Future's most Effective Trends in M&A,

Increased need for technology sharing, resource utilization and cross border trade is encouraging the process of Mergers and Acquisitions, and the trend is catching pace in Indian Industrial Sector. We saw a lot of M&A taking place after year 2004 and it seems that in coming future we will witness a lots more.

But what is of importance isn't counting the number of M&A, but analyzing the changing patterns and trends that are going in around M&A territory. The past M&A provided important lessons for investors and companies and will impact the nature of transaction activity going forward. This, together with several important secular changes – such as the new regulatory and corporate governance environment, changes in investor behavior, and diminished prospects for growth in mature markets – will result in merger, acquisition and restructuring activity that could look and feel different from the activity of the last decade. This will create a host of challenges and opportunities for practitioners who can adapt to the new trendy environment.

The most effective trends that will govern and regulate the M&A most wiil be:

Regulatory and corporate governance: The new regulations of Sarbanes-Oxley will ensure that corporate boards place greater scrutiny on material corporate transactions than they may have in the past. Strategic rationale, premiums paid, and the ability to integrate successfully will all need to be justified and more deeply deliberated. New accounting certification requirements will also place a greater due diligence burden on managements of acquirers, who will be required to certify the accuracy of the accounts of acquired companies in their annual audits. The push for greater disclosure and transparency will also limit the ability of companies to use reserves to cushion the impact of any mistakes or unforeseen developments related to M&A activity.

Investor behaviour: Metrics such as long-term return on invested capital (“ROIC”) and impact on overall enterprise risk and volatility will become more important relative to traditional metrics focused solely on earnings accretion and dilution. Combined, these factors will require companies to be more disciplined than in the past to justify and support their M&A activity.

Limited growth opportunities: Many companies in developed countries face increasingly mature markets with limited opportunities for growth. Leaving aside the effect of cyclical recoveries, which provide a near term uplift in demand, a combination of secular forces including an aging workforce, limited population growth and intense price pressure from global competitors will provide a very challenging operating environment for delivering meaningful growth in corporate sales and profits. Many companies have responded to this environment by undertaking significant internal restructurings focused primarily on the cost-side of the equation.

What will be the Indian Industrial orientation and attitude, particularly IT sector towards, M&A will be very interesting to know.