Mergers and Acquisitions have become very common these days..........Various companies are resorting to M&A due to various reasons. Very recently, we witnessed merger between Idea-Vodafone in order to tackle competition posed by Jio in the telecom industry in India.I want to discuss various aspects leading to or disrupting the process of value creation after the M&A. In fact, value creation will happen if the company delivers the right value to the customer. But sometimes, in some cases, it has also been noticed that the new potential market will see no clear benefits of the acquisition.
Dear Bansal
M&A always do have potential benefits for which this initiative is taken. The example of Idea-Vodafone you quoted, has it created the value for company? The question can be addressed in two ways; 1) developing the structured questionnaire and obtain response from the customers of said company (later analyse the responses and see the results). 2) the best way to answer this question is event study approach commonly used for such questions. In later approach, you can set-up 15-days window (pre and post M&A) and calculate the abnormal returns. Remember, in this approach you need stock price of the new company and also the stock prices of original companies.
The primary data-based study will lead you towards marketing domain, while second lies within the behavioral/corporate finance.
If any further information is needed regarding event study methodology, do email me at [email protected]
I wrote a couple of papers looking after full integration of mergers, after a four year horizon. You can see them here:
Article Are Oil Industry Mergers Becoming Less Profitable?
Article Do Oil Industry Merger Waves Reveal Any Trends?
M&A activity is not without risk (Furfine and Rosen, 2011). In essence, mergers may create or destroy value depending on how they perform (Ferrer, 2012). In the merger game, results are not guaranteed (Soni, 2014). Also, the results of mergers are not always immediately known (Bouwman, et al., 2003). Excess premiums paid for the M&A transaction can have negative impacts on company performance for years (Sirower and Sahni, 2006). There are many reasons behind mergers, but they can be simplified into just a few items: reducing costs, realizing synergies, diversifying product lines, and increasing revenues (Subeniotis,
et al., 2011).
The value is created if the new co. is able to generate income and cash flows that justify the extraordinary operation. This result is obtained by preparing a robust business plan that allows to understand if the aggregation brings benefits or not. The economic construction of the operation is the most delicate phase of the operation. If the assumptions and development are correct, the operation will generate prospective income.
Go to this Link:
https://get.pitchbook.com/mergers-and-acquisitions-data/?utm_source=google&utm_medium=cpc&utm_campaign=EG-MandA-AS&utm_term=merger%20and%20acquisition&_bt=339551733766&_bm=p&_bn=g&gclid=Cj0KCQjwoaz3BRDnARIsAF1RfLfwcaVtWQ0QtFpYgzaJb3qb7cEe2x3SADh1VpCDZ9Rtj0HEAIuy7lcaAlkAEALw_wcB
The stated merger was completed by 31.08.2018. We can do a short, medium and long term event study to measure the value creation if any. The deal focussed on operational synergies which to an extent was offset by EBITDA erosion. Time has to come to revisit the value creation out of this deal.
- Badges
- Science topic
- Similar topics
- Econ
- Manufacturing
- Industry