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Crompton Greaves' Mergers and Acquisitions: Evidence from Indian Manufacturing Company

CASE STUDY, FINANCIAL MANAGEMENT
ET Cases, 30 pages
AUTHOR(S) : Dr. N. M. Leepsa (Assistant Professor, Accounting and Finance, School of Management National Institute of Technology, Rourkela), Dr. Chandra Sekhar Mishra (Associate Professor, Vinod Gupta School of Management, IIT Kharagpur)

Case Preview

Crompton Greaves’ Mergers and Acquisitions: Evidence from Indian Manufacturing Company

 

Incorporated in the year 1937, Crompton Greaves is engaged in designing, manufacturing and marketing high technology, electrical products and services related to power generation, transmission, distribution and execution of turnkey projects. Crompton Greaves focus on three business groups, namely, Power Systems, Industrial Systems and Consumer Products. The company manufactures a wide range of products such as power & industrial transformers, HT circuit breakers, LT & HT motors, DC motors, traction motors, alternators/generators, railway signaling equipment, lighting products, fans, pumps and public switching, transmission and access products. In addition, the company also undertakes turnkey projects from concept to commissioning. With manufacturing plants across Gujarat, Maharashtra, Goa,  Madhya Pradesh and Karnataka, Crompton Greaves and a strong presence in the domestic market it has also spread its business in the Southeast Asian and Latin American markets. It has joint ventures and technological tie-ups with W. Lucy & Co. of the UK and the Danish company Brook Hansen. It comes under the ownership of Avantha Group whose focus is on strategic acquisitions and financial structuring. Currently, Mr. Gautam Thapar is the Chairman of the company.

Crompton Greaves’ Mergers & Acquisitions (M&As)

Crompton Greaves made several M&As since 1990 till date. Crompton Greaves carried out seven merger deals and eleven acquisition deals. It adopted an  inorganic growth strategy for survival and success. Exhibit I shows the various M&As done by Crompton Greaves....................

Motives behind M&A Strategy of Crompton Greaves

The motives for going for any inorganic growth strategy by Crompton Greaves have changed over the years. The company started a series of M&A activities when the company it faced losses in 2000 and 2001. At that time, it focused on cost cutting and exiting unrelated businesses. The next phase of acquisition strategy was to gain a global presence by acquiring companies that had strong business expertise but were cash-starved. Up to 2007-2008, the motives for M&A deals were to improve operational efficiencies, reduce unit costs across all the businesses, seek greater global opportunities, grow its various businesses, and increase capacities. Before 2011, Crompton Greaves had managed to acquire scale and product offering through acquisitions..............

M&A Decision Making

The decision making process in M&A involves lots of activities which are discussed in this section. Crompton Greaves goes for M&A to improve the core competency of business in its power system business that includes transmission and distribution (T&D) systems, transformers and reactors, switchgear components and products, services for power systems, instrument transformers, power quality solutions, various engineering solutions, protection, control & automation, and low voltage switches & panel products............

Pre-and Post-M&A Performance

As emphasised in this study, M&A are inevitable part of the growth strategy for any company. However, the companies are expected to show better performance after M&A. In this section, the financial results are presented for Crompton Greaves to know about the impact of M&A. Exhibit III shows EVA and rate of EVA of Crompton Greaves and rate of EVA of control group over the period from 2000-01 to 2010-11...............

Factors affecting the Success and Failure of M&A of Crompton Greaves

Based on the previous discussion, it can be said that the Crompton Greaves has been successful in M&A both in terms of operational and financial performance. The company on its own defines the success and failure of M&A in terms of M&A execution, technology absorption, increase in market share and new customers, synergy benefits in terms of additional revenue as well as cost reduction and increase in share price............

M&A Challenges

The major challenges faced by a company during various stages of M&A process are non-availability of strategically attractive target firms, target’s valuation being too high and limited information available for due diligence. Many players in an auction process for acquisition also lower probability of success. Lack of tax incentives, difficulty in our restructuring, integration and cultural issues between two organizations create challenges for the acquirer. Review procedure in the post M&A transaction, financing of deal at competitive cost, aspects related to accounting treatment are also some factors encountered during M&A.............

Assignment Questions

Q46. Apart from M&A strategy adopted by Crompton Greaves, what are the other strategies used to improve company performance? So that the company would perform better than its competitors.

Q47. Do you think that this study is important to an organisation like Crompton Greaves? Why? Any other comment or contribution to the subject matter relevant for the study? Anything that is not discussed above

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Exhibits

Exhibit I: M&As of Crompton Greaves

Exhibit II: Crompton Greaves’ Motives behind the M&A Deals

Exhibit III: Post-M&A Performance of Crompton Greaves using EVA and Rate of EVA

Exhibit IV: Post-M&A Performance of Crompton Greaves using Liquidity, Efficiency, Profitability, Solvency Ratios

Exhibit V: Factors Leading to Failure of M&A

Exhibit VI: Composition of Board of Directors (in %)

Exhibit VII: Personnel and their Qualification

Exhibit VIII: Extent of Integration of Activities with Target Firm

Annexures

Annexure I: Survey on Mergers and Acquisitions by Crompton Greaves: Part I

Annexure II: Survey on Mergers and Acquisitions by Crompton Greaves: Part II

Teaching Note Preview

Crompton Greaves’ Mergers and Acquisitions: Evidence from Indian Manufacturing Company

 

Synopsis

This case study is based on survey results through a questionnaire, which is prepared, based on review of literature to elicit responses regarding different aspects of M&A in Crompton Greaves. The respondent in the survey is the General Manager – Mergers & Acquisitions division of Crompton Greaves Ltd., Mumbai. The financial performance of Crompton Greaves is evaluated specifically after 2000 since the company has gone for more number of M&A deals. Therefore, Crompton Greaves which has made several M&A deals is considered as a case. The company has made ten acquisition deals since 2005. Today these target companies are contributing more than 40 percent of consolidated revenues of the company. The case study analyzes both financial and non-financial factors that could affect M&A performance.

Prerequisite Conceptual Understanding

Students should have prior knowledge on the concept of Merger and Acquisition.

Expected Learning Outcomes

  • • Understand various strategic motives behind the M&A deals by Crompton Greaves
  • • Evaluate and ascertain the impact of M&A on Crompton Greaves’ financial performance
  • • Explore the factors influencing post M&A performance of Crompton Greaves
  • • Understand the issues and the challenges faced by Crompton Greaves, while carrying out M&A deals

 

Case Positioning and Setting

This case study can be used in MBA Program/Executive MBA/ BBA – Finance Management course – Merger and Acquisition

Assignment Questions

After studying this case study, the students can be able to understand the following questions:

  • I. What are the motives of companies behind going for M&A deals?
  • II. What are the significant factors that influence the M&A deals in Indian manufacturing sector?
  • III. Discuss the various failure factors of M&A deals.
  • IV. What are the key motives for the merger deals done by Crompton Greaves?
  • V. .....................

 

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Abstract

This case study on Crompton Greaves is meant to enable students to understand what makes Merger and Acquisition (M&A) successful. The objective is to analyze the non-financial factors affecting post-M&A performance along the financial factors for a specific company that has gone for M&A. In this case study, an attempt is made to analyze the M&A strategy of Crompton Greaves and post-M&A performance by applying different financial metrics. This case study focuses on Crompton Greaves' historical background, M&A deals done by the company, the motives behind the M&A strategy of Crompton Greaves, merger and acquisition benefits and factors that influenced the Crompton Greaves success in M&A. It also deals with the pre- M&A activities influencing the execution of M&A deals. Thus, the case study would bring more clarity to the various issues of M&A performance and improve the research findings. Crompton Greaves is one of the largest manufacturers of Electrical and Industrial Equipment machinery in India. This case study shows the survey results of the M&A of Crompton Greaves which was conducted through a questionnaire to elicit responses regarding different aspects of M&A in Crompton Greaves.



Pedagogical Objectives

In view of the context as above, the pedagogical objectives of this case study are:

  • To understand various strategic motives behind the M&A deals by Crompton Greaves
  • To evaluate and ascertain the impact of M&A on Crompton Greaves’ financial performance
  • To explore the factors influencing post M&A performance of Crompton Greaves
  • To understand the issues and the challenges faced by Crompton Greaves, while carrying out M&A deals

Case Positioning and Setting

This case study can be used in MBA Program/Executive MBA/BBA - Finance Management course - Merger and Acquisition



This Case Pack Includes:
- Abstract
- Case Study
- Teaching Note (**ONLY for Academicians)
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