M&A

M&A
Historical Analysis
Historical Five Waves
First Wave ( 1897 – 1904 )
Second Wave ( 1916 – 1929 )
Third Wave ( 1965 – 1969 )
Fourth Wave ( 1984 – 1989 )
Fifth Wave ( 1992 Onwards … )

First Wave ( 1897 – 1904 )
First Wave of mergers occurred after the Great

Depression of 1883.
Wave peaked between 1898 & 1902 and ended in 1904.

This wave was affected all major mining &
manufacturing industries.
Two third of the merger activity was in the sectors like

primary metals, food products, petroleum products,
chemicals, transportation equipments & machinery
First Wave ( 1897 – 1904 )
The first wave saw predominantly horizontal mergers.
This wave left political circles worried as a large

number of monopolies came into existence.
Second Wave ( 1916 – 1929 )
Second wave of mergers witnessed the consolidation

of several industries.
The wave was characterized by the rise of oligopolistic

industry structure.
This period is also referred to as “Period of Oligopoly”.
Several Vertical Mergers & fewer monopolies were

produced.
Second Wave ( 1916 – 1929 )
It was also a period of First large Scale Conglomerates as

many diverse & unrelated firms merged together.
The Worst Fear realized when stock market crashed on 28th &
29th October 1929, by nearly 13% & 12 % respectively.
The crash continued & led to severe economic turmoil.

As the Free Fall in the market continued & people lost their
life’s savings, demand in the market declined drastically .
This event marked the end of the second wave of M&A.

Third Wave ( 1965 – 1969 )
This period, also known as Conglomerate Merger

Period, saw intensive mergers backed by booming
economies.
The most unusual element of this period was that

Smaller Firms targeted larger firms companies for
acquisition.
Conglomerates started becoming unpopular because:

- It was observed that buyers often overpaid for diverse
companies they purchased.
- Companies would move away from specialization
resulting in deteriorating performances.
Fourth Wave ( 1984 – 1989 )
This wave also known as the wave of mega mergers.
The period saw a lot of merger activity in the Oil &

Gas, Drugs, Medical Equipments, Banking & Petroleum
Industries.
Fourth wave was characterized by :
Concept of “Corporate Raider” – Investors engaged in

the act directed for Hostile Takeover.
Investment Banker started playing a role in this area.

Fifth Wave - 1992 Onwards …….
This period saw a major economic transition in many

economies, paving way for increased aggregate
demand, longest post war expansion of companies and
rise in stock market values.
Privatization of state owned enterprises took place in

this period.
The concept of emerging market bidders also evolved

during this time.
Efficiency Theory:
This explains M & A as being planned & executed to

achieve Synergies thereby adding to enterprise
valuation.
The rationale here is to create value not hitherto

existing by pooling various resources of the acquirer &
target companies.
There are Five Main Types of Synergies
1) Manufacturing Synergy 2) Operational Synergy

3) Marketing Synergy 4) Financial Synergy
5) Tax Synergy
Manufacturing Synergy:
It involves combining the core competencies of the

acquirer company & target company in different
areas of manufacturing, Technology, Design &
Development, etc.
- It could also mean rationalizing usage of

combined manufacturing capacities.
Manufacturing Synergy:
Examples:
M&M Acquired – Jiangling Motors – China

Objective was to combine M&M’s design &
development strength with low cost manufacturing
capabilities of Jiangling.
Tata Motors Acquisition of Daewoo’s commercial

vehicles unit, gave it the advantage of producing
commercial vehicles in the 200-400 bhp, whereas, earlier
Tata Motors had a technology for commercial vehicles
up to 200 bhp only.
Operational Synergy:
It involves rationalizing the combined operations in

such a manner that through sharing of facilities, such as
Accounts & Finance, Tax, HR, Administration.
Example:
In Oriental Bank of Commerce (OBC) – takeover of

GLOBAL TRUST BANK, operational synergy arose from
the fact that OBC had strong branch network in the north but
had not explored the western & southern part of India,
where GTB had a strong network & franchisee
Marketing Synergy:
It involves either the common sales force or

distribution channel or media to push the products &
brands of both the acquirer & target companies at lower
costs than the sum of total costs that they would incur in
independent marketing operations.
It also involves leveraging on the Brand Equity of one

of the two companies to push the sale of the other
company’s products.
Marketing Synergy:
Example:
Hindustan Lever acquired LAKME’s Brand & Business,

it aimed at using its vast distribution network to
leverage on the strong Brand Equity of LAKME in the
Women’s Cosmetics Business.
Financial Synergy:
It involves combining both the acquirer & target

companies’ Balance Sheet to achieve either a reduction
on the Weighted Average Cost of Capital or a better
gearing ratio or other improved financial parameters.
Tax Synergy:
It involves merging a Loss – Making company with a

profitable one, so that the profitable company can get a
tax benefit by writing off accumulated losses of the
loss making company against the profits of profit making
company.

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First Wave ( 1897 – 1904 )

Second Wave ( 1916 – 1929 )

Third Wave ( 1965 – 1969 )

Fourth Wave ( 1984 – 1989 )

Fifth Wave ( 1992 Onwards … )

First Wave of mergers occurred after the Great

Wave peaked between 1898 & 1902 and ended in 1904.

Two third of the merger activity was in the sectors like

The first wave saw predominantly horizontal mergers.

This wave left political circles worried as a large

Second wave of mergers witnessed the consolidation

The wave was characterized by the rise of oligopolistic

Several Vertical Mergers & fewer monopolies were

It was also a period of First large Scale Conglomerates as

The crash continued & led to severe economic turmoil.

This event marked the end of the second wave of M&A.

This period, also known as Conglomerate Merger

The most unusual element of this period was that

Conglomerates started becoming unpopular because:

This wave also known as the wave of mega mergers.

The period saw a lot of merger activity in the Oil &

Fourth wave was characterized by :

Concept of “Corporate Raider” – Investors engaged in

Investment Banker started playing a role in this area.

This period saw a major economic transition in many

Privatization of state owned enterprises took place in

The concept of emerging market bidders also evolved

This explains M & A as being planned & executed to

The rationale here is to create value not hitherto

There are Five Main Types of Synergies

1) Manufacturing Synergy 2) Operational Synergy

It involves combining the core competencies of the

- It could also mean rationalizing usage of

M&M Acquired – Jiangling Motors – China

Tata Motors Acquisition of Daewoo’s commercial

It involves rationalizing the combined operations in

In Oriental Bank of Commerce (OBC) – takeover of

It involves either the common sales force or

It also involves leveraging on the Brand Equity of one

Hindustan Lever acquired LAKME’s Brand & Business,

It involves combining both the acquirer & target

It involves merging a Loss – Making company with a

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