Telecom, oil and gas, pharmaceutical, metal, and banking accounted for over 50 per cent of the total M&A deal value during 2010
India’s merger and acquisition (M&A) volume reached a consolidated USD 49.8 billion by end of 2010, registering a growth of 317% over 20091 . While organizations saw severe financial crisis in 2009 and that impacted M&A volumes too, the upswing in 2010 took deal activities close to levels seen in 2007. Outbound deals made the biggest contribution to the overall figure which saw a stupendous growth from USD 1.38 billion in 2009 to USD 22.5 billion in 2010. Bharti Airtel’s acquisition of the African telecom assets of Zain at USD 10.7 billion in the first half of 2010 was the largest contributor to outbound activities in India.
There are different drivers for this substantial increase in deal size over the last year. Experts quote a few, from increased confidence in the Indian economy, to valuations remaining low, to access to financing, to the strengthening of the rupee against the dollar, and the availability of assets that synergize with Indian businesses in their growth plans.
Telecom, oil and gas, pharmaceutical, metal, and banking accounted for over 50% of the total M&A deal value during 2010. Overall, all sectors have seen an increase in M&A activity as there is a clear need for consolidation in most sectors, which will bring scale, cost benefit and technology advancement.
The domestic deal value increased to USD 18.3 billion in 2010, which is three times that of 2009 and nine times over 2007. Companies have seen opportunities to invest in domestic companies to “buy” capabilities and capture the domestic market.
Cross-border transactions increased significantly over the previous year to USD 22.5 billion in 2010, yet this accounted for only 35% of deal size in 2007. The two primary drivers in outbound deals have been to secure raw material for Indian manufacturing & power industry to meet its energy needs; as well as to enter into new, less-crowded emerging markets, like Africa and the Middle East, which have a ready opportunity for Indian consumer brands.
While companies continue to leverage on M&A for their inorganic expansion, a Boston Consulting Group report recently disclosed that an average M&A transaction actually destroys value for the acquirer. The report quotes the absence of, clear process, assigned responsibilities, and performance measures, during the integration phase as being primary deterrents to realizing deal value. The success of a deal will not only depend on identifying the target company, but will require well deployed due diligence that evaluates both tangibles and intangibles and a planned approach for culture, people and systems integration.
In this M&A Special, People Matters presents views from industry and technical experts in the M&A domain who share their expertise and experience on how Indian companies can capitalize on their M&A strategy.
Act quickly, execute flawlessly: Olivier Blum, Country President and Managing Director, Schneider Electric India shares the success factors that led to Schneider Electric’s many acquisitions as they recently announced the acquisitions of Luminous Power Technologies, which is their 6th acquisition in the last two years and the 8th in the last decade.
Retain talent and customer alike: Dinesh Venugopal, Chief Corporate Development Officer, Mphasis, shares the nuances of acquiring AIG Systems Solutions Pvt. Ltd. (in 2009) and Fortify Infrastructure Services (in 2010), and what Mphasis did right to make these deals successful.
HR due diligence can avert M&A failures: R. Sankar, PwC discusses the vital need for HR due diligence prior to sealing the deal and emphasizes the need to pay equal attention to both the ‘hard’ and the ‘soft’ aspects of the deal.
Talent & organization challenges in M&A - an Indian perspective: M&A experts from Accenture disclose the key areas that companies must pay attention to in order to ensure a successful M&A. They emphasize the essence of post deal organization, HR transformation, cultural alignment and change management as being the four cornerstones to drive an effective M&A.
Cultural implications of cross-border deals: Anupam Prakash from Mercer gives an insight on why cross-border deals require a different approach as the people implications are unique to each country.
Show Me The Money: The article by Aon Hewitt differentiates acquiring companies as ‘overachievers’ or ‘underachievers’ in deal success. The article shows a clear trend in ‘overachievers’ identifying liabilities at the due diligence stage and using ‘Total Rewards’ as a tool to enable retention of key talent through effective people integration in an M&A.
Managing change is critical for deal success: Tushar Khosla and Vishala V. Thiagarajan of IBM draw attention to the role of change management in an M&A deal to facilitate employees from different organizations to work together.
The legal side of Indian M&As: Manoj Kumar shares the legalities for Indian companies to undertake M&A transactions. He explains how the legal implications differ with the nature of business, size of entities and geographical coverage of the business entities involved in the deal.