As 2007, a year in which Indian companies made headline acquisitions, wrapped up, PricewaterhouseCoopers (PwC) global managing partner for advisory and tax,Gene Donnelly, was in India and talked with Mint about what it takes to create a successful merger as well as challenges faced by the Indian outsourcing industry. Edited excerpts:
What is your view of Indian companies looking at overseas acquisitions?
The Indian MNC (multinational) has emerged as a global, dominant force in mergers and acquisitions. I think some of that is endemic to the Indian marketplace. Companies are so successful here that they are looking to expand overseas. You look at some of the transactions that have occurred in the last few years, it’s been really positive. The Indian psyche is not one where you take it over and try to change things. Indian culture, by definition, is one of assimilation and tolerance.
Managing M&A: Gene Donnelly, global managing partner, PwC.
So, if you look at Tata’s acquisition of Tetley Tea, they took it over, they are realizing tremendous value. They left the management in place, the cultures and mores in place. They have aligned them with values and culture of the Tatas, but they haven’t fundamentally changed that operation.
The biggest overseas acquisitions by Indians are in manufacturing. In information technology industry, the fear we sometimes hear about is that big acquisition by an Indian company might trigger an exodus of skilled people from the target company...
I don’t think it is unique to an Indian acquirer overseas. When you buy a consultancy, you buy people. And, again, Indian acquirers, by definition, have a built-in advantage because their culture is one of more tolerance, more global perspective.
It is going to take a while for that awareness to be created around the world. Perhaps they are not pounding as loudly as they could and should. It’s really hard to make a successful acquisition of a consultancy business.
The no. 1 reason why most transactions fail, according to CEOs, is culture. You may need help on how to manage the cultural differences that exist. Now, some of that you could say comes from the Western perspective. The integration quickly comes because it is a cost-driven exercise and the horizon is a little shorter. That is not the way a typical Indian acquirer operates, they take a much longer perspective and that I think is something that will work to an Indian company’s advantage. That is not something that will happen overnight, that awareness has to be created out there.
In-bound acquisitions have started happening. How difficult is it for an overseas company to manage the process in India?
Most deals don’t deliver the value their business case supports and that is not because the deal isn’t executed well, but because people don’t plan in enough detail for post-deal to unlock the value. And a lot of times, deals get caught short because of cultural issues. Dealing with people when you cross borders requires a different touch and a different feel.
The most successful deals we see, the people who are involved in doing the deal are also involved in the post-deal work. That is why I think the recipe for success (for an in-bound acquisition) is not much different from an Indian company going to London and making an acquisition.
What are factors common to successful deals?
Communication. You can’t under-communicate. Those communications are to internal constituencies: management, employees. External constituencies: regulators, suppliers, your customers—everybody is going to be impacted by that deal and the sooner you let them know that... (the better). You are trying to figure out what it means and as soon as you do (and) you let them know, your chances of success go up tremendously.
Deals, many times, start with one chairman shaking hands with another chairman and real success is when everybody in the organization is pulling in the same direction.
Where do Indian companies, who tap into the outsourcing market, stand? What are their challenges?
It is an evolving market, it’s now much more collaboration and partnership.
The interesting thing (from findings of a CEO survey done by PwC) is that when you look at the Indian vendors and compare them to rest of the world, they are much less likely to have ongoing collaboration and discussions with their customers. So, they don’t seek feedback as frequently and as thoroughly as a non-Indian outsourcing provider.
Where the market’s heading, Indian companies will no doubt be successful there, but in terms of some of the analysis we have, they are not as visibly open to collaborating with their clients.
It (outsourcing) is a maturing business, it is more about accessing talent, accessing creativity, innovation and building flexibility into the business model.
What is holding Indian companies back?
I think when you are growing at the rates they are growing, it is hard. Reaching out and touching your customers is something you need to do but you have got 25 other things everyday that (you) have to do to just provide the service to your client, it doesn’t happen.
Maybe people haven’t appropriately proritized their time yet to do more what’s long-term beneficial versus short-term revenue generating. Getting back to the cultural divide, Western companies think they are being much more collaborative than Indian companies believe them to be.
Where’s the truth? Feedback is an opportunity, I would position that as an opportunity.