Merger, acquisition – right move or emotional move for growth – case study of sun pharmaceutical

Abstract

Purpose The purpose of this paper is to analyze the merger and acquisition (M&A) strategy focusing on Indian company’s approaches and to understand steps of the process adopted by them. It focuses on the rationality of M&A and its impact on the profitability. This paper also discusses whether financial transaction in terms of value is right or done because of eagerness to expand by calculating the financial value of brand equity independently. Design/methodology/approach The operating performance, capital adequacy and solvency measures were compared to three-years pre- and post-merger from the financial statements of the organizations through financial valuation of brands. Inter-brand and RKS model are used to calculate the brand value. The perception study on M&A is also conducted by interviewing stakeholders. This paper provides a theoretical and practical basis to decide on whether M&A. The present paper has taken recent mega M&A of Ranbaxy Lab by Sun pharmaceuticals for the analysis. Findings The results of the paper showed that Return on investment did not indicate significant improvement, but on average, it can be concluded that overall performance of the acquirer improves as a result of M&A activity as per the study. The decisions on M&A are more emotional than rational. The present paper reveals that M&A of pharmaceutical company was riskier because of emotional decisions. Research has proposed “Merger, acquisition Theory (RERC MA theory) based on rational, emotion, risk taking ability culture” to understand the M&A. Research limitations/implications This paper is more focused on emerging markets which is more active with better gross domestic product (GDP) growth. It is more on analysis of financial decisions and has not taken customer equity, employee morale and engagement. A further study is suggested in the same areas. Managerial Implications: This paper will enable the managers to withstand the emotional influence and will help them to be more professional approach which will benefit the organization and stakeholder better. Mangers should look for long-term impact than short-term impact the present paper will also help them to understand on how financial calculations will help them to take more rational decisions. Originality/value Although the topic is not very new, a lot of literature is available on M&A, but the pharmaceutical sector is comparatively new for such kind of studies. Specifically, the selection of respondents and brand valuation mechanism has got practical implications. Earlier papers on M&A paper are more focused on customers’ equity, but a financial analysis of M&A is done in the present paper will help to evaluate merger and acquisition process more analytically. Financial calculation for evaluating M&A is the highlight of this research paper. Study of M&A from emerging markets will help to increase the knowledge as such papers are few. Research uses two important financial tools to measure financial brand equity and tries to justify the need for more rational rather than emotional approach. Research has proposed “Merger, acquisition Theory (RERC MA theory) based on rational, emotion, risk taking ability culture” to understand the M&A.

The role of emotions during mergers and acquisitions: A review of the past and a glimpse into the future

“…Positive effects occur when TMT members are more resilient, stress is reduced and decision‐making is more calculated. This could improve collaboration during this phase of the M&A (Dasborough et al., 2015; Srivastava, 2018).…”

Gender diverse boards and goodwill changes: association between accounting conservatism, gender and governance

“…The following articles characterize some of the aspects related to firm acquisition. Srivastava (2018) analyzed an M&A case and the steps of the M&A process, revealing that it is complicated and also emotions have an influence on decisions. Knauer and Wöhrmann (2016) studied the impact (market reaction) of GW impairments.…”

Understanding Determinants of Domestic Mergers and Acquisitions Through Literature Review

“…The acquirer companies are also entering into M & a with the target companies who are related to them in terms of accounting practices by following IFRS, which are universally followed instead of local GAAP. Srivastava (2018) stated that in order to apprehend merger and acquisition more rigorously, in place of following emotional approach rational approach should be followed as proposed by Srivastava in RERC MA Theory. George et al (2016) explained that firms when enter into related mergers and acquisitions, look for the activities are related or not and on the basic of deal value, productivity of the other company, whereas in case of unrelated M & A, financial position of company is taken into account and not productive capacity While comparing with India, the M & A studies are studied more in China.…”