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This article is written by Seerat Kaur, pursuing a Diploma in M&A, Institutional Finance and Investment Laws (including PE and VC transactions) from LawSikho.


Mergers and Acquisitions are aspects of strategic management, corporate finance and administration dealing with corporate restructuring of companies and other such entities that can assist their grow swiftly in their respective sector, region, or even help with diversification in a different field.

A merger can be described as an amalgamation of two or more companies into one single entity, whereas an acquisition occurs when one company takes over another target company completely and establishes itself as the new owner. There is no doubt that mergers and acquisitions are great tools for the purpose of profit maximization and expanding reach.

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Through this piece, we will discover and analyse how Asian Paints, on May 14, 2014 acquired Punjab based Ess Ess Bathroom Products Pvt. Ltd and its entire front-end sales business including brands, network and sales infrastructure. This deal is considered as one of the biggest MnA deals in the history of India.

Backdrop of the Deal 

Founded in 1993 in Punjab, Ess Ess Bathroom Products Pvt Ltd. is a key prominent player in the bath and wash business segment in India and has good high quality products. Asian Paints on the other hand, owns the crown for being the largest paints company in the country ahead of Berger Paints (not associated with Berger International), Kansai Nerolac and Akzo Nobel (formerly ICI). It has operations in 24 diverse countries with collective paint manufacturing capacity of around 330 million litres per annum.

Asian paints initialed a deal with Ess Ess Bathroom products Pvt Ltd to acquire its front-end sales business, including brands, network and sales infrastructure, subject to necessary approvals for an undisclosed sum in May, 2014. And in June, shares of Asian Paints closed 3.3% higher at 556.95 apiece on BSE. It was a well thought out strategy to grow its business by acquiring related services providing businesses to attract a wider range of audiences, while keeping the current audiences and engaged for longer.

Size of the Deal

Asian Paints officially completed the acquisition of Ess Ess Bathroom Products on June 11, 2014. The company had earlier on May 14, 2014, entered into a binding agreement.

We have already witnessed that Ess Ess Bathroom Products is a very prominent player in the bath and wash business segment in India, while Asian Paints is India’s largest and most recognised paint company and also has the trophy of Asia’s third largest paint company. The company along with its other divisions has operations in over 20 countries across the world and offers 28 paint manufacturing services, servicing varied consumers in 65 countries in the form of Berger International, SCIB Paints-Egypt, Asian Paints, Apco Coatings and Taubmans.

It must most definitely be noted that Asian Paints also bought a widely held stake in Ethiopian paint and adhesives maker Kadisco Chemical Industry Plc in the same year. In March 2013, it bought 51% equity stake in Sleek International Pvt. Ltd, a modular kitchen maker. With the extended profit made in both these investments, it had already achieved enough growth to acquire Ess Ess Bathroom Products Pvt. Ltd.

Soon after, according to the Indian Paint Association (IPA), the Indian paint market was expected to reach Rs 70,875 crore by the end of 2019-20 from around Rs40,300 crore in 2014-15.

Further, as per an analysis of the Paint Sector Report, decorative paints segment was expected to witness better growth going forward from 2020 onwards. The fiscal incentives given by the government to the housing sector have incalculably benefited the housing sector. This will profit key players in the long term and the market for India paints and coatings is expected to expand at a CAGR of 8.56% during the forecast period of 2019 – 2024. Mounting demand from the construction industry, united with rising infrastructure activities, is driving the demand for the market studied. It can be seen that Asian paints did not only globalise its market audience, but also diversified its product line in a horizontal manner.

 This means that it has followed a strategy similar to Reliance’s. It has expanded and acquired in a manner that is rewarding for the future, thus it is no less than an investment. This can be called an investment where the returns come in the form of audiences and future buyers. Increasing the audience base is not the only way to grow a business. Increasing the engagement of these audiences results in forming much loyal customers, who will look forward to purchasing from the same store on future occasions as well. In a way, it can be said that Asian Paints will not only be selling paint, but will be selling convenience which is what the customers look for.

Purpose behind the deal

Soon after the acquisition, Ess Ess Bathroom Products Pvt. Ltd, which produced high end products in bath and wash sector in India led to a expectedly 3.3% rise in share price for Asian paints.

Ess Ess Bathroom Products Pvt Ltd. has above 1,500 dealers in India. The company’s home factory is located in Himachal Pradesh. It also exports to Britain, Far East and the Middle East. Hence, looking at all the laurels of Ess Ess, this acquisition by Asian Paints is in line with its strategy to be a one-stop solution provider in the home décor space. In August 2013, Asian Paints had invested Rs 120 crore as part of a deal to buy a 51 per cent stake in Sleek International Pvt Ltd, which is one of the top modular kitchen solutions firms in India.

In February of 2014, Asian Paints had rambled its stake in Singapore-headquartered Berger International Ltd (BIL), an investment holding company which manufactures, distributes and sells paint and related products in Bahrain, The United Arab Emirates, Jamaica, Trinidad and Barbados, to around 96.7 %.

As mentioned earlier, In April of 2014, Asian Paints (International) Ltd (APIL), a wholly owned subsidiary of Asian Paints, agreed to buy 51 per cent equity stake in Ethiopia-based Kadisco Chemical Industry Plc for an unrevealed amount.

Asian Paint’s braving into the home improvement segment by the acquisition of Sleek, and then acquiring Ess Ess Bathroom Products when roughly 10% of Asian Paints dealers were already selling bathroom fittings reveals its strategy where a synergy effect assisted them to increase the sales of Ess Ess products. Asian Paints certainly benefitted by its entry into these aligned business as it got the cooperation of its vast dealer web which can also be used for the home improvement segment. Globally, Masco Corp in the US had successfully accomplished a similar diversification into a home décor company from a plumbing products company.

These moves by Asian Paint helped the giant in maintaining economy of scope and scale, thusconclusively increasing its profit margins. The market share was increased by absorbing competitors with potential and increasing market power to set prices. It was a traditional well thought of strategy.

Conclusion: An Analysis

The concept of mergers and acquisitions is a significantly prevalent concept, which India adopted after it entered the Liberalization, Privatization and Globalization (LPG) era. The winds of LPG are propelling over all the sectors of the Indian economy but its supreme impact is seen in the industrial sector.

It has caused the market to become hyper-driven. As competition increased in the economy, so to avoid unhealthy competition and to face international and multinational companies, Indian companies are going for mergers and acquisitions. There is no doubt that M&A is an inorganic growth strategy, which has been used by the corporate sectors for their growth and expansion.

The acquisition of Ess Ess Bathroom Products Pvt. Ltd by Asian Paints in 2014 quickly helped it climb up inside the bracket of Top 10 Indian MnA deals. This is accredited to its large size and how it affects the entire paint industry of India. Asian Paints soon utilised its paints distribution network to drive Ess Ess sales. It also drove promotion of Ess Ess and took it to the next level. The same was observed with Sleek, which saw marked increase in advertising post acquisition.

BJP, has repeatedly accentuated on the need to build infrastructure and had promised to build 100 new smart cities—a clear positive for paint companies. Also, it stated that it will look at urbanisation as an opportunity, building upon areas like housing. Urban development will be based on integrated habitat development and on concepts like Twin Cities and Satellite Towns. Real estate and infrastructure expansion will in a comparable manner increase paint demand, benefitting paint companies, especially the leader—Asian Paints—as it commands the preferred status owing to high brand recall.

Looking from a contemporary point of view, on a relative basis, the Indian currency It faced a significant pressure in the last quarter on bouts of increased volatility across global financial markets and fell down alarmingly. Further, the rising uncertainty around the COVID-19 pandemic has not made things any better, it has only made them worse. Paint being a variable spend item, there is a high prospect of customers putting their paint necessities on hold for some time, impacting refurbishment demand.

The overall demand for paint remained challenging during the course of FY 2019-20 due to the harsh operating environment experienced by the domestic economy. The shorter festival season, and the extended monsoon season across most parts of the country also impacted the demand in the economy.

Further, the liquidity crunch in the non-banking financial sector and the ensuing meagre borrowing conditions for real estate and infrastructure developers also put pressure on the decorative and industrial demand of paints. The consistent plunging conditions in the automobile sector also exerted pressure on the automotive coating demand in the industry throughout the year.

Moreover, the government also employed an abrupt shutdown on the whole supply chain in the last fortnight of the financial year in order to contain the spread of the global pandemic virus. The year, thus, ended at a suggestively less growth rate when compared to the previous year.

The demand is dependent on the way normalcy will be restored in the country. Paint demands tend to mirror the overall GDP growth in the economy. The paint industry will also have to anticipate the homecoming of the migrant labourers to strengthen the demand-generating sectors which include in it, real estate and infrastructure development. The government will have to promote infrastructure development in order to spur demand from a number of sectors. Consequently, given the overall ambiguity and confusion in current business conditions, prices of raw material and exchange rates will also display increased volatility. They would need to be critically examined to cushion the impact on productivity.



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