firms. It is important for
managers to clearly define the motives behind the M&A not just for growth but for survival as well.