Posts Tagged ‘mergers and acquisitions’

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Are Indian companies ready to go global?-a panel discussion

Monday 30 January, 2012

Ashutosh Sinha of NDTV Profit television network moderated a panel discussion on the above-mentioned topic. The panel consisted of Tomas Hult of Michigan State University, Dev Bhattacharya of Aditya Birla Group, Pradeep Parameswaran of McKinsey, Prem Chandrani of SP Jain, Shashank Tripathi of PWC India, Sunny Banerjea of KPMG, & Kannan Chakravarthy of Mahindra & Mahindra. This was a heavy-hitting panel.  The discussion was hosted by the SP Jain Institute of Management & Research Consulting Symposium.

India has demonstrated that it’s ready. The question is what is “global,” & what are the metrics to measure it? It’s a continuum, so M&A is not the only way, but that’s still tough. Globalization is on CEO’s agendas as Indian companies aspire to become the top 3-4 in their industries in the world. It’s reached mid-level companies now, but they’re still in the early stages because execution & integration sometimes fail as probabilities of success rise. Access to intellectual property is still an issue, as are questions of core competencies.
Different companies have different strengths with regard to culture. Indian companies lack sensitivity & that needs to change as they learn how to build bridges. Culture differences can break deals because many times an international deal is all about the people involved, & what happens if those people leave the company? Board compositions need to change too.

Indian companies have a good line of sight for what they want, but they’re still too ad hoc & lack discipline. They need process & diversity. Private enterprise & an educated democracy are advantages, but cost advantages need to lead to other value propositions. Indian banks are not as strong as they need to be. An important question is “why are Indian companies going global?” To acquire resources or technologies? Replicate partners? For example, telecom markets & models differ. Indians like to talk a lot, so in India it’s a volume business. Africans talk less, so when Indian companies expanded there, they made mistakes. Products differ & financial risk is not the only concern. Indian firms are evolving from export-led strategies to establishing subsidiaries to building a physical presence in other countries.

Open Q&A

  • Price points in India differ & need to be made appropriate to the market, but it must start with the value proposition.
  • In global expansion, it helps to start focusing on 5-10 countries which are similar.
  • 70% of M&A deals fail, but doing structured due diligence, planning, developing, & defending the action encourage its success.
  • There has been a bias by foreign companies not wanting to be acquired by Indian companies, but Arcelor-Mittal is an example that has worked out well.
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Kraft’s acquisition of Cadbury

Thursday 21 January, 2010

I caught with interest this article on Kraft’s acquisition of Cadbury Kraft’s bid has Brits cheesed off by Henry Chu.  I find it somewhat amusing how all this posturing goes on that really doesn’t make a difference.  It’s ridiculous that on 1 day a transaction is labeled a “hostile takeover,” & a “sweetheart deal” the next.  Chu claims that Hersheys in America is a corollary to Cadbury in Britain, but I don’t get the warm & fuzzies from Hershey’s, which makes me wonder if the same is really true about the Brits.  When you get right down to it, all of the politicians, workers/unions, consumers don’t matter when an acquisition offer is on the table.  Everything that’s said is simply for negotiation purposes.

I will admit that there truly are differences in chocolate from country-to-country.  When I was living in Germany & flying home to the US, & perhaps stopping in Belgium, I would pick up some M&M’s in each country & do a comparison when I got home.  I’m a bit embarrassed to admit that American M&M’s are sweeter than the European variety, but I do have a sweet tooth, so I still prefer the American version.  The European chocolates are smoother, but I like my sweets strong & fast, & American chocolates smack you in the face with their sweetness by comparison, so I remain by my native tastes.

Perry Yeatman, author of Get Ahead by Going Abroad & whom I interviewed last year , is in charge of investor relations for Kraft.  She has been ecstatic that Kraft is finally expanding its footprint globally.  Typically conservative Midwestern Kraft had been slow to approach the rest of the world, but with the Cadbury acquisition will have access to many markets with 1 fell swoop that would have been much more difficult & expensive to build on their own.

Granted, maybe Cadbury is a British icon, but they all still fall prey to economic realities.  The bottom line is this deal makes business & financial sense.  The distribution networks are complementary.  All that matters is the British shareholders held out for more money, & as soon as they got it, they were satisfied.  For better or worse, with global M&A, it’s still the numbers that matter more than anything else.

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German M&A specialist on complex projects

Tuesday 18 August, 2009

I caught Kai Lucks presentation on the complexity of M&A @ the Alliance of Merger & Acquisition Advisors summer conference.  Kai was in charge of mergers & acquistions for Siemens AG for many years & is now the president of the German Federal M&A Association & CEO of the Merger Management Institute.  He declined my offer to post his presentation, so I’ll summarize:

Siemens invested 32B Euros in acquiring companies in energy/environment, health systems, & automation/control of industrial/public infrastructure over the last 10 years.

With the acquisitions of Dade Behring, Bayer Diagnostics, & DPC, Siemens created a world-leading medical diagnostics company.

Siemens has a structured/phased integration process:

  1. preparation/id key positions
  2. set goals
  3. integrate/transfer to line management
  4. benchmarking

Mechanical & control design will converge in the next 10 years.

Integration success is measured in 3 dimensions:

  1. customer financials
  2. milestones
  3. attrition rates

The acquisition of the Danish firm Bonus wind power offered superproportional growth by expanding to international markets.

M&A performance is the key challenge-big M&A performance is even weaker.

Siemens’ closed loop approach works like this:

  • strategic planning makes the business case in the preparatory phase
  • deal details & integration preparation are worked out during the transaction phase
  • contract management & implementation/controlling are installed in the implementation phase
  • business management transfers know-how back to strategic planning

Professional management can strongly improve results.

Knowledge/experience management of 12 drivers based on volume, complexity, & restructuring, is key to success:

  1. Sales volume-own unit
  2. sales volume-candidate
  3. own employees
  4. candidate employees
  5. countries
  6. locations
  7. businesses
  8. value chain
  9. improvement
  10. manufacturing heads reduction
  11. locations reduction
  12. cultural change

There are 4 M&A project types:

  1. acquisition only
  2. cost cutting
  3. complementary technology
  4. integrated acquisition/re-engineering

Acquisitions of Sylvania lamps, Westinghouse power generation systems, & Huntsville automotive components provided different examples of experience management.

Utilities & power generation are in opposite phases of the merger endgame (opening, scale, focus, balance/alliance).

In 2007:

  • Europe bought $35.8B in America
  • America bought $27B in Europe
  • Asia bought $9.6B in America
  • America bought $5B in Asia
  • Europe bought $.5B in Asia

My take:  it’s a shame Dr. Lucks chose not to allow his presentation to be published because he puts together some of the best presentations I’ve seen.  In some ways they are typically German, i.e. very structured & organized, but in many ways that’s a very good thing.

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acg inbound investment presentations

Tuesday 21 October, 2008

I attended this breakfast panel discussion organized by the Association for Corporate Growth on how inbound investment from outside of the United States into the US is affecting middle-market mergers & acquisitions deal flow.

Steve Brady of Grant Thornton revealed this distribution of inbound buyers:
40%-China
17%-UK
14%-India
10%-UAE
Cross-border accounts for 48% of world-wide M&A activity.  Europe still leads the # & value of transactions with 62% & 71%.  Inbound investment is still relatively small @ 8-10%.  95% of transactions are middle-market, with 83% <$100M.  While 50% transactions values are “undisclosed” in Europe & Asia, those that are are named <$100M are 32% & 35% respectively.  The most active industries are as follows:
Industrial      426  21%
IT                  396  23%
Consumer     346  17%
Health Care  209  11%
The biggest trend is the emergence of Asia buyers.  They are seeking to buy
customers or suppliers
new market opportunities
new product applications
new management talent
strategic footholds-(it’s tough to grow organically)
image/market perception-(raise share prices)

Thomas Williams of Lincoln International summed up his observations of acquirers from different countries:
Germany-active
UK-has a large private equity community affected by the credit crunch
France-fallen off more than 37%
Spain-seeking US beachheads
India-optimistic, very active
Japan-less active, starting to look outside (when correlating GDP & # of deals, Japan is underinvested)
He found 29% of cross-border transactions are strategic.  Globally m&a is down as the business is more cautious & looking for long term values.

Tariq Malhance, Pres. of UIB Capital-North America made this interesting presentation on investing in US companies while still adhering to the Shariah investment philosophy governed by Islamic law, i.e. common stock only, no leverage, dividends, & management fees  uib-capitalacgbreakfastpanelpresentation

Q&A brought out:

part of Japan’s reluctance is because they’ve made a lot of mistakes in the past

top notch legal assistance is necessary for foreigners to navigate the litigious US market

Russians & Brazilians are sitting on the sidelines, due to lack of confidence in the system

high net worth institutions are sources for sovereign wealth funds

debt sources for foreigners are usually from US mezannine players leveraging assets @ home

the level of sophistication of the players is the same wherever you go-most are western-educated & fluent in international business & western style transactions

changes in currency values, a long term view, focus on the fundamentals & productivity allow others to better compete with the Chinese

I requested the other presentations but have yet to receive them.

My take is:  it was good to bring up this topic.  I think it’s going to become more important at least over the short term while the $ is weak.  I’m surprised it hasn’t come up more often, but I think the Arabian acquisition of ports sparked a lot of anti-foreign acquisition sentiment, so many of these acquisitions are a lot more under the radar now.  Integration of US companies is just as difficult for foreigners as it is for us.  I wonder if foreign companies are able to a better job of due diligence so that they know what they’re getting into when they buy American companies.  We’d better get used to being owned by foreigners & giving up some of our sovereignty because I think it’s inevitable.