Impact of mergers and acquisitions on share value and firm value in indian financial services sector

Abstract

Merger and Acquisition (MandA) is a very common element in the corporate strategy. newlineThe use of MandA in the corporate world is to have core global competitiveness, improved newlinecompetence, higher market share. There has been an excess of MandA happening in every newlinesector of Indian industry. The financial service sector has been undergoing a profound newlinerestructuring since the mid-1990s and it has become increasingly concentrated over the past newlinedecade. From the previous research it was clearly confirmed that many of the Mergers and newlineAcquisitions activity are concentrated much on financial service sectors. The study attempts newlineto confine its framework to Indian Financial Services Sector alone from a period from 2004 newlineto 2016. From a broad database of CMIE ProwessIQ data were collected for 99 acquired newlinecompanies. The main objectives were to identify the companies in the financial service sector newlinethat are likely to be acquired during a particular year, to analyse the factors influencing pre and newlinepost acquisition in which a model was developed that would predict the MandAs, to explore newlinethese changes will affect the performance of a company and to study whether these changes newlinewill affect the firm value and share value of a given firm that will acquire in a particular year. newlineThe variables identified were Enterprise Multiple, Sales, Average Net Worth, Current Ratio, newlineReturn on Total Assets, Research and Development Expenses, Return on Net Worth, Book newlineValue per Share, Price to Book Ratio, Operating Cash Flow, Earnings per Share and Price newlineEarnings Ratio. newlineA Logistic Regression Model was constructed with these 12 variables to measures the newlinecollective impact of the significant variables that affect the probability of a given firm to newlineacquire in a particular year. Paired Sample T-test was used to analyze the impact of each newlinevariable on the probability to acquire has been assessed and the prediction accuracy of the newlinemodel has been tested with the same 12 variables. As per the findings the prediction accuracy newlineof the model was 73.7% in out of 12 variables 4 variables