IMPACT OF MERGERS & ACQUISITIONS ON FINANCIAL PERFORMANCE A STUDY OF SELECT INDIAN COMPANIES

Many studies revealed the fact that Mergers and Acquisitions (M&A) are a risky business. The corporate evaluations show that most of the companies which completed M&A transactions disappoint to deliver on promised financial performance. But, it is an investment and the highest risks produce the highest results whether they're success or failure. The aim of this paper is to study the impact of M&A on the financial performance of select acquirer companies in India. The objective is to analyze the impact of M&A on profitability, growth and liquidity position. The analysis is done based on the financial performance of select Indian companies for five years preand post-merger. The selected ten Indian Companies which have undergone M&A during 2006-2016 is taken as sample size. The secondary data for five years preand post-merger collected from annual audited financial statements from 2000-2017. To assess the profitability, growth and liquidity position in the select companies,appropriate financial ratios have been used. The data analysis is made with the help of a statistical tool , for the data analysis paired t test used by SPSS software to test the significance level. The findings of this study show that there is no improvement in financial performance of acquirer companies after M&A.


Introduction
Many studies revealed the fact that mergers and acquisitions (M&A) is a risky business as corporate strategy. The corporate evaluations show that most of the companies which have completed M&A transactions disappoint to deliver on promised financial performance.
There are many aspects underlying an M&A transaction -the success or failure of acquirer companies depending on the appropriate adaptation to the business strategy. Mergers and Acquisitions (M&A) is an important financial tool that enables companies to grow faster and provide returns to owners and investors (Sherman 2011). M&A refers to the change in ownership, business mix, assets mix and alliance with the view to maximizing shareholders' value and improve the firms' performance (Pazarkis, Vogiatzoglo, Christodoulou & Drogalas, 2006;Gaughan, 2011;Nakamura, 2015). One of the main elements of improving company performance is the boom in mergers and acquisitions (Pazarkis et al., 2006;Gaughan, 2011;Nakamura, 2015). However, in many cases, M&A are often used interchangeably. According to (Ross, Westerfield, Jordan, & Etling (2003), a merger is the complete absorption of one firm by another, wherein the acquiring firm retains the identity and the acquired firm ceases to exist. It is a corporate strategy usually done between two or more companies whereby the acquiring firm and the acquired firm stand on a merger agreement. The acquisition, on the other hand, occurs when an entity purchases all or some assets such as equipment or a business unit of another (Pazarkis et al., 2006;Sherman, 2011;Gaughan, 2011;Nakamura, 2015).

IMPACT OF MERGERS & ACQUISITIONS ON FINANCIAL PERFORMANCE A STUDY OF SELECT INDIAN COMPANIES
Financial performance analysis must also include consideration of strategic and economic developments for the firm's long-run success. Financial managers, as well as general senior managers, are demanding evaluative standards by which they can rapidly measure the firm's performance and chart an appropriate course. These metrics should immediately provide actionable feedback to improve the operations of the firm. Management's intense interest in financial performance metrics has dramatically risen as more and more annual and long-term incentive compensation is tied to attaining acceptable levels of performance as measured by financial performance metrics.
Performance is the process of quantifying the efficiency and effectiveness of an action. Organizational performance is achieved by comparing the value that an organization creates using its productive assets with the value that owners of these assets expect to obtain (Armstrong & Baron, 2005). Financial performance measures provide a valuable tool to the different stakeholders of a firm. Internally, these measures may be utilized by the management and existing shareholders to evaluate the past financial performance and the current financial position of a firm. Alternatively, it can also be used by potential shareholders and financial analysts to predict future financial performance (Brigham & Houston, 2009). Financial performance is based on the idea that an organization is a voluntary collaboration of productive assets to accomplish a mutual purpose. These assets consist of human, physical and capital resources (Alchian & Demsetz, 1972;Barney, 1991;Jensen & Meckling, 1976).
Those supplying the assets will only commit them to the organization as long as they are content with the value they receive in exchange, relative to alternative uses of the assets.
Consequently, the essence of performance is the creation of value (Alchian & Demsetz, 1972;Barney, 1991;Jensen & Meckling, 1976). As long as the value created through the use of the contributed assets is equivalent to or greater than the value anticipated by those contributing the assets, the assets will continue to be availed to the organization (Bacidore, Boquist, Milbourn, & Thakor, 1997). If the assets created improve the performance, the organization will retain its existence. Therefore, value creation, as per definition of the resource provider, is the essential overall performance criterion for any organization (Alchian & Demsetz 1972;Barney, 1991;Jensen & Meckling, 1976). Three profitability measures that are universally accepted for their value to management are return on assets (ROA), return on equity (ROE), and operating profit margin.

Theoretical framework
There are many variables that define the production function, and market conditions. According to Mueller (2004), diversification is a way to decrease the risk involved in the existing operations of the business. Montgomery (1994) identifies three primary reasons that drive companies to implement diversification strategies. First is market-power belief which assumes that as a firm becomes a conglomerate, it can obtain the stronger position. Second is the agency attitude; this assumes that managers implement diversification to uplift the status of the firm and also reduce the risk of financial volatility in times of economic turbulence. The third is the resource -based view that encourages firms to diversify when they have excess resources as these resources may be utilized elsewhere to improve the firms' productivity thereby improving performance. All these variables lead to influence the performance under major three more parameters viz., profitability, liquidity, and economic growth which inturn impact the financial performance. & IDBI bank shown increased profitability after merger resulting in payment of higher dividend to shareholders, while ICICI bank shown slightly low profitability performance in the post-merger period.

Review of literature
Verma & Sharma (2014)  Agarwal & Singh (2015) conducted a case study on the effect of the merger on the financial performance of Kingfisher Airlines; the objective of the study was to analyze the pre & post-merger of the financial performance of KFA (Kingfisher Airlines).The study used accounting ratios in terms of profitability, liquidity, earning per share, leverage to evaluate the data. With the statistical technique as paired t-test used to conclude the result which found no improvement and benefit in acquiring firm (KFA) after a merger, as well no significant result shown in return on equity and earnings per share.
Nasieku & Susan (2016)  Using financial ratios and statistical technique as parametric t-test to assess the significance of prepost financial performance of selected firms. Authors concluded that there was insignificant improvement seen or found in the post-merger period. Liquidity, profitability, and market share showed no improvement in the selected manufacturing firms after merger and acquisitions deals.

Need for the Study
There is no doubt that M&As have been and continue to be a popular strategic alternative to organization growth. Very few study done on the various factors, but for the study few prime causes like profitability, liquidity and economic growth have taken for the analysis to determine the M&A performance.

Objectives
• To analyze the pre and post-merger of Profitability Liquidity and growth position of the select companies.
• To examine the impact of merger and acquisitions on financial performance in the select company.

Research Design
The theoretical framework is a structure that identifies and describes the major theories that organize a study Smith (2004 Research Gap: Many studies have been conducted on sector wise where the pre and post financial performance analysis and the comparison are done for three years, but in this paper, an attempt is made in order to analyze the overall impact on M&A towards the financial performance of select Indian companies for 5 years.To ascertain this hypothesis is framed. Pre and post-merger average ratios are determined by each company selected in the sample size. Profitability and Liquidity position of each firm is separately analyzed in prior and post-merger of ten companies. Operating profit, five companies operating profit statistically significantly deteriorated. Selected ten companies ROCE declines and shown no improvement after M&A. Out of ten decreased return on capital employed eight companies ROCE statistically significantly fallen. All selected ten companies earning per share have shown no improvement. Out of declines earning per share of ten companies seven firms EPS significantly deteriorated after business merged.

Hypothesis
At the end, the study observed or determined that financial synergies i.e. the profitability position after merger does not show improvement of the acquirer firms under the present study. Therefore, H1 is not accepted that merged corporate has a significant effect on the operating and profitability performance of acquired companies  Table 2 reveals the liquidity of selected companies reveals the current ratio of only one firm has shown improvement out of ten companies and rest nine current ratio declines after the merger. And the rest nine decreased current ratio statistically significantly deteriorated. A quick ratio of one company remains stable and none other firms shown improvement in quick ratio. At the same time out of nine decreased quick ratio indicators, seven companies' quick ratios statistically significantly deteriorated. Debt-Equity ratio of only four firms improved and six sample of D-E ratio falls. Out of four firms improved debt-equity ratio only one firm debt-equity ratio statistically significant. And four out of six selected companies decreased debt-equity ratio is statistically significantly deteriorated. Finally, it is determined that post-merger liquidity position indicators deteriorated after an overall comparing the improvement and deterioration indicators. It is observed that pre-liquidity position was better before merger. Thus, H2 is rejected that Merger and acquisitions have a significant impact on liquidity indicators of selected firms in the sample.

Managerial Implications
M&A is a strategic move which commonly used worldwide in order to achieve growth and profitability to the organization. When M&A happens manager has to be given more importance for the financial aspects so that profitability can be enhanced by the organization. The finance aspects suggest that finance has a significant effect (reflected by the manifest variables: acquisition premium, bidding process, and due diligence, exchange rates, cost efficiency) on M&A financial performance reflected on synergy . the effect of cost efficiency on the financial performance of merged financial institutions and found out that there is the significant relationship between cost efficiency and financial performance of merged  institutions. The implication is that a high degree of cost efficiency improves performance in terms of profitability. mergers and acquisitions lead to a high level of cost efficiency due to the fact that the merged company makes use of less cost, manpower, management effort and financial resources to generate the maximum level of output after the merger. The cost efficiency of the company has a positive impact on the profitability of the company, return on assets (ROA) and return on equity (ROE) of the company.

Limitations of the Research
The limitation of the study is, select Indian companies from Fortune 500 list only 10 companies have taken for the study, the extent of the database and the timeframe. Moreover, single key informants were utilized for the collection of the secondary data. Each of these limitations could influence the validity of the outcomes. Nevertheless, all effort was made to ensure that the outcomes' data quality was satisfactory.In respect of the model as it was used in this study, which revealed different constructs and underlying manifest variables that are important in explaining M&A financial performance.

Suggestions for Future Research
The further research, it is tantalizing to note that strategic logic and organizational behavior aspects seem to lead to improved financial performance. Future research could lead to additional variables being revealed or even new perspectives, and establish their importance regarding M&A financial performance. By increasing the sample size from ten companies to more findings may vary. The study can be conducted on sector wise pre and post analysis of M&A can be done for 20 years.