This study examines the profitability of acquiring firms in the pre- and post-merger periods. The sample consists of 153 listed merged companies. Five alternative measures of profitability were employed to study the impact of mergers on the profitability of acquiring firms. The results reveal that profitability declined in 55% of companies, and only 29% of companies could improve their profitability. DuPont analysis reveals that profitability declined due to poor asset utilization. It suggests that managers should give due attention to proper utilization of newly acquired assets. Acquisition of neither healthy nor loss-incurring units contributed to the profitability of acquirers.

In the past few years, India has followed the worldwide trends in consolidation amongst companies through Mergers and Acquisitions (M&A). Companies are being taken over, units are being hived off, joint ventures are being forged, and so on. Restructuring old business has become a necessity in the wake of globalization and liberalization. As restrictions and controls have been minimized in the new regime, restructuring has become essential. Restructuring involves major organizational change, which includes change in corporate strategies to meet increased competition. This can take place either internally in the form of new investments in plant and machinery, and Research and Development (R&D), or it can take place externally through M&A or joint ventures.

Merger is defined as combining two or more companies into a single entity where one survives and the other loses its corporate existence. The survivor acquires the assets as well as liabilities of the merged company or companies. Generally, the company which survives is the buyer, and it retains its identity and the seller company is extinguished. Though liberalization, initiated in 1991, propelled the M&A activity, yet the actual activity in the Indian context is said to have started after 1994.

Applied Finance Journal, Mergers and Acquisitions, Liberalization, Globalization, Research and Development, Capital Markets, Stock Market Data, Accounting Data, Japanese Manufacturing Industry, Business Groups, Corporate Databases, Financial Ratios, Poor Asset Utilization.