This document examines 74 M&A deals in India during 2003 to analyze the impact on financial performance. Financial data for six years (3 pre-deal, 3 post-deal) was collected for parameters like liquidity, operating efficiency, profitability, returns, and financing composition. For mergers, over half of cases saw improved financial performance post-merger. For acquisitions, over 60% of cases improved post-acquisition. However, around 15% of mergers and acquisitions saw improved performance but also increasing working capital and debt-equity ratios, representing a potential gross financial burden.

2.  To examine the growth of M&A deals in
recent time in India.
 To study the impact of M&As on the financial
performance of the outcomes in long run.
 To compare and contrast the results of
merger deals with acquisition deals.

3.  The sources to collect merger cases for the
year 2003 are the company cases Journal;
newspapers , and CMIE data-base PROWESS.
 And the sources for acquisition deals are
SEBI web site; newspapers and magazines.
More than 200 cases of M&A deals in India for
the year 2003 were collected but only 74 of
which are selected on the basis of the
required available financial data.

4.  The financial data are collected for six years; three years
pre-deal and three years post-deal of M&As. Financial
performance is checked on five parameters to see the
overall financial health of merging and acquiring
companies.
 For these five parameters six ratios are calculated which
are as follows:
 (1) For liquidity position, working capital is calculated.
 (2) For operating efficiency, operating profit is calculated.
 (3) For overall efficiency, profit before tax is calculated.
 (4) For return to equity shareholders, two ratios are
calculated, which are: return on net worth and earning per
share.
 (5) For financing composition, debt to equity ratio is
calculated.

5.  Total assets were financed by equity, debt and
retained earnings. In the study, it was found that
total assets were always less than the debt plus
equity for pre acquisition period, but after
acquisition, it turned out to be positive.
 The firms recorded meaningful synergy in their
net earnings, and those with the successful
merger of the firms, the return on capital
employed and return on total assets, increased
substantially with a significant percentage.
 improvement in the operational efficiency of the
merged firms with a significant value.

6.  merger did not lead to improved
performance.
 merger did not lead to excess profits for the
acquiring firm
 study revealed that only 17 percent of
financial service firms those merged in the
past two years over globally could manage to
create good returns

7.  Out of the four ratios, three ratios namely, earning to equity ratio,
liquidity ratio and size ratio, turned out to be positive for acquired firms;
whereas pre-tax profit, the fourth ratio, turned out negative at 2 percent
level of significance.
 The study of profitability after mergers found that selling expenses,
administrative expenses and operating expenses came down.
 The earning per share increased marginally.
 In most of the cases the return on capital employed, return on total
assets and return on equity enhanced with a marginal rate.
 In few cases, it was found that there had been an increase in the net
profit, but when the discounted rate of return was calculated for pre
merger and after merger period, there were no sign of increase of profits
in after merger era.

8.  Out of 22 merger cases 13 merging firms are
showing increase in working capital and nine
merging firms are showing a decrease in working
capital.
 Out of 13 merging firms which are showing an
increase in working capital, six firms are showing
a huge increase in working capital, which can be
interpreted as that for six firms current assets
increased relatively with a greater speed than
current liabilities.
 Out of a merging firms which are showing a
decrease in working capital, three firms are
showing a sharp decrease in the working capital
of the merging firms in the post merger years.

9.  Out of 52 acquisition cases 37 acquiring firms are
showing an increase in working capital and 15
acquiring firms are showing a decrease in
working capital.
 Out of 37 acquiring firms, which are showing an
increase in working capital 17 acquiring firms are
showing a sharp increase in the working capital
for the post acquisition years.
 Out of 15 acquiring firms, which are showing a
decrease in working capital three firms are
showing a sharp decrease in the working capital
of the acquirers for the post acquisition years.

10.  If a comparison is made between merging
and acquiring firms on the basis of increase
in working capital then more number of
acquirers have increased their working
capital.
 So more number of acquiring firms as well as
proportion of total is also more for acquiring
firms to be more successful on the parameter
of reducing the liquidity risk by increasing
the working capital.

11.  Out of 22 merger cases 17 merging firms are able to increase their
operating profits in after merger years. Where as in case of five firms,
the operating profits reduced in post-merger years.
 Out of 17 merging firms, which are showing an increase in operating
profits on an average basis for the post-merger three years, for ten firms
operating profits increased sharply which can be interpretated that their
operating efficiency improved after the mergers.
 Out of 52 cases of acquisitions 33 acquiring firms improved their
operating profits after acquisition deals. Acquirers are successful in
increasing their profits. And the percentage is more than 60 percent of
the successful cases to total cases. Whereas 19 cases failed to increase
their operating profits.
 If a comparison is made between merger and acquisition cases, merger
cases are more successful in proportion of total cases of the same type.

12.  Out of 22 merger cases 20 merging firms are able to increase their
profits before tax in after merger years. Where as in two cases, the
profits before tax reduced for the immediate post-merger years.
 operating profits is increasing for 17 firms where as profit before tax
is increasing for 20 firms.
 Out of 52 cases of acquisitions 36 acquiring firms increased their
profits before tax on an average of immediate three years after such
acquisitions. Whereas 16 acquiring firms were not able to increase
their profit before tax in after acquisition time period.
 The five firms for which operating profits did not increase but
profits before tax increased in after acquisition time period are:
Amzel Automotive Ltd, Infomedia India Ltd, Parry Agro Inds. Ltd,
Rama Newsprint & Papers Ltd, and Swaraj Automotives Ltd.

13.  Out of 22 merger cases ten merging firms showed positive sign
for ten firms,means the return on net worth increased, whereas
for 12 cases return on net worth decreased for post-merger time
period.
 Out of 52 acquisition cases, 30 firms showed an increase in return
on net worth and for 22 acquiring firms, the return on net worth
decreased.

14.  Out of 22 merger deals 14 cases could increase earning per share
in post merger time period when comparing with pre merger
performance of the same cases.
 Out of 52 acquisition cases 35 firms could increase earnings per
share in post acquisition time period, whereas for 17 acquiring
firms, earning per share reduced in post-acquisition time period

15.  Out of 22 merger cases 12 firms showed an
increase in debt-equity ratio in post merger
time period.
 Out of 52 acquisition cases 18 firms showed
an increase in debt to equity ratio

16.  Out of total merger cases for more than half of
the cases the financial performance has
improved in the post-merger time period when
comparing with pre-merger time period of the
same company.
 Whereas in case of 52 acquisition deals, more
than 60 percent of the cases showed an
improvement in the financial performance in the
post-acquisition time period.
 For around fifteen percent cases of both
mergers and acquisitions the financial
performance has improved but at the same time
both working capital and debt-equity ratio are
also increasing. This can be seen as a gross
financial burden on the firm .