Mergers and acquisitions (M&A) are transactions in which companies combine or one company takes control of another. In a merger, two companies join to form one. In an acquisition, one company buys a controlling stake in another, which may continue as a subsidiary.
What mergers and acquisitions are
Companies pursue M&A to grow faster, enter new markets, gain technology or talent, reduce competition, cut costs through scale, or strengthen their position. In India, a merger is often called an amalgamation. The opposite of a merger is a demerger, where a company splits off part of its business into a separate company.
How it works in India
Mergers and demergers of companies usually happen through a scheme of arrangement under the Companies Act, 2013, which needs approval from shareholders, creditors and the National Company Law Tribunal (NCLT). Listed companies also need clearances from the stock exchanges and must follow SEBI rules. Large deals may need approval from the Competition Commission of India (CCI).
In a merger, shareholders of the merging company usually receive shares of the surviving company according to a share exchange (swap) ratio. After completion, the merging company's shares are cancelled and it is delisted.
For acquisitions of listed companies, SEBI's Takeover Regulations apply: an acquirer crossing certain shareholding thresholds, such as 25%, must generally make an open offer to buy more shares from public shareholders, giving them a chance to exit.
A simple example
Company A agrees to merge Company B into itself with a swap ratio of 1:2: every two shares of B become one share of A. After NCLT approval and the record date, an investor holding 200 B shares receives 100 A shares, B's shares are delisted, and the investor now owns part of the combined company.
Why it matters for investors
M&A can change a company's size, debt, profitability and risks. For shareholders of the target, it can mean a premium price or new shares in a different company. For the acquirer's shareholders, the key question is whether the deal creates value or overpays. Many acquisitions fail to deliver expected benefits.
Important dates and terms
Appointed date: the date from which the merger takes effect in the accounts. Effective date: when the scheme becomes legally effective after approvals. Record date: when eligible shareholders are identified for receiving new shares. Following these dates helps you understand when your holding will change.
Why many deals disappoint
Studies of mergers worldwide suggest that a large share of acquisitions fail to deliver the benefits promised when they were announced. Common reasons include paying too high a price, overestimating cost savings, clashes between company cultures and losing key customers or employees during integration. As an investor, look for a clear strategic logic, a reasonable price and a management team with a record of successful integration.
Common misconceptions
"Mergers always benefit shareholders." Many destroy value through overpayment or poor integration.
"I must sell before a merger." Shareholders usually receive new shares automatically under the swap ratio.
"An announced deal is certain." Approvals can delay or block deals.
Frequently asked questions
What is a swap ratio?
The number of acquirer shares given for each share of the merging company.
Who approves mergers in India?
Shareholders, creditors, the NCLT, and where relevant SEBI, the exchanges and the CCI.
What is an open offer?
An offer to public shareholders triggered when an acquirer crosses SEBI thresholds.
What is a demerger?
Splitting part of a business into a separate company.
How to use this on PositoAI
Mergers, demergers and other corporate actions appear on the Actions page. When a merged company's shares stop trading, PositoAI redirects its page to the surviving company where appropriate.
Summary
Mergers combine companies; acquisitions transfer control. In India, mergers and demergers use NCLT-approved schemes of arrangement, shareholders receive shares under a swap ratio, and SEBI's takeover rules require open offers above set thresholds. M&A can create or destroy value, so judge the price paid and the integration plan.