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Drivers of Synergy Gains in Indian M&As: A System GMM Approach


Affiliations
1 Associate Professor, Faculty of Management Studies, University of Delhi, Delhi, India
2 Senior Research Scholar, Faculty of Management Studies, University of Delhi, Delhi, India
     

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The aim of this article is to show the potential realisation of synergistic advantages for Indian firms experiencing M&A, by examining 120 M&A deals which took place between 2005 and 2015. The aim of the present study is to examine: (a) if the target is small relative to acquirer, then synergy gains will also be small, (b) if the mode of payment for the deal is cash, greater synergies are gained, and (c) if the acquisitions take place in related industries more synergies are gained. The paper uses system generalised methods of moments (GMM) estimation method to estimate the relationship. The results demonstrate that the profitability of acquiring entities increases in post-M&A stage, when the deal is settled in cash and mergers take place in related industries. Synergistic advantages of M&A appear to be perceived by enhanced market cap to assets, improvement in financial leverage, and a positive operating cash flow return on asset. The paper examines a comprehensive set of Indian domestic M&A deals. Such extensive study to assess the potential realisation of synergistic advantages for Indian firms experiencing M&A has not been undertaken in the literature so far. The study’s policy ramifications are that regulators should facilitate the creation of an effective market for corporate regulation. The M&A strategy is highly important in the post-liberalisation phase in the corporate restructuring process. M&A creates synergy with the effective utilisation of capital in the long run.

Keywords

Mergers and Acquisitions, Corporate Performance, India, Synergies, System Generalised Methods of Moments
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  • Drivers of Synergy Gains in Indian M&As: A System GMM Approach

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Authors

Anjala Kalsie
Associate Professor, Faculty of Management Studies, University of Delhi, Delhi, India
Neha Singh
Senior Research Scholar, Faculty of Management Studies, University of Delhi, Delhi, India

Abstract


The aim of this article is to show the potential realisation of synergistic advantages for Indian firms experiencing M&A, by examining 120 M&A deals which took place between 2005 and 2015. The aim of the present study is to examine: (a) if the target is small relative to acquirer, then synergy gains will also be small, (b) if the mode of payment for the deal is cash, greater synergies are gained, and (c) if the acquisitions take place in related industries more synergies are gained. The paper uses system generalised methods of moments (GMM) estimation method to estimate the relationship. The results demonstrate that the profitability of acquiring entities increases in post-M&A stage, when the deal is settled in cash and mergers take place in related industries. Synergistic advantages of M&A appear to be perceived by enhanced market cap to assets, improvement in financial leverage, and a positive operating cash flow return on asset. The paper examines a comprehensive set of Indian domestic M&A deals. Such extensive study to assess the potential realisation of synergistic advantages for Indian firms experiencing M&A has not been undertaken in the literature so far. The study’s policy ramifications are that regulators should facilitate the creation of an effective market for corporate regulation. The M&A strategy is highly important in the post-liberalisation phase in the corporate restructuring process. M&A creates synergy with the effective utilisation of capital in the long run.

Keywords


Mergers and Acquisitions, Corporate Performance, India, Synergies, System Generalised Methods of Moments

References