Below is the article that i recently checked on ET 500 THE BIG LEAP by Kiran Somvanshi. A very crisp article showing how our Desi Boys are playing their M&A Impression management to this world.
Local FLAVOUR - Practices followed by Indian Cos in acquisitions
- Non-interference in day-to-day management
- Controlling costs by plugging leakages
- Using the Indian IT advantage
- Adoptation of homegrown practices or technologies
- Seeking the right fir in target companines
- Learn as well as teach approach
< Article from ET >
Respect for local talent and systems while pushing through best practices goes a long way in not only winning over management, but also the employees. And that is not the only lesson that India Inc has to offer on managing foreign acquisitions.
The last decade saw many Indian companies take their growth plans beyond India. Most of them have been successful in steering their foreign acquisitions — either bringing them back from the brink of bankruptcy or improving their profitability or milking their growth potential. Doing business in a diverse market like India has stood them in good stead, apparently.
A study of these acquisitions reveals some common practices followed by most Indian companies.
The most striking among them is non-interference in the day-to-day management of the acquired entity.Godrej Consumer Products (GCPL), the FMCG company with the highest number of overseas acquisitions in its sector, has been following this strategy for its overseas expansions. "Local knowledge and talent is extremely valuable to us. We believe in strengthening the existing management team by underpinning them with key functions," said Shashank Sinha, president, international business, GCPL.
United Phosphorus, too, shares the strategy. "When we acquire a company, whether it is in France, Holland or Italy, we do not disturb the operations team apart from visits by experts from India to try to sort out problems and address requirements of the company," the company's spokesperson said in an email reply.
Another sign of non-interference is retaining the name of the acquired company. Under Godrej, Indonesia's Megasari and Rapidol of South Africa continue to function under their old names. The only aberration is Godrej Argentina, a name change that came about when the management of Argentina's Issue group insisted on close identification after being acquired by Godrej.
"If the management is doing a good job, it should be encouraged to continue," said Sunil Duggal, CEO ofDabur India. In the company's US acquisition — Namaste Group, the promoter continues to run the company as its CEO.
Controlling costs is another feature of Indian acquisitions. Most Indian companies are good at plugging cost leakages and zeroing in on areas where there is scope for improving efficiency. Margins of Israeli companyTaro have gone up since Sun Pharma acquired a controlling stake in it in September last year as Sun helped improve its productivity, sales and marketing practices.
Hindalco's turnaround of Novelis in September last year came about through cost cutting and restructuring. In the words of chairman Kumar Mangalam Birla, "Novelis is today a leaner and more nimble entity."
"Wipro works on a detailed process plan, towards integration," said Jatin Dalal, CFO of the company's IT operations. It acquired mPower in 2006 and went on to improve its process efficiency, support function processes such as expenses reimbursement and administration as well as procurement efficiency, Dalal added.
However, while controlling costs, care is taken to retain functions that are important for the company's growth. After acquiring large seeds company Advanta, United Phosphorus lent support to the company's R&D operations, the budget for which had been curtailed by Advanta.
Most Indian companies use the availability of low-cost information technology (IT) in India to their advantage. "We upgrade or invest in the backbone of the business," said GCPL's Sinha. This involves investing in enterprise resource planning systems to integrate the international geographies. Dabur has outsourced the IT networks of its overseas acquisitions to India, making it the hub for IT solutions for the consolidated entity.
Adoption of homegrown practices or technologies is another common feature of Indian acquisitions. A good example is Bharti Airtel. While Bharti typically operates at a margin before depreciation of 33-36%, its African business has an operating margin below 30%. To improve this, Bharti is currently implementing its outsourcing strategy in the African operations with a focus on revenue leadership. Operating margin of its African operations has improved by 270 basis points (bps) to 26.7% in the last three quarters.
Another classic example is that of Sun Pharma's acquisition of US-based Caraco. After the acquisition, generic products were developed in India and transferred to Caraco, which had no such capability. So in a way, an Indian company was transferring technology to a US company, completely reverse of what is usually seen.
Seeking the right fit is another area where Indian acquirers do their fair bit of homework. Knowing what you are, and accordingly finding the right targets is one of the basic tenets of successful acquisitions. With over 15 acquisitions in the last seven years, Wipro is a strong case in point here. Its target company is typically small and suffers from under investment and inadequate automation needs. Wipro benefits the acquired player with a larger scale of operations, improvement in efficiency and by associating it with Wipro's brand.
"We are not turnaround specialists, said Sinha about GCPL. We pick up small local businesses with strong and profitable companies with good management, he added.
