'Acquisitions can also be a winner's curse'
The recent spurt in merger and acquisition activity by Indian companies abroad and multinationals in India will only strengthen with the country’s economic rise.
By Ritwik Donde, TNN |
MUMBAI: The recent spurt in merger and acquisition activity by Indian companies abroad and multinationals in India will only strengthen with the country’s economic rise.
But companies must exercise caution not to jump into the bandwagon without a strategic purpose, early preparation and a clear roadmap for integration, experts said at this week’s ET Think Turf panel discussion organised in association with CA.
Liberalised government rules, abundance of cash and a new-found confidence among Indian companies may be facilitating such deals in various sectors, but some learn the hard way that acquisitions can become “the winner’s curse,” if merely undertaken for its own sake rather than a compelling need, they said.
“India Inc is seeing a lot of good times and good times are when bigger mistakes are made. So companies have to be very careful,” Ican Investment Advisors MD Anil Singhvi said, setting the tone for the hour-long discussion.
Preparation is key. For instance, at Videocon Group, officials keep an eye out for companies that might come up for sale in the next few years and study them beforehand, the group’s chairman, VN Dhoot, said. This puts them at a competitive advantage when a typical 90-day auction window opens for an acquisition opportunity, he said. “Acquisitions fail when people do not do their homework.”
The success of an acquisition is directly dependent on the quality of integration, said Standard Chartered Bank’s managing director of corporate advisory and finance Sunil Mehra. “Finally, it all boils down to whether you can digest the M&A,” he said.
Agreeing with him, Mastek founder Ashank Desai said the size of an acquired company relative to that of the acquirer could decide the outcome to a large extent. The more equal the sizes of the two are, more would be the integration problems. “Ultimately, there are no mergers, there are only acquisitions,” he said.
John Swainson, president and chief executive officer of CA, who had given the keynote address at the event, said his experience over more than 40 acquisitions showed him the integration of the information technology infrastructure is critical to bring together the two operations successfully.
Integration would not just mean blending the two operations totally, but bringing them together only in areas where it would make sense and leaving the rest to remain independent, ICICI Bank’s Chanda Kochhar said. “Indian corporate sector is at a stage where they can take independent decisions whether they merge the acquired company fully and take decisions on chopping and changing the management.”
RN Mukhija, operations president at Larsen & Toubro said cultural differences don’t arise only in cross-border acquisitions, but also in domestic deals. He cited the example of his own company which acquired a small operation in one city and moved it to another, only to find that labour union at the latter facility resisted extending some facilities to the new workers.
With as many as 531 strategic M&As worth more than $49 billion taking place in the first nine months of 2007, it is clear that Indian companies have factored in these deals as a vital part of their growth strategy. But, “every acquisition is unique, and has to be approached uniquely factoring in different aspects to marry them with your company,” Swainson said.
But companies must exercise caution not to jump into the bandwagon without a strategic purpose, early preparation and a clear roadmap for integration, experts said at this week’s ET Think Turf panel discussion organised in association with CA.
Liberalised government rules, abundance of cash and a new-found confidence among Indian companies may be facilitating such deals in various sectors, but some learn the hard way that acquisitions can become “the winner’s curse,” if merely undertaken for its own sake rather than a compelling need, they said.
“India Inc is seeing a lot of good times and good times are when bigger mistakes are made. So companies have to be very careful,” Ican Investment Advisors MD Anil Singhvi said, setting the tone for the hour-long discussion.
Preparation is key. For instance, at Videocon Group, officials keep an eye out for companies that might come up for sale in the next few years and study them beforehand, the group’s chairman, VN Dhoot, said. This puts them at a competitive advantage when a typical 90-day auction window opens for an acquisition opportunity, he said. “Acquisitions fail when people do not do their homework.”
The success of an acquisition is directly dependent on the quality of integration, said Standard Chartered Bank’s managing director of corporate advisory and finance Sunil Mehra. “Finally, it all boils down to whether you can digest the M&A,” he said.
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Agreeing with him, Mastek founder Ashank Desai said the size of an acquired company relative to that of the acquirer could decide the outcome to a large extent. The more equal the sizes of the two are, more would be the integration problems. “Ultimately, there are no mergers, there are only acquisitions,” he said.
John Swainson, president and chief executive officer of CA, who had given the keynote address at the event, said his experience over more than 40 acquisitions showed him the integration of the information technology infrastructure is critical to bring together the two operations successfully.
Integration would not just mean blending the two operations totally, but bringing them together only in areas where it would make sense and leaving the rest to remain independent, ICICI Bank’s Chanda Kochhar said. “Indian corporate sector is at a stage where they can take independent decisions whether they merge the acquired company fully and take decisions on chopping and changing the management.”
RN Mukhija, operations president at Larsen & Toubro said cultural differences don’t arise only in cross-border acquisitions, but also in domestic deals. He cited the example of his own company which acquired a small operation in one city and moved it to another, only to find that labour union at the latter facility resisted extending some facilities to the new workers.
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With as many as 531 strategic M&As worth more than $49 billion taking place in the first nine months of 2007, it is clear that Indian companies have factored in these deals as a vital part of their growth strategy. But, “every acquisition is unique, and has to be approached uniquely factoring in different aspects to marry them with your company,” Swainson said.
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