Survival Is The Mantra For Indian Firms

Survival Is The Mantra For Indian Firms

I observe a common trend in the following mergers:

HDFC Limited and HDFC Bank
PVR Limited and Inox Leisure Limited
Zee Media Corporation Limited and Sony Pictures Entertainment

The 𝟏𝐬𝐭 𝐚𝐧𝐝 𝟐𝐧𝐝 𝐦𝐞𝐫𝐠𝐞𝐫 𝐨𝐛𝐣𝐞𝐜𝐭𝐢𝐯𝐞𝐬 𝐚𝐫𝐞 𝐭𝐨 𝐛𝐞𝐜𝐨𝐦𝐞 𝐭𝐡𝐞 𝐦𝐨𝐬𝐭 𝐞𝐱𝐭𝐞𝐧𝐬𝐢𝐯𝐞 𝐛𝐚𝐧𝐤𝐢𝐧𝐠 𝐚𝐧𝐝 𝐜𝐢𝐧𝐞𝐦𝐚 𝐜𝐡𝐚𝐢𝐧 𝐢𝐧 𝐭𝐡𝐞 𝐜𝐨𝐮𝐧𝐭𝐫𝐲, 𝐰𝐡𝐢𝐥𝐞 𝐭𝐡𝐞 𝐭𝐡𝐢𝐫𝐝 𝐦𝐞𝐫𝐠𝐞𝐫 𝐟𝐨𝐜𝐮𝐬𝐞𝐬 𝐨𝐧 𝐬𝐜𝐚𝐥𝐞 𝐚𝐧𝐝 𝐜𝐨𝐬𝐭 𝐨𝐩𝐭𝐢𝐦𝐢𝐳𝐚𝐭𝐢𝐨𝐧.

In my experience, whenever such mega-mergers/consolidations happen regularly in an industry, it implies that the industry faces disruption, and incumbents fight against disruptors to consolidate to scale and preserve market share.

For 𝐇𝐃𝐅𝐂, 𝐢𝐭 𝐢𝐬 𝐭𝐡𝐞 𝐫𝐢𝐬𝐞 𝐨𝐟 𝐟𝐢𝐧𝐭𝐞𝐜𝐡 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐭𝐞𝐜𝐡 𝐬𝐮𝐩𝐞𝐫𝐢𝐨𝐫𝐢𝐭𝐲 that HDFC failed to compete against, while for  𝐏𝐕𝐑-𝐈𝐧𝐨𝐱, 𝐢𝐭 𝐢𝐬 𝐭𝐡𝐞 𝐎𝐓𝐓 𝐦𝐨𝐝𝐞𝐥 𝐨𝐟 𝐕𝐢𝐝𝐞𝐨 𝐨𝐧 𝐃𝐞𝐦𝐚𝐧𝐝 from the likes of Disney+ Hotstar, Netflix, and Prime Video & Amazon Studios.

We can extend this rationale to 𝐒𝐨𝐧𝐲-𝐙𝐞𝐞 𝐚𝐧𝐝 𝐊𝐮𝐛𝐨𝐭𝐚-𝐄𝐬𝐜𝐨𝐫𝐭𝐬.

I believe that 𝐢𝐧𝐜𝐮𝐦𝐛𝐞𝐧𝐭 𝐦𝐚𝐫𝐤𝐞𝐭 𝐥𝐞𝐚𝐝𝐞𝐫𝐬 𝐧𝐨 𝐥𝐨𝐧𝐠𝐞𝐫 𝐰𝐚𝐢𝐭 𝐭𝐨 𝐭𝐮𝐫𝐧 𝐭𝐨 𝐚 𝐝𝐢𝐬𝐭𝐫𝐞𝐬𝐬𝐞𝐝 𝐚𝐬𝐬𝐞𝐭 𝐚𝐧𝐝 𝐚𝐫𝐞 𝐩𝐫𝐨𝐚𝐜𝐭𝐢𝐯𝐞 𝐭𝐨 𝐦𝐞𝐫𝐠𝐞/𝐠𝐞𝐭𝐭𝐢𝐧𝐠 𝐚𝐜𝐪𝐮𝐢𝐫𝐞𝐝 𝐭𝐨 𝐬𝐮𝐫𝐯𝐢𝐯𝐞. The only exception in recent times was Future Group India‘s sale to Reliance Retail, where 𝐅𝐮𝐭𝐮𝐫𝐞’𝐬 𝐡𝐢𝐠𝐡 𝐥𝐞𝐯𝐞𝐫𝐚𝐠𝐞 𝐦𝐚𝐝𝐞 𝐢𝐭 𝐝𝐢𝐬𝐭𝐫𝐞𝐬𝐬𝐞𝐝 𝐚𝐧𝐝 𝐭𝐡𝐮𝐬 𝐡𝐚𝐝 𝐧𝐨 𝐚𝐥𝐭𝐞𝐫𝐧𝐚𝐭𝐢𝐯𝐞 𝐛𝐮𝐭 𝐭𝐨 𝐬𝐞𝐥𝐥 𝐢𝐭𝐬𝐞𝐥𝐟. 𝐎𝐭𝐡𝐞𝐫 𝐢𝐧𝐜𝐮𝐦𝐛𝐞𝐧𝐭𝐬 𝐡𝐚𝐯𝐞 𝐥𝐞𝐚𝐫𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐭𝐡𝐞 𝐅𝐮𝐭𝐮𝐫𝐞 𝐠𝐫𝐨𝐮𝐩 𝐚𝐧𝐝 𝐚𝐫𝐞 𝐰𝐢𝐥𝐥𝐢𝐧𝐠 𝐭𝐨 𝐞𝐱𝐩𝐥𝐨𝐫𝐞 𝐦𝐞𝐫𝐠𝐞𝐫𝐬 𝐛𝐞𝐟𝐨𝐫𝐞 𝐭𝐮𝐫𝐧𝐢𝐧𝐠 𝐢𝐧𝐭𝐨 𝐚 𝐝𝐢𝐬𝐭𝐫𝐞𝐬𝐬𝐞𝐝 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬𝐞𝐬.

Thus, these mega-mergers denote that 𝐒𝐮𝐫𝐯𝐢𝐯𝐚𝐥 𝐢𝐬 𝐭𝐡𝐞 𝐦𝐚𝐧𝐭𝐫𝐚 𝐟𝐨𝐫 𝐢𝐧𝐜𝐮𝐦𝐛𝐞𝐧𝐭 𝐟𝐢𝐫𝐦𝐬 who cannot compete against disruptors.