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: going to make the buyer even more over-extended?

For privately-owned companies, a growth-through-acquisition strategy can be a cost-effective and relatively quick approach for achieving key goals and objectives.

Although many owners and executives first consider this strategy only when they learn a local competitor may be up for sale, other acquisition targets may exist that are actually a better fit. However, you should never buy a company solely because it is, or may become, an acquisition target.

What you should do?

Past experience says that especially in India, acquisitions are done after continuous talks and consent of the target management and promoters. Open market transactions don't result in anything except if it is for pure investment purpose. Because after investing huge money, if the deal doesn't work out, then the acquiring company suffers. If one looks at the Tata-JLR deal, there could be lot of repercussions, which the company may not have know and it may have to infuse some more funds into the acquired company post-acquisition.

Now, when this type of acquisition happens for some investors, it may be a surprise or some may be happy, as they are already invested and were expecting the same anytime in the future. From this, it is understood that identifying potential targets is not easy and if it is identified then how much time frame should we take into account? There are some factors, which can be considered by investors in different situations and could pick the stocks that could be potential targets for acquisition and this can become a very good stock for long-term investment.

Can there be other cases like this in the same sector or other sectors? More banks could be potential targets considering the consolidation in the sector and the new Basel-II norms. There are eight banks with promoters holding nil, except two banks with a marginal promoters stake. From this, there could be seven potential targets of bigger banks in the country. And there is news that Yes Bank is eyeing potential acquisition targets.