Performance of acquirer in the manufacturing sector: Analysis of economic value added in different industries of the manufacturing sector in India

Authors : N. M. Leepsa,
Chandra Sekhar Mishra


Acquirers make M&A (Mergers and Acquisitions) deals with the objective of improvement of performance and wealth creation for the company, or shareholder value creation. However, in the past literature, the performance of companies after M&A is evaluated using traditional performance measures like Return on Assets (ROA), Return on Capital Employed (ROCE), and Earning per Share (EPS); these measures do not take into account the cost of capital. Limited studies have taken into account Economic value Added (EVA), which is the true performance measure in evaluating M&A performance as it takes into account the opportunity cost. As far as M&A in Indian manufacturing companies is concerned, limited study
has been made and specifically, the performance evaluation in industry wise analysis is yet to be found in
literature using this new measure called EVA.

Key Words: Mergers and Acquisitions, Economic Value Added, Manufacturing companies


In today’s business world, it is difficult to maintain a company’s current position and grow faster than competitors. This is the result of intense competition from global counterparts and rapid technological changes. In this situation, companies seek growth strategies to create value for shareholders through mergers and acquisitions (M&As). As per Figure 1, from 1999-2000 to 2015-16, there have been 5,236 merger deals and 14,181 acquisition deals that have been announced in India with the acquisition consideration of more than Rs.17,400 billion (Source: Economic Outlook, CMIE). Hence, the numbers of mergers and acquisitions have grown both in volume and value not only in different parts of the world but also in the Indian corporate sector as shown in Figure 1. Thus, most of the researchers have been involved in finding out the pre and post M&A performance to know whether there has been any improvement in the performance and value addition through M&A.
However, empirical studies till now have evaluated the performance of the acquiring firm using the traditional measures. Economic value added® (another term for this metric is Economic profit) is a performance measurement tool used to analyze whether the value of business is created or lost. EVA performance of companies might vary from company to company depending on the industry. This study basically takes economic profit as a new measure of performance.

EVA is the registered trademark of Stern Stewart & Co. and has identified a specific method of calculating
economic profit. A company may earn a profit, but this is not sufficient. The company has to calculate profit above the cost of capital, which is called economic value added. But limited past studies have taken the parameter of EVA to evaluate M&A as the true measure to know if value is created or destroyed as a result of the M&A transaction. Hence, the present study is an attempt to make EVA analysis of different companies in different industries that have opted for M&A in the manufacturing sector in India.

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Authors Information:

N. M. Leepsa is Assistant Professor at School of Management, National Institute of Technology Rourkela, Odisha, India. Prior to this, she worked as Assistant Professor in L. M. Thapar School of Management in Thapar University, Patiala, Punjab, India. Earlier, she was working as guest faculty in LMT School of Management, Thapar University, India. Prior to Thapar University, she was visiting faculty at the Rajdhani College of Engineering and Management, Odisha, India. Leepsa’s teaching interests include Corporate Finance, Cost and Management Accounting, Financial Management, Financial Accounting and Corporate Restructuring. She has also contributed towards teaching as Teaching Assistant during her PhD Program at VGSOM, IIT Kharagpur. She can be reached at

Chandra Sekhar Mishra is Associate Professor (Accounting and Finance) at Vinod Gupta School of Management, IIT Kharagpur, Kharagpur, West Bengal, India. He is working in the field of Financial
Accounting, Reporting and Analysis, Mergers and Acquisitions, Valuation and Financial Markets. He has
published articles on various aspects of Valuation, Performance Analysis, Captial Structure and Corporate
Dividend Policy. He can be reached at or