The ever-evolving Indian M&A space

India is one of the oldest civilizations and is still evolving. Since ancient times, partnerships, annexations, strategic alliances have been practiced and have been often used by the able and wise rulers to expand their horizons and empires. The same tradition, if not in totality but in ideology is practiced in today's day and age too. The only difference is that instead of princely states, we have businesses as a target of expansion and the rulers have transformed into business czars and heads of corporations with the everlasting zeal to expand the market share through buy outs, mergers, partnerships, acquisitions or management take-overs, in order to remain at the helm by decimating the completion. In today's day and age, we call this art of war as Mergers and Acquisition – a method to stay relevant and fuel growth.

As per the Credit Suisse Emerging Consumer Survey 2016¹, India is at the top of the Emerging Consumer Scorecard, indicating a robust level of income expectations by the consumer and making India stand out in the emerging world. The rapid growth and demand in consumer base and the rise of the buoyant middle-class has quadrupled the growth rates in e-commerce, retail and telecom sectors in the Indian markets. More and more players wanting to remain at the top of the chart in their respective sectors has led to a spurt in domestic M&A activities while global players setting shops has accelerated transactions across industries. Case in point, Flipkart's acquisition spree of Myntra, Jabong and E-bay India is mainly to create a war chest against the deep pocket bulge bracket growth of Amazon in India. The same is true of telecom sector where to counter the financial juggernaut of Reliance Jio, most of the incumbent players are joining hands or selling off operational stakes just to stay afloat – going by the age old fable of “united we stand.”

To assume that all the M&A activity in the recent past has been because of the buoyant economy or growth perspective would be wrong; the rampant activity has also been due to stochastic competition that has forced the smaller or local players to afloat and in existence, or to minimize losses by investing in the same sector so that the law of averages could keep their investments safe. Another factor which has taken precedence in the last decade when you look at traditional Indian conglomerates with deep rooted domestic presence to have an international foot print, was the inorganic route of acquisition of a few vital asset classes who were going through the financial distress of demand stagnation in the developed economies or in the case of law of diminishing returns or disruptions. The scenario for the marriage for creating global organizations i.e. local becoming global or global with local roots was the best and most pragmatic approach of the past decade, for example Tata Group acquiring Jaguar or Corus steel, Vedanta Group acquiring the Cairn energy, which generated a lot of investor interests and futuristic commentary. However, although the narrative was promising, shelf life was debatable.

In the history of corporate world, a few of the best decisions based on human intelligence and instincts have borne the best results, like the famous HP-Compaq merger and even the best data scientists with arguably the best predictive tech around determining the ideal target have failed — case in point AOL with Time warner, which till date has been the worst M&A deal world over. In the Indian scenario, a similar example could be related with Flipkart's takeover of rival fashion brands Myntra and Jabong where the three till date operate in the same shelf space of the consumer competing for the same wallet share due to lack of integration ideologies and executional gaps in reality and more over fear of creating a unified brand with merged entities which could erode the traditional consumer base of acquired entities. The right ingredient for success is a symbiotic relationship between merged entities that harps on the principle of mutual beneficial association or co-creating integrated value.

The reasons behind the failure can be multiple — from inception, due diligence process, financial stress, to ideological incompatibility or the lack of execution of the growth strategies. Ideological differences between board room cultures of the two organizations and employee connect both intra company and with the merged entities contribute liberally and for long run in failure of an M&A. It is no surprise that the reason for 9 out of 10 failed merger stories is the lack of organizational compatibility that leads to slow and steady decay of the organization.

The best M&A strategies cannot be derived from heaps of complicated spread sheets or thematic studies or complicated financial models depicting the unseen territory with presentations translating the abstract into reality. Instead, the ideal success story would effectively and efficiently bridge the gap between management strategies with actual implementation in their entirety on the ground where culture, people values, beliefs, best practices, propriety and probity are not just summed up in a single line called ‘organization good’ but values are attached to the same.  The real deal success for the merger or the acquired entity lies in harnessing organizational strengths, creation of step-by-step plan to value and integrate the workforce through right communication and to install faith and confidence in the new merged entity. Post that, slow and gradual socialization or synchronization of cultures, best practices, value systems processes and above all people, should follow. 

¹ Kersley, R., and O’Sullivan, M. (2016). Credit Suisse Research Institute thought leadership from Credit Suisse Research and the world’s foremost experts.