Business Performance in Mergers and Acquisitions – Impact of Identity, Size and Business Alignment in Creating Shareholder Value

Tapan K. Panda, S. Sriram, Neeti Pandey


Firms in last decade have found mergers and acquisitions as an inorganic route for business consolidation and growth. Such strategies are believed to create higher value for the shareholders. It is a generic belief that mergers and acquisitions not only help in consolidating business and improving market performance bur also enhances shareholders value. However, studies reveal that the majority of such strategic initiatives fail to create value. This piece of research explores the rates of failure of mergers and acquisitions in enhancing subsequent shareholder value. The scope of this study is to analyze the factors responsible for creating value in an mergers and acquisitions deal, such as business alignment, due diligence, the role of advisors and consultants and the size of the target firms. The authors have used a case study based approach in some selected merger and acquisition deals in the last decade across a few sectors, thereby, establishing the facts that the share price of the acquiring firm declines immediately after the acquisition and the operating performance of the acquirer firm in terms of key financial ratios and the economic value added (EVA), improves over a period of time. This study is a case study based approach to analyze the pre-merger and post-merger performance of a firm and factors that affect the performance. Some of these factors include the structural similarity of the target and the acquirer firms, business alignment and some industry factors.Keywords: Merger, Acquisition, Shareholder Value, Economic Value Added, Business Alignment, Structural Similarities

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