Time for Indian cos. to acquire firms6 min read . Updated: 04 May 2009, 08:16 PM IST
Time for Indian cos. to acquire firms
This economic climate offers once-in-a-lifetime overseas acquisition opportunities for companies with significant cash reserves as the share price of weakened competitors fall," says Alan Middleton, chief executive officer of the global consulting firm PA Consulting Group, or PA, which has its headquarters in the UK. “This is a time for Indian companies to acquire overseas firms at bargain-basement prices, gain market share and more value from the business."
As a 2,700-employee-strong firm with at least 35 offices in at least 20 countries, PA competes with other consulting big names such as McKinsey and Co., Deloitte Touche Tohmatsu and PricewaterhouseCoopers International Ltd. In India, PA advises multinational companies, international donor agencies, central and state government public sector enterprises, regulators and large Indian players across sectors.
In an interview, Middleton talks about the consulting firm’s growing India focus, the impact of the downturn and opportunities and challenges for consulting. Edited excerpts:
PA has had a fairly quiet presence in India. It’s a little surprising that you have chosen a time like this to step on the gas. Why is that?
We are not new to India. We have actually been present here for 25 years, working with international donor agencies predominantly in the energy and utilities sector, providing consultancy services in areas such as programme management, operational efficiencies and capacity building.
We started our current phase of expansion in India in late 2007. We spent time developing our strategy and building our leadership team, including the transfer from UK of our head of business development, Arjun Singh. We did not want our Indian operations to be run by foreign nationals because we believe that a team that is familiar with PA’s global capability and has an understanding of Indian values, can serve our clients in India better.
During the course of my visit, we have also initiated dialogues with a number of ministries in the government of India and it is clear to me that there is a real appetite to apply our global experience and “delivery mindset" to the opportunities available throughout India.
What is the update on recent reports that Cognizant Technology Solutions Corp. is in talks to buy PA Consulting? Is the firm actually looking for a buyer?
We are one of the largest and most influential sourcing advisory firms and we take very seriously our ability to give our clients independent advice. The emphasis we place on this independence is one reason why we would not pursue an alliance with Cognizant. PA’s executive team and board are not, nor have ever been, in talks with Cognizant about anything whatsoever. There is no truth at all in the allegation of an acquisition of PA, nor any part of PA, nor in the possibility of alliances, partnerships or the like.
No (the firm is not looking for a buyer). In 2009, PA continues to build on its 2008 performance, where we achieved our best year ever in terms of revenue, profit and margin.
What are the strategies you are adopting to see yourself through these tough times? What are the opportunities you see for yourself and your clients?
PA is a well-managed firm. Having said that, like any other company, we are impacted by the collapse in business confidence around the world. Most sectors have been impacted and there are a significant number of companies whose future is in doubt. We are focused on serving our clients well through this period—we have a long-term commitment to them—and on investing and developing those parts of our business that we see as key to our longer-term future. And India is a clear example of this.
The advice that we offer to our clients is something that we adopt ourselves. There are a few things that companies can do now. First, secure liquidity. It is important to have comfortable capital reserves to ensure a company’s survival. Second, restructure the business to focus on those areas that deliver value—and exit unattractive businesses. Finally, it is important to optimize the performance of even the good businesses—to reduce costs that do not add value and to push harder on revenues.
For companies with cash reserves, the recession offers once-in-a-lifetime opportunities as weakened competitors see their share prices fall to levels that make them attractive acquisition targets. This is a time for Indian companies to acquire overseas firms at bargain-basement prices, gain market share and more value from the business by improving processes and managing costs. Well-positioned companies can achieve a decade’s progress in two years.
Despite the downturn, we are serving more clients in India. And globally, we are seeing increased government spending in key areas such as energy, health and education...which in turn feed back into the broader economy.
Does the nature of consulting change because of the market environment—would it be different from what it is during the boom times?
At the heart of it, there is not much change. Consulting is about offering solutions that are right for clients. However, difficult times present different sets of challenges and, therefore, there is a greater need for help in tackling new situations. It’s time to invest in areas that will prepare them well for the future and help them gain a lead over competitors when the economy recovers.
This is PA’s bread and butter—making companies more efficient, helping them win in the market and, most importantly, getting the work done. We don’t just write reports, we roll our sleeves up and deliver alongside the client.
What are the opportunities and challenges for consulting firms in India?
There is tremendous opportunity to deliver real value to the people of India through the delivery of quality consulting work. What we must all avoid is the situation seen in some economies where clients become too dependant on consultants, who in turn are performing average work and at a high fee rate. Addressing this challenge requires ethical behaviour from the advisers and intelligent buying by the clients.
Indian companies are beginning to look global and are increasingly aspiring to become world-class companies. A number of Indian firms are well positioned to acquire non-Indian targets and we are already advising domestic clients in pursuit of non-Indian acquisition targets. We are helping develop their acquisition strategy through the search process and post-merger integration support.
The biggest challenge around the world is that the consulting industry remains highly fragmented and that the work ranges from excellence to mediocrity. I believe that there is still too much “jam" consulting—clients paying high rates to have very average work done on unimportant areas (and I include “body shopping" in this category, where the client’s own staff are supplemented by consultants for long periods of time).
Please share with us learnings from the Indian market.
Indian business leaders have always impressed me with their pragmatism, enthusiasm and their broad and deep understanding of their businesses and the business environment. I think, this is a huge strength area for the Indian corporate environment and one which will help differentiate them in the global playing field.
India as a whole is at a tipping point right now and has the opportunity to make a major difference in the world—whether that be through global acquisitions and influence or domestically through leading in areas such as energy strategy and renewables. I firmly believe that the decisions countries like India and China make in the coming years will shape the future of the world we live in.
It is a very exciting environment in which to consult and make a difference.