global india business meeting a roadmap for the

27
Wolfgang LEHMACHER Global India Business Meeting A Roadmap for the Acquisition of Foreign Firms 29 June 2009

Upload: others

Post on 24-Oct-2021

1 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: Global India Business Meeting A Roadmap for the

Wolfgang LEHMACHER

Global India Business Meeting

A Roadmap for the Acquisition of Foreign Firms

29 June 2009

Page 2: Global India Business Meeting A Roadmap for the

Executive Summary

The strength of India’s economy combined with relaxation of regulations have resulted in a significant increase in M&A from Indian firms, including outbound acquisitions of foreign firms

However, Indian firms take a different approach to M&A to many Western firms, focusing on areas such as increasing market share or acquiring technologies over increasing shareholder valueAs a result, Indian firms primarily adopt two strategies for M&A: a pursuit of quality in the form of knowledge and brand, or a pursuit of growth in the form of customers and resources

Indian firms face a range of challenges in attempting overseas M&A:While large Indian firms are very successful at creating value from domestic M&A, the same is not true when they acquire overseas, with average returns of -22% compared to stock marketsIn addition, unfamiliar regulation, difficulty achieving synergies and integration of internal cultures are seen as major challenges

Indian firms can address both poor performance of deals and the regulatory and cultural challenges faced by focusing on the critical factors and key M&A processes that lead to success

Critical success factors include:Fit & Synergies: Firms should estimate synergies carefully and expect only partial success, but pursue synergies aggressively during integrationCultural Fit: Offer a clear vision for the combined firm, leverage and respect senior staff, and mentor junior staff to ensure cultural alignment and buy-inInternal Engagement: This should include schemes to ensure management and general staff buy-in such as bonuses when integration targets are reachedStakeholder Buy-in: Management should engage all stakeholders early, communicate honestly, and ensure all messages are consistent

There are a range of optimal M&A processes that also contribute to deal success:Shared Principles: Identify shared principles between the management team, and use them to develop a vision to guide the dealDeal Planning: Firms should start with a rigorous screening process and include implementation plans and exit strategiesDue Diligence: This should be expanded to include business processes and internal culture of the target firmAlignment Program: Allocate a dedicated team, plan alignment before the deal is closed, and focus on the key success factors foryour particular deal

Page 3: Global India Business Meeting A Roadmap for the

Agenda

Background

Indian Approach to M&A

M&A Success Factors

Page 4: Global India Business Meeting A Roadmap for the

India Economic Trends

India’s economy has been one of the strongest growing in the world, and has expanded at an average rate of over 8% since 2005

India’s economy enjoyed growth rates of over 8% from 2005 to 2007, making it one of the world’s fastest-growing economies

Of the BRICS countries only China’s economy has consistently grown fasterGrowth of India’s economy has been at least 6% higher than the G7 and 4% higher than the world average

This rapid growth has had profound impacts on Indian consumers and businesses, producing an increase in consumer spending which has significantly strengthened domestic business earnings

The global economic crisis has impacted Indian economic growth, with economic expansion falling to an estimated 4.5% in 2009

However, IMF forecasts show a “V” shaped recovery with growth returning to 7.5% by 2012

GDP Growth Rates% annual change, constant prices2005 – 2012F

-6

-4

-2

0

2

4

6

8

10

12

14

2005 2006 2007 2008 2009E 2010F 2011F 2012F

G7

World Average

India

China

Source: IMF

Page 5: Global India Business Meeting A Roadmap for the

India Economic Trends (2)

India’s two main stock exchanges saw tremendous growth until 2008, but then fell by around 60% by the start of 2009. Recently both have recovered half of this loss

0

5,000

10,000

15,000

20,000

25,000

2/01/2007 2/07/2007 2/01/2008 2/07/2008 2/01/20090

1,000

2,000

3,000

4,000

5,000

6,000

7,000

12/01/2007 12/07/2007 12/01/2008 12/07/2008 12/01/2009

Peak = 20,827(January 2008)

Current = 14,324(31% below peak)

60% decline

Peak = 6,274(December 2007)

Current = 4,235(32% below peak)

59% decline

Major index for the Bombay Stock Exchange

Rose at a CAGR of 22% from January 2001 to January 2008

Fell 60% in 2008 due to the global economic downturn, but has since recovered half of this value

Major index for the National Stock Exchange of India

Established in 2002, and rose at a CAGR of 38% from January 2003 to January 2008

Fell 59% in 2008 but has since recovered to be only 32% down

BSE SENSEX (Bombay Stock Exchange)Weekly Closing ValueJan 2007 – Jun 2009

S&P CNX Nifty (National Stock Exchange of India)Weekly Closing ValueJan 2007 – Jun 2009

Source: Yahoo Finance

Page 6: Global India Business Meeting A Roadmap for the

Growth of Outbound M&A

The strength of India’s economy combined with relaxation of regulations have resulted in a significant increase in M&A from Indian firms, including outbound acquisitions of foreign firms

Since 2003 almost 1,000 outbound deals(1) have been announced worth over US$72 billion

Several factors have helped to drive the growth of outbound M&A:

Rapid growth of the Indian economy from 2002 onwards which has bolstered corporate balance sheetsA decision by the Indian government in 2004 to relax restrictions on overseas borrowing to finance M&A

2006 marked the first major tipping point for outbound M&A, with total deal value increasing more than 450% to over US$20 billion

Another major shift has occurred in 2009, with average deal values for the year to date sitting at over US$300 million (more than 460% higher than the previous year)

This indicates that Indian firms are on average pursuing larger acquisition targets, possibly taking advantage of target weakness during the economic downturn

0

5

10

15

20

25

2003 2004 2005 2006 2007 2008 2009*

Total Value of Outbound Indian M&AUS$ billions2003 - 2009

450%+

Number of Deals50 51 136 187 249 277 41

0

100

200

300

400

2003 2004 2005 2006 2007 2008 2009*

Average Deal Value of Indian Outbound M&AUS$ millions2003 - 2009

460%+

(1): Outbound M&A deals are deals involving Indian firms driving mergers or acquisitions of firms in other countries* 2009 figures are for the year to MaySource: Yahoo Finance

Page 7: Global India Business Meeting A Roadmap for the

Major Outbound M&A Deals

Outbound M&A has resulted in some of India’s largest deals, with Tata Steel’s acquisition of Corus the largest deal involving an Indian firm. The largest deals have been primarily focused on the energy and metals industries

Indian Party Foreign Party Deal Type Industry Value (US$) (1) Date

Bharti Airtel (2) MTN (South Africa) Share-swap

Acquisition

Acquisition

Acquisition

Acquisition

Suzlon REpower (Germany) Acquisition Energy $1.7 billion June 2007

Essar Steel Algoma (Canada) Acquisition Steel $1.6 billion April 2007

Acquisition

Telecoms ~ $23 billion n/a

Tata Steel Corus (Europe) Steel $12.2 billion January 2007

ONGC Imperial Energy (Russia) Energy $2.8 billion January 2009

Hindalco Novelis (US/Canada) Aluminium $6 billion May 2007

Tata Motors Jaguar / Land Rover (UK) Automotive $2.3 billion March 2008

Sterlite Asarco (US) Copper $1.8 billion March 2009

A proposed telecoms deal between Bharti Airtel and MTN would set a new record(1): Published value at time of deal closure(2): Bharti/MTN deal is in discussion phase with a term sheet signedSource: Economic Times, Reuters

Page 8: Global India Business Meeting A Roadmap for the

Agenda

Background

Indian Approach to M&A

M&A Success Factors

Page 9: Global India Business Meeting A Roadmap for the

Motivations for Overseas M&ARationaleIndian firms take a different approach to M&A to many Western firms, focusing on areas such as increasing market share or acquiring technologies over increasing shareholder value

Increase market share

34%

Access more advanced

technology19%

Build scale19%

Diversify into new areas

17%

Increase shareholder

value11%

Rationale for Acquisitions in Developed Markets% of survey respondents (1)

2007

Indian companies take a different approach to M&A than many of their developed market competitors

Acquisitions by Western companies generally have a fairly simplistic motivation: to combine revenues without combining costs

To achieve this, savings must be identified in advance to justify the deal to shareholders, and realised quickly afterwardsThe result is a disruptive tying together of two organisations, shaking up management and laying off staff, which as often as not fails to achieve its aims

Surveys indicate that Indian companies take a more diversified approach to M&A, with rationales such as gaining market share and acquiring technology or skills ranking highly

As a result, Indian companies have a vested interest in approaching M&A more carefully, with a stronger focus on aligning values

(1): Based on a survey of 100 senior executives of Indian companies which have engaged in overseas M&ASource: Evalueserve, The Economist

Page 10: Global India Business Meeting A Roadmap for the

Motivations for Overseas M&AKey DriversIndian acquisitions of overseas firms have been driven by a combination of the strength of the Indian economy, a desire to boost competitiveness, and a focus on strong long-term positioning

Economic Factors

The overall strength of India’s economy is a major driver of Indian companies’ overseas M&A deals

Economic growth factors such as the high performing Indian stock market, excess cash flow, an appreciating rupee and higher interest rates at home than abroad have motivated Indian firms to pursue growth opportunities overseas, and has ensured that they have the financial strength to do so

Boosting Indian Corporate

Competitiveness

Many Indian firms pursue overseas M&A to acquire intellectual property and specialized expertise in research and marketing, or to establish networks and build a global brand

This view is supported by the large number of mid-sized Indian firms in the high-tech and manufacturing sectors that have pursued M&A in the USA and UK

Between 1997 and 2007, 42% of Indian firms making acquisitions in the USA and UK were from the high-tech sector, and another 22% were in manufacturing

Long Term View

While overseas M&A may generate poor returns in the short term, many Indian firms may see it as a longer-term investment, especially those moving into emerging markets such as Africa

In addition, some firms may see an overseas acquisition as a long-term play in the domestic market. With Indian consumer incomes rising rapidly, many Indian firms see an opportunity in selling the products of overseas firms to domestic consumers

Source: Watson Wyatt

Page 11: Global India Business Meeting A Roadmap for the

M&A Strategies

As a result, Indian firms primarily adopt two strategies for M&A: a pursuit of quality in the form of knowledge and brand, or a pursuit of growth in the form of customers and resources

Pursuit of Growth

Focused on acquisitions in other emerging markets or in less-developed markets

Allows Indian firms to position themselves for future growth

Can be designed to leverage future consumer demand, or to provide key resources:

Customers: Bharti Airtel’s potential deal with MTN in South Africa is designed to provide access to the world’s fastest-growing mobile phone markets by leveraging MTN’s presence in 21 countries across Africa and the Middle EastResources: ONGC’s acquisition of Russia’s Imperial Energy in January 2009 was designed to increase access to oil reserves. Despite being India’s biggest oil company, ONGC’s domestic reserves have dwindled, prompting acquisitions such as the Imperial move which delivers 920 million barrels

Primarily adopted for acquisitions in developed markets

High quality acquisitions designed to deliver long term value for the acquirer in various ways:

Intellectual Property: Prior to its acquisition of Corus in 2007 Tata Steel did not hold any patents in the US. After the acquisition it held 80, along with a research team of 1,000 staffTechnology: India’s economy is large, but customers often have simple needs which do not drive innovation. Crompton Greaves, an engineering firm, acquired a European firm in order to gain slimline power transformer technology to allow it to compete globallyBrand: Tata Motors’ acquisition of Jaguar and Land Rover gave it access to high quality global brands which it can leverage

Pursuit of Quality

Source: The Economist, Bloomberg

Page 12: Global India Business Meeting A Roadmap for the

Future Directions for Indian M&A (1)

Indian executives expect that firms from a wide range of industries will adopt these strategies and pursue overseas M&A in the next several years

Indian executives expect outbound M&A activities to continue at a similar intensity to the past several years

It is also expected that future M&A deals will be spread across a broad range of industry sectors, with survey respondents nominating a large number of industries as potential leaders for future M&A

However, a trend within the survey indicated that ‘new economy’ sectors such as IT and IT enabled services, telecoms, or healthcare and pharmaceuticals will be some of the greatest acquirers

These sectors would benefit from the Indian strategy of acquiring leading technologies and intellectual property, however they also present some of the greatest challenges in terms of combining corporate cultures based on knowledge and innovation

Anticipated Sectors for Future M&ALeading sector nomination by % of survey respondents2007

2%

7%

8%

9%

10%

10%

12%

13%

14%

15%

0% 5% 10% 15% 20%

Other

Professional Services

Financial Services

Consumer Goods

Retail

Heavy Industries

Energy, Oil, Gas

Healthcare, Pharma

Telecom

IT, IT Services

(1): Based on a survey of 100 senior executives of Indian companies which have engaged in overseas M&ASource: Evalueserve

Page 13: Global India Business Meeting A Roadmap for the

Future Directions for Indian M&A (2)

This is supported by attitudes of Indian executives to the M&A boom, with a vast majority of executives surveyed agreeing with statements that the recent M&A represents a long-term shift

Statement % of Respondents Agreeing (1)

Indian companies have grown bolder and are open to taking up more aggressive acquisition strategies

The recent increase in acquisitions signals that Indian businesses are now aspiring to be global market leaders

The current upward trend in M&A activity will continue

Indian businesses view acquisitions as part of a survival strategy in a highly competitive global market place

Short term buoyancy in capital markets and easy access to funds are the main drivers of recent Indian M&A

Recent acquisitions have generated confidence for Indian businesses but are unlikely to generate shareholder value

38%

44%

54%

63%

88%

90%Indian

executives favour a

positive view of recent M&A and believe it

signals a long-term shift

(1): Based on a survey of 100 senior executives of Indian companies which have engaged in overseas M&ASource: Evalueserve

Page 14: Global India Business Meeting A Roadmap for the

Impacts of the Downturn

The economic downturn is impacting on global M&A markets, and is likely to reshape the approach that Indian firms take to M&A in three key areas

Faster dealsGlobally, the interval between the announcement and the closing of deals valued above $1 billion has fallen dramatically, from about 130 days (1995–2007) to about 60 in 2008To close deals successfully in turbulent markets, Indian companies must move quickly to seize opportunities and undertake fast and targeted due diligence

Strong emphasis on managing stakeholder expectationsEconomic uncertainty can erode stakeholder support for deals, as bad economic news mountsConversely, the recent strength of India’s economy may mean that board members and shareholders will have unrealistic expectations of the financial success of deals, especially since the downturn is not yet reflected in future earnings estimatesAs a result, stakeholder management will become a key part of deal making for Indian firms, to ensure that expectations are not too high or too low

Broader and more creative opportunity scanningThe best opportunities in a downturn are often good pieces of a distressed portfolio forced into a fire saleSuccess for Indian firms in this environment will depend on choosing the right targets, and these will be very different from the sorts of deals business-development teams have considered during the past few yearsIndian firms should put aside conventional thinking about M&A and take a fresh look at their industry. In particular, assumptions that a company will be “not for sale” should be avoided over the next few years

Source: McKinsey

Page 15: Global India Business Meeting A Roadmap for the

Agenda

Background

Indian Approach to M&A

M&A Success Factors

Page 16: Global India Business Meeting A Roadmap for the

Challenges faced by Indian Firms (1)

While large Indian firms are very successful at creating value from domestic M&A, the same is different when acquiring overseas, with average returns of -22% compared to stock markets

Domestically, large Indian firms perform strongly in M&A deals

A Watson Wyatt study of domestic Indian M&A showed that large firms(1),which are primarily in the energy, natural resources or financial services sectors, generated nearly 13% average excess returns for shareholders

However, Indian firms that attempt overseas M&A underperform competitors on the Indian stock exchange

Indian firms conducting M&A in the USA and UK generated returns 22% below the Indian SENSEX index after 1 yearDomestic deals by US and UK firms also generated negative returns, but only ~12% and ~5% respectively

This indicates that Indian firms face challenges in extracting value from overseas M&A deals, although this may be the result of Indian firms pursuing different goals

Returns from Indian Outbound M&A to the USA and UK% difference in returns vs SENSEX indexAll deals 1997 – 2007

All deals

Only deals involving smaller Indian firms(1)

Only deals within the same industry sector

On average deals underperformed by ~22% after 1 year

Deals by smaller Indian firms(1) performed comparatively weaker

Remarkably, deals within the same industry sector also performed comparatively worse, suggesting that in these deals firms overestimate synergies or ease of integration

(1): ‘Large firms’ are defined as firms that appear on the Forbes Global 2000 list of the 2000 largest companies. All other firms are considered ‘small firms’Source: Watson Wyatt

Page 17: Global India Business Meeting A Roadmap for the

Challenges faced by Indian Firms (2)

Indian executives view unfamiliar regulation, difficulty achieving synergies and issues with integrating internal cultures as the biggest challenges they face in overseas M&A

Meeting regulatory / governance

requirements38%

Achieving synergies

23%

Cultural integration

15%

Creating shareholder

value12%

Lack of management succession

9%

Other3%

Biggest Challenge for Indian M&A Overseas% of survey respondents (1)

2007

In a recent survey of senior executives of Indian companies, over a third of respondents thought that the biggest challenge ahead for acquirers of overseas firms would be their ability to adapt to a unfamiliar foreign regulatory environment

Achieving synergies was the top concern for 23% of the respondents, while cultural integration concerns came in third at 15%

These challenges can be best overcome if Indian firms focus on the key success factors and M&A processes that are most likely to lead to success

In particular, Indian firms should focus on the “softer” success factors such as cultural understanding, internal engagement and stakeholder buy-inAchieving a stronger focus on these areas will assist Indian firms in achieving their more diverse M&A goals, such as the transfer of skills and technologies

(1): Based on a survey of 100 senior executives of Indian companies which have engaged in overseas M&ASource: Evalueserve

Page 18: Global India Business Meeting A Roadmap for the

The Keys to M&A Success

Indian firms can address both poor performance of deals and the regulatory and cultural challenges faced by focusing on the critical factors and key M&A processes that lead to success

Successful M&As that create value for the

business

Critical Success Factors

Identify Shared Principles

Deal Planning

Alignment Program

M&A Processes

Due Diligence

Fit & Synergies

Cultural Understanding

Stakeholder Buy-in

Internal Engagement

Page 19: Global India Business Meeting A Roadmap for the

Critical Success FactorsFit & Synergies (1)Most firms recognise that synergies are a key aspect of generating value from M&A deals, with both revenue benefits and cost reductions typically targeted

Synergies are vital to the success of any merger or acquisition

Most companies now realise that without them, an M&A is unlikely to result in any significant additional growth in value

An ability to accurately forecast and value potential synergies from a merger or acquisition is a key factor in achieving lasting success

Only by gaining a clear understanding of what and where value can be obtained from a deal, can companies hope to avoid ‘bad’ deals and be in a position to work out how, during integration planning, this value extraction will be achieved

Analysis by KPMG of forecast synergies across a range of mergers and acquisitions shows that most companies expect direct and indirect cost reductions to account for almost 50% of total synergies

However, often less than 66% of total synergies are achieved (see next slide)

Revenue Benefits

36%

Indirect / Overhead

Cost Reductions

9%

Direct Operational

Cost Reductions

39%

Other16%

Key Areas Targeted for Synergies% of synergies forecast by area of the business

Source: KPMG

Page 20: Global India Business Meeting A Roadmap for the

Critical Success Factors Fit & Synergies (2)However, KPMG analysis has revealed that in many areas only a small percentage of forecast synergies are delivered, indicating that firms have overestimated the synergy potential when valuing M&A deals

25%

26%

29%

32%

32%

34%

34%

42%

45%

0% 10% 20% 30% 40% 50%

Cross Selling

Sales Force Efficiency

Expanded Product Range

Access to new distributionchannels

Customer service improvements

New product development

Marketing

New Markets

New Customers

Revenue-side Synergies Delivered% of forecast synergies achieved

8%

24%

25%

32%

32%

35%

48%

60%

60%

66%

0% 10% 20% 30% 40% 50% 60% 70%

Other

R&D

Outsourcing

Product development

Warehousing/Distribution

Manufacturing

Procurement

Supply Chain

Merchandising

Staff reductions

Cost-side Synergies Delivered% of forecast synergies achieved

To succeed, firms should focus on using realistic synergy forecasts to determine deal valuesSource: KPMG

Page 21: Global India Business Meeting A Roadmap for the

Critical Success FactorsCultural UnderstandingChances of achieving cultural fit can be increased by providing a clear vision for the merged entity, as well as using a combination of respect and mentoring to engage with staff

The complexity of the cultural challenge will depend upon the nature of the merger or acquisitionIf both companies are to be fully integrated, the best aspects of both legacy organisations will need to be incorporated into a single new company culture focused on achieving future business growthWhere the companies are to be run as two separate entities full cultural integration can be less critical, yet close links to ensure mutual co-operation between two separate cultures will be essential to delivering value from the deal

Achieving cultural understanding can be even more challenging when dealing with cross-border deals, in which there can be a lack of alignment of national cultures as well as business cultures

In these circumstances, firms should focus on three areas that can improve long-term success of cultural integration by helping to align understanding between the different cultures:

Vision

Define a long-term company vision, encompassing shared goals from each of the pre-merger organisations

This allows employees from both backgrounds to understand and achieve buy-in to the shared vision

Mutual Respect Mentoring

Often in acquisitions senior employees from the acquired company feel that their skills and knowledge are de-valued

Establish policies and processes as part of the integration that leverage the skills and knowledge of employees from each pre-merger organisation to reinforce the value of each side

Junior staff who receive little management attention can be difficult to win over to the culture and vision of the merged entity

Implementing specific training and mentoring programs can help to spread the shared culture while also delivering new skills to employees

Page 22: Global India Business Meeting A Roadmap for the

Critical Success FactorsInternal EngagementFirms should focus on engaging with internal stakeholders at all levels of the firm, with clearly defined plans for achieving buy-in and rewarding progress towards successful integration

Upper Management

Upper management provides the value platform, leadership, and management framework which has to be cascaded down throughout all staff levels

Successful M&A depends on early engagement between upper management of both organisations

Incentives should be provided to management of the target firm to ensure buy-in and allow the integration process to leverage management’s credibility with their staff

Middle Management / Line Managers

Middle management and line managers are responsible for aligning operational policies and standards across the organisations

Middle management also take responsibility for whether synergy targets are met on a day-to-day basis, meaning that motivating and incentivising middle management can be key to success

Structured bonuses can be used to focus middle management on achieving integration

General Staff

Buy-in from general staff is critical to generating value, since staff are linked to major synergies:Efficiency gains depend on smooth communication between silos after the mergerSales and supply efficiencies depend on maintaining or improving relationships with suppliers and customers

In particular, general staff at the interfaces with newly acquired entities need to have the necessary competencies, such as an open mindset and multicultural communication skills

Page 23: Global India Business Meeting A Roadmap for the

Critical Success FactorsStakeholder Buy-InA lack of buy-in from external stakeholders in a firm’s ecosystem can easily destroy value or derail a deal altogether. Early and consistent engagement by management can avoid this

Achieving buy-in from external stakeholders is a critical component in the success of an M&A deal

Management should practice early engagement with all relevant stakeholders within the business’s ecosystem that might be impacted by the deal

Initial focus should be on groups such as customers that are most at risk

Communications plans are useful in keeping all stakeholders aware of deal progress

These plans should cover all relevant stakeholders, as value can easily be destroyed through negative reactions from stakeholders who may have been ignored (e.g. suppliers)Communications should focus on honesty – not all stakeholders will necessarily be better off after the deal, but this should be addressed directly to improve credibility

Management should be aware that all of a firm’s actions send some form of message during a deal

All actions and statements should align with the message the firm is trying to sendStaff of both firms should present a unified message to ensure stakeholder buy-in at all levels

Employees

Customers

Suppliers

GovernmentsShareholders

Communities

Competitors

Successful M&A

Integration

Page 24: Global India Business Meeting A Roadmap for the

M&A ProcessesShared PrinciplesSuccessful M&A deals are initiated through discussions between the leadership teams of each firm to identify shared principles and establish a vision which will guide the deal

Early discussions between leadership teams should identify shared principles and use these to craft a clear vision for the merged firm

This vision should dig deeper than the 1-2 sentence rationale for the deal to uncover the real drivers and desired strategic outcomes

Basing the vision on shared principles allows it to be shared by both leadership teams and to flow on into the deal process

This ensures that actions and public and private statements by both teams actually reflect the joint visionThe vision can then be reflected in the deal goals / synergies and can be translated into a concrete plan for action

The strength and detail of the vision will determine how far the goals and outcomes of the deal can stretch:

Minimum requirements Extended vision for a successful merger

Grow existing business

Grow existing business

Improve economics to improve margin or

ensure survival

Improve economics to improve margin or

ensure survivalBuild new

business modelBuild new

business modelBuild new

industry modelBuild new

industry model

Rationalise costs

Capture scale economies

Build market-leading positions in existing business lines

Leverage combined capabilities to change the way you do business

Use combined capabilities to redefine the industry or define new opportunities

Increasing Vision / Aspirations

Page 25: Global India Business Meeting A Roadmap for the

M&A ProcessesDeal PlanningSuccessful M&A depends on laying out a clear plan for the deal process, from initial market screening and discussions through to contingency plans for separation

Successful M&A activities are more likely if they are initiated through a rigorous screening process rather than ad hoc deal making

Firms should establish a clear strategy and goals, and then consult widely with potential targets to find the best fit

Market Screening and Preliminary

Discussions

Market Screening and Preliminary

DiscussionsDue Diligence /

Operational TestsDue Diligence /

Operational Tests

Once a target is selected, detailed due diligence should examine as many aspects of the business as possible

Where possible, pre-deal partnerships or operational testing through joint projects can help identify synergies or areas of strong/weak alignment

Negotiation and Contracting

Negotiation and Contracting

A go or no-go decision should be made once due diligence is completed and a target price has been set based on synergies

This target price forms the basis for negotiation

Successful M&Askeep focus on the strategic goals and synergies during negotiation and contracting

Implementation and DevelopmentImplementation

and Development

Implementation should be mapped in advance, with specific milestones established

In addition to realising synergies and aligning culture, implementation planning should focus on keeping the existing businesses stable to avoid value leakage during the transition period

SeparationSeparation

The planning process for any M&A deal should include contingency planning in the event of the deal failing

This should include criteria for when the exit strategy is triggered, financial and legal plans for divesting or exiting the agreement, and a backup strategy to ensure business continuity

Go or No-go decision

Page 26: Global India Business Meeting A Roadmap for the

M&A Processes Due DiligenceA detailed and thorough due diligence phase provides guidance for the other phases of the process, and contributes to successful integration activities

Achieving fit across these areas is one of the key success factors for M&A

The due diligence process allows the acquirer to determine the extent of alignment between the entities and identify potential problem areas, meaning that deals with very poor alignment can be avoided

Strategic, Operational, Cultural Fit

Strategic, Operational, Cultural Fit

For a deal to successfully generate value synergies must be identified and progress towards synergy targets must be evaluated on an ongoing basis

Due diligence helps to accurately identify synergies and provides the baseline metrics for a long-term evaluation and compliance process

Synergy Evaluation & Compliance

Synergy Evaluation & Compliance

A thorough due-diligence phase examines the financial and legal aspects of the business, as well as investigating business culture, management approach, and operating processes

Risk Management / Due Diligence

Risk Management / Due Diligence

Leadership is required to make the merger a reality and ensure continued success, starting with the alignment of the management framework

Effective due diligence highlights priority areas for the leadership team to focus on during integration

LeadershipLeadership

A scoring system can be used during due diligence to rate the compatibility of business processes

Specific programs can then be designed to slowly align these processes during the integration phase

Alignment ProcessesAlignment Processes

Page 27: Global India Business Meeting A Roadmap for the

M&A ProcessesAlignment ProgramAlignment programs should be tailored to suit the individual characteristics of the acquiring and the acquired organisations, however there are some elements that are common to all successful programs

Provide the necessary resourcesThe alignment program should be given a dedicated team and should be separated out from the operations of the core business

Early planningPlans covering day 1, the first week, and 30 and 60 day integration should be mapped in detail prior to the deal closing, with 90 to 120 day plans also roughly determinedThe alignment team should be selected early in the process, and if possible should be included in the due diligence phase to increase the team’s understanding of the acquired business

Focus on critical success factorsDedicated sub-teams and work streams should be established for any key drivers of the deal (e.g. if customer retention is identified as a key driver of success, a dedicated team should focus on communicating with and retaining customers through the merger)Specific teams for communications and cultural alignment should also be established, since these areas often fail to attract the attention they deserve

Analyse performance and challenge assumptionsKPIs should be established for the success of the merger, but also for the success of the alignment program. If alignment KPIs are not being met, alignment plans should be revisited to check that they remain matched with the key deal driversRegular review dates should be set during the alignment program at which assumptions made during the due diligence or alignment planning phase are challenged. Alignment processes can often reveal detail that was not apparent in due diligence