6 important aspects of Global Mergers & Acquisitions
April, 22nd 2010
With a rebound in global markets, Indian companies are back with their appetite to go for ambitious overseas acquisitions in order to log into inorganic growth-driven expansion plans.
Gradually, the strength of the recovery is ensuring that corporate honchos pull-up their firms back to the normalcy levels of pre-crisis duration a couple of years back. Going further, increased optimism would lead to revival in the number of outbound deals by the corporate India.
However, closure of mega-deals may need to determine and verify several aspects in order to envelope a seamless coming together of two different entities from different culture and locations altogether.
6 important Aspects of Global Mergers & Acquisitions
The foremost requirement for a corporate looking to go global, to start with, is to change the old technocrat mindset and think big and global. Companies working in overly competitive environment have to change fast as per the evolving dynamics in their industry of operation.
Bharti Airtels take-over of Zain Telecom is a case in point. Even as Bharti holds a numero uno position in the growing telecom markets of India, the companys management whiffed saturation of the urban markets in India along with regime of intensifying price wars.
Without being content with their current market share and stature, the company initiated a bold step of acquiring African assets of Kuwaits Zain Telecom in a whooping $10.7 billion deal, inviting wrath of analysts community over valuations.
As per an estimate only one in two Africans hold mobile phone and with Zain having strong presence in most of the countries in Africa, Bharti has taken a lead in diversifying its risks involved in domestic markets.
Pricing and Valuations
Pricing and valuations at which the targeted firm is being taken over is the most crucial decision to be taken while contemplating a global acquisition move. Preferably, both the CEO and the CFO of the company needs to figure out the net cost-benefit analysis involved in acquiring an overseas company.
At the same time, it must be kept in mind that merely pricing and valuation should not form a base of final decision. Even long term impact of the deal should be taken into account. In most of the mega-deals, the valuations are often touted as being overtly expensive in terms of pricing.
But, if the deal is likely to be earnings accretive over the longer duration it may be worth it to go for a bold move. Similarly, if the move is likely to give the company a quick head-start within a given market, it could be worth it rather than going for slow organic growth process unless the valuations demanded are above realistic levels. The example of Bharti Airtel provided above fits perfectly well under this heading too.
Abiding Local Laws
An overseas company targeted to be acquired is governed by specific local laws and policies. Different countries are governed by diverse set of jurisdiction processes. It could be in the form of local land acquisition laws or even local labour laws with different set of trade union rules.
Take the case of Tata Steels acquisition of UKs Corus, where the initial strains have begun to show through labour issues and could likely result in labour strikes on account of Tata Steels decision to mothball its Teesside unit in northeastern England.
The regulatory issues of overseas destination have to be tackled in conformation with local jurisdiction laws and rules under the recommendations of local legal experts.
Flexible Decisions & Adaptability to Change
Companies have to ensure that their business decisions and mandates are flexible and adaptable to change in the overseas markets. A product which is an instant hit domestically need not necessarily be as much viable in a foreign market.
Take the case of same company Bharti Airtel. The telecom company played well its cards related to low-cost, high-volume game in the growing markets of India. In fact, it got a firm foothold through this strategy as Indias premier telecom operator.
And now the company is looking to replicate the same model in Africas too. It is not necessary that the same model would work over there too. If the volume game does not work over there, the company needs to be ready with a Plan B to quickly adapt to the diverse trend of local consumers.
Diverse Tactics of Marketing
An acquisition abroad is like marrying with an entity with distinct features and characteristics altogether, even though the new entity becomes a part of ones own company post-takeover.
While on the marketing front, it could entail relating to diverse tastes of consumers situated in the destination country. It could be more sensible to hire employees from local state who are more acquainted of the local environment conditions and trend dynamics.
Availing services of the local employee expertise in production and marketing aspect could be seen as a game clinching aspect for going along with overseas ambitions. Employing local people would attract less stiffness from local people on issues related to employment concerns.
Higher levels top executives, preferably even on the board seats, would act as an added boost for an able aid to top management in working our local business strategies for the company.
Serving to Social Causes of Local Destination
A foremost most rule that drives any top class company is to serve the social causes of the society. Whatever you give, comes back goes the saying. A responsible and accountable company would be better-off to part away some small portion of its earnings as a give-back to the local country and its people.
Companies can initiate a number of societal objectives like adopting responsibility for improving infrastructure of a specific area or a location. It could be donations to charity organization and leprosy hit people.
It could as well be any other social cause which spreads awareness among the people. Taking part in rehabilitation of areas hit with natural disasters. Most of all, the companies should also take accountability about the environmental aspects and welfare of the local country.