Ravish Yadav, B.Tech ECE 3rd Year
The year is not over yet, but still it is being discussed as the year of mergers and acquisitions. Global M&As are at a 7 year high. So far in 2014, there have been roughly $2.3 trillion in announced M&A transactions which is 44% higher than in the same period last year. The United States experienced the largest increase in mergers and acquisitions from last year. It saw a 44.2 percent share of the global market by deal value during the first half of the year, compared to its 34.8 percent share in the first half of last year. The pharmaceutical, medical and biotech industry saw more deals than any industry with $258.6 billion, which is a 16.5 percent share of global mergers and acquisitions.
The year is not over yet, but still it is being discussed as the year of mergers and acquisitions. Global M&As are at a 7 year high. So far in 2014, there have been roughly $2.3 trillion in announced M&A transactions which is 44% higher than in the same period last year. The United States experienced the largest increase in mergers and acquisitions from last year. It saw a 44.2 percent share of the global market by deal value during the first half of the year, compared to its 34.8 percent share in the first half of last year. The pharmaceutical, medical and biotech industry saw more deals than any industry with $258.6 billion, which is a 16.5 percent share of global mergers and acquisitions.
Talking about India, nearly $35 billion worth of mergers and acquisitions involving an Indian firm as either a target or a buyer had been announced in the first half of this year. July alone witnessed 56 deals worth $6.54 billion, a jump of around 42.4% over the same month last year.
Reasons for this tremendous rise-
According to KPMG's latest Global M&A Predictor, an improving global economy and large corporate cash reserves contributed to a 26% increase in the value of announced M&A deals in the period January-June 2014.
"There are a growing number of executives considering whether or not to change their business, jump-start growth, and transform themselves to a leader in the market. It’s pretty exciting.”
-Steve Joiner ,Partner- Deloitte & Touche LLP
As per KPMG India reports, market sentiment has improved significantly post the decisive outcome in the general elections earlier this year. Corporates in India are optimistic that the new government will strive to revive investment cycle and focus on policy and fiscal reforms. Such optimism will be the key to keep the momentum going for the Indian M&A market.
Why merge/acquire?
In theory, mergers spur competition and divert capital to more effective management teams. But M&As so far this year, especially in U.S., have been driven by the aim to slash costs. American companies have been snapping up foreign companies in deals, known as inversions, that will most likely lower the overall tax rate of the combined company. Inversions have so far accounted for some of the biggest deals this year. But they may tempt companies to try for mergers that lack other substantial economic benefits. The acquiring company may then spend years struggling.
Framework for successful integration -
According to KPMG's latest Global M&A Predictor, an improving global economy and large corporate cash reserves contributed to a 26% increase in the value of announced M&A deals in the period January-June 2014.
"There are a growing number of executives considering whether or not to change their business, jump-start growth, and transform themselves to a leader in the market. It’s pretty exciting.”
-Steve Joiner ,Partner- Deloitte & Touche LLP
As per KPMG India reports, market sentiment has improved significantly post the decisive outcome in the general elections earlier this year. Corporates in India are optimistic that the new government will strive to revive investment cycle and focus on policy and fiscal reforms. Such optimism will be the key to keep the momentum going for the Indian M&A market.
Why merge/acquire?
In theory, mergers spur competition and divert capital to more effective management teams. But M&As so far this year, especially in U.S., have been driven by the aim to slash costs. American companies have been snapping up foreign companies in deals, known as inversions, that will most likely lower the overall tax rate of the combined company. Inversions have so far accounted for some of the biggest deals this year. But they may tempt companies to try for mergers that lack other substantial economic benefits. The acquiring company may then spend years struggling.
Framework for successful integration -
Let's have a look at some of the famous M&As in 2014 so far (in no particular order) -
1. Comcast - Time Warner Cable
2. Facebook - Whatsapp
3. Goggle - Nest
4. Google's Nest - Dropcam
5. AT&T - DirecTV
6. Vodafone - Ono
7 Flipkart - Myntra
8. INOX - Satyam Cineplexes
9. Sun Pharma - Ranbaxy
10. Reliance Industries Ltd. - Network 18 Media & Investments Ltd.
1. Comcast - Time Warner Cable
- The merger was proposed in February this year at an estimated value of $45.2 billion.
- Since then, there has been a widespread opposition against the deal. With Comcast acquiring Time Warner Cable, there would be less consumer choice, less diversity and much higher cable bills. Critics of the deal believe putting this much power in the hands of one company is dangerous.
2. Facebook - Whatsapp
- Facebook acquired the messaging company Whatsapp in a deal worth $19 billion.
- Whatsapp has 450 million active users and every day, around a million people install the app. With both Facebook messenger and Whatsapp, the aim of the acquisition is to reach out to more people and provide them with better connectivity.
3. Goggle - Nest
- The search giant acquired Nest Labs Inc., a closely held maker of "smart" thermostats and smoke alarms for homes, for $3.2 billion. It is Google’s second largest acquisition behind its 2012 deal to buy Motorola.
- Google paid handsomely for Nest to stay ahead of competitors to control the next generation of smart devices, including appliances and door locks. The deal also gives Google a high-profile technology executive Tony Fadell, a former Apple Inc. employee who helped develop the iPod and then later started Nest.
4. Google's Nest - Dropcam
- Google’s Nest bought Dropcam, a provider of easy-to-use and configure Wi-Fi webcams and trackers and cloud-based storage for $555 million.
- The acquisition would broaden Nest's product line-up into home security and it shows how Nest is aiming to become a bigger player in connected devices.
5. AT&T - DirecTV
- AT&T, America’s second-biggest supplier of both mobile-phone and fixed-line-broadband services, has bought DirecTV, the country’s leading satellite-TV distributor, for $48.5 billion in cash and shares.
- Telecoms and television companies everywhere are desperate to sell customers bundles of mobile telephony, fixed lines, broadband and television, rather than individual services. Extra bulk promises extra bargaining power with programme-makers; you can negotiate for better programming and at a better price. For AT&T, the deal is mainly about gaining scale in video and acquiring the bargaining power that comes with that to license premium content.
6. Vodafone - Ono
- Vodafone Group, the world’s second-largest wireless carrier, has acquired Spanish cable operator "Ono" in a deal worth $10 billion.
- The purchase would give Vodafone 1.9 million customers in Spain, complementing its mobile service and helping it challenge Telefonica SA (TEF) and Orange SA (ORA) .
7 Flipkart - Myntra
- Flipkart India Pvt Ltd, the country’s largest e-commerce firm, acquired rival Myntra.com in the largest-ever deal in the country’s e-commerce market. The deal valued over $330 million.
- Both the units have decided to work independently.
- The acquisition would help Flipkart gain a bigger market share, enjoy stronger foothold in the fast-growing online fashion market and fight arch-rival Amazon. On the other hand, Myntra would leverage Flipkart’s logistics network.
8. INOX - Satyam Cineplexes
- Multiplex chain INOX Leisure Ltd (INOX) has bought 100 per cent share equity capital in New Delhi-headquartered Satyam Cineplexes Ltd, total value of the deal being INR 182 crore.
- The acquisition would give INOX an entry into Delhi and strengthen the company’s position in north India.
9. Sun Pharma - Ranbaxy
- Sun Pharmaceutical Industries Ltd has acquired 100% of Ranbaxy in an all-stock transaction, the total value of acquisition being around $4 billion.
- The combination of Sun Pharma and Ranbaxy creates the fifth-largest specialty generics company in the world and the largest pharmaceutical company in India.
10. Reliance Industries Ltd. - Network 18 Media & Investments Ltd.
- Reliance Industries (RIL) acquired Network18 - one of the biggest media houses in the country for INR 40 billion.
- The takeover is a strategic move for RIL which is expected to launch its 4G network later this year and can use the wide range of content produced by Network18 to feed its telecom play.
- This takeover, once combined with RIL’s telecom business, makes the combined group likely bigger than media baron Rupert Murdoch’s empire in India and bigger than any other media group in India.
- Tata SIA Airlines is owned 51% by Tata Sons, and the remainder by Singapore Airlines.
- The joint venture will be called Vistara.
- The entry of Vistara comes at a time when most airlines in India are losing money because of rising fuel prices, high airport charges and intense competition that hasn't allowed to them to increase fares.
- Analysts believe that the entry of a new full-service carrier will result in better services. But Tata also holds partnership in Air Asia (low cost carrier) and running a low-cost airline and a full-service airline in the same company is always a challenge because of the different business models.