Impact Of Mergers On Post Merger Economic Value Addition

Abstract

In the modern times, Mergers and Acquisition have become a major force in the financial and economic environment all over the world. Essentially an American phenomenon tilll970, M&As have now become a global business theme. The subject has generated lot of interest of researchers who try to examine various aspects of successful as well as failed mergers and acquisition to draw lessons for effective management of this activity.. The research was undertaken to examine 41 cases of domestic mergers in India during the period between 1999-2009 to ascertain whether post-merger Economic Value Addition (EVA) improved or not when compared with pre-merger EVA of both target and acquiring companies' EVA put together. It was further examined as to what factors contributed to improvement in EVA. Whether it was on account of efficiencies achieved by the company due to improvement in efficiency ratios or improvement was on account of growth parameters. In 27 cases out of 41 mergers examined (forming 66%), it was found that EVA has improved whereas in 14 cases forming 34%, post-merger EVA did not improve. It was found that there was no statistically significant correlation between efficiency ratios and improvement of EVA. However there was substantial evidence that growth in EVA was strongly associated with growth in net sales and growth in total assets. The research findings were in agreement of findings of McKinsey research as well as Sales maximization model of noted economist Boumol.