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Axis Bank Acquires Enam Securities: Post-Merger Integration Key to Success*

CASE STUDY, BANKING & FINANCIAL SERVICES
ET Cases, 8 Pages
AUTHOR(S) : Amit Tripathy, Doctoral Student, Dr. N. M. Leepsa, Assistant Professor - School of Management, National Institute of Technology Rourkela

Case Preview

Axis Bank Acquires Enam Securities: Post-Merger Integration Key to Success

On October 20th 2012, Axis Bank bought Enam Securities for $44 million (INR2067 crore1) in an all-stock deal. Shikha Sharma, CEO2 of Axis Bank received key businesses of Enam Securities such as investment banking, institutional and retail broking and distribution of financial products. In return, shareholders of Enam owned 3.3% equity shares of Axis Bank with a swap ratio of 5.7:1 (every share of Enam exchanged with 5.7 shares of Axis Bank). The deal was announced in November 2010, but in the process of obtaining regulatory approvals, Axis Bank fell amidst the legal controversies. India’s Central Bank denied Axis Bank’s plan of acquiring the investment banking business of Enam Securities on the grounds of tax liability. Nearly after ten months of legal struggle, Axis Bank was able to get RBI’s (Reserve Bank of India) approval with a revised plan.

Industry Analysis

The Indian banking framework comprises of a plethora of different types of banks. It has public sector banks, private sector banks, foreign banks, regional rural banks, urban cooperative banks and rural cooperative banks, in addition to cooperative credit institutions. As far as the numbers are concerned, Indian banking system has a list of 26 public, 25 private, 43 foreign, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks3. As indicated in a report by KPMG-CII4, Indian banking industry is all set to become fifth biggest banking industry in the world by 2020.5 The report also states that by 2025, it may emerge as the third largest banking industry..............

Exhibits

Exhibit I: Earning Estimates of the Banking Sector (% y-o-y growth)

Exhibit II: Earning Estimates of the Banking Sector (INR bn)

Exhibit III: Top Five Sectors in M&A Deals

Exhibit IV: Profile of Axis Bank

Exhibit V: Financial Ratios of Axis Bank


1 A crore (abbreviated cr) denotes ten million (10,000,000 or 107 in scientific notation) and is equal to 100 lakh in the Indian numbering system. It is widely used in South Asia, and is written in this region as 1,00,00,000 with the local style of digit group separators (a lakh is equal to one hundred thousand and is written as 1,00,000. Large amounts of money in India are often written in terms of crores, https://en.wikipedia.org/wiki/Crore, May 5th 2016 (Accessed date: March 23rd 2017)
2 CEO (Chief Executive Officer)
3 “Banking Sector in India”, http://nirdeshak.com/banking-sector-india/, March 10th 2017 (Accessed date: March 24th 2017)

Teaching Note Preview

Axis Bank Acquires Enam Securities: Post-Merger Integration Key to Success

Synopsis

The case study of Axis Bank acquires Enam Securities focuses on the consolidation strategy adopted by Axis Bank. It introduces the class to the possible reasons behind mergers and acquisitions in the banking industry. This may not the first acquisition deal for Axis Bank but certainly is one of its kind as it marks as a congeneric merger between Axis Bank (from banking sector) and Enam securities (from securities investment sector). This case proposes an example where two firms with similar
working cultures collaborated and this marked as the key to the success that followed the merger. Competition in the banking sector has been intense since the inception of private banks in the country. Realising the challenges ahead and with intent of diversification of business, Axis Bank went on with this acquisition to enter the investment banking and equity broking business to grab a chunk of the market share in the industry.

Prerequisite Conceptual Understandings (PCUs)/Before the Classroom Discussion

The participants should be aware of the competitive strategies adopted by firms for expansion of business. They must have knowledge of the various types of mergers and acquisitions with the pros and cons of each category. They must have an understanding of how to construct SWOT matrix, and should be prepared with the SWOT analysis of Axis Bank. For a better analysis of the case, participants could be asked to visit the websites of Axis Bank to analyze how the firm is positioned in terms of customer satisfaction and reviews, user-friendliness, the range of services available, etc.

Case Positioning and Setting

This case study can be used in MBA Program/Executive MBA/BBA in the following courses and topics:

• Corporate Restructuring Course- Mergers & Acquisitions
• Strategic Management Course- Expansion Strategy, Mergers & Acquisitions, SWOT analysis, Business Models, Competitive Strategy

Assignment Questions

I. Do you support Axis Bank’s proposal to acquire Enam Securities? Why?
II.............

Preamble to the Case Study Analysis and Suggested Orchestration

This case study helps to have an insight on the present market scenario of banking segment in India. It helps to analyze the current trend of growth through expansion and helps the participants to understand the nature of mergers and acquisitions. It also helps the participants to develop a competitive scenario of a company through SWOT analysis. The case study can be carried out as presented in Exhibit TN-I..........

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Abstract


*ET CASES – VGSOM’S CASE AWARD FOR BEST CASE IN CORPORATE FINANCE at International Conference on Financial Markets and Corporate Finance (ICFMCF 2017), 7th & 8th July 2017, VGSOM, IIT Kharagpur



This case study on the deal between Axis Bank (a private sector bank) and Enam Securities (a division of an investment bank) enables the participants/readers of the case to understand the importance of post-merger staff integration as a key for success/failure of the deal. This deal is unique in its own way as it was marked as a congeneric merger between banking giant and an investment banker. Every company has its own set of code of conduct and hence will have a different organizational culture. These terms are sometimes overlooked during the deal structuring process, which later on proves to be fatal and leads to the downfall of business. Neglecting this core issue sometimes leads to loss of the common objective that persuaded the deal in the first place. The reasons are quite obvious as the merger of two firms with completely different working environments will result in resistance to change if the employees of the target firm are forced to adopt the working culture of the acquiring company. Contrary to it, this case proposes an example where two firms with similar working cultures collaborated and this marked as the key to the success of the merger.

Pedagogical Objectives

  • To understand and analyze the current business dynamics of the banking industry in India
  • To study the impact of regulatory approvals on the deal process
  • To examine Axis Bank’s competitive strategy through SWOT analysis
  • To inspect, how post-merger integration can be a driving force behind success of any merger deal

Case Positioning and Setting

This case study can be used in MBA Program/Executive MBA/BBA in the following courses and topics:

  • Corporate Restructuring Course – Mergers & Acquisitions
  • Strategic Management Course – Expansion Strategy, Mergers & Acquisitions, SWOT analysis, Business Models, Competitive Strategy


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