Mergers & Acquisitions
Especially, when times are torrid, people go back to the table & ponder over their decisions taken earlier. That’s why sometimes even economists say that slowdowns are a good measure to check the irrational exuberance exhibited by honchos when everything is hunky- dory. Was wondering about fate of M&A’s while idling in the silence of the train, especially when times are choppy, it gives me a perfect alibi to defend my selves. Except a few of them, I couldn’t come across any major successful M&A over a period of time. Be it an Indian acquisition or a global firm, the path taken to inorganic growth has more or less always drained the left hand side of the balance sheet. I will start with the most amusing of takeovers; especially it appears to me now, based on hindsight.
A whooping $183 billion hostile takeover of Germany’s Mannesman AG by none other than our ZoZo creator Vodafone. Combined once, they had a market cap of $365 billion, but guess what, today they have their stands stripped down to a pathetic $65 billion. I won’t go into the details of why did the soup go sour? There may be lot of reasons like, not a strategic fit, differing business models, cultural barriers, wrong rational etc. How can we forget the acquisition which formed the largest media & entertainment company in the world? Ya, you guessed it right. The marriage of AOL & Time Warner, but guess what, even their market cap today has witnessed an appalling fall of 90%. One research estimates the cumulated losses to be a staggering $132.6 billion.
The irony is that these valuation blunders have not even left financial majors unscathed. When everything was falling apart in October 2008, one consortium of financial major thought that to be an ideal shopping time. Result was $99bn purchase of ABN Amro. Their can’t be another bigger wrong price deal done at the wrong time. Coming to the desi acquisitions, the very first terrible acquisition that strikes to my mind is the takeover of two dead dodos from Ford, i.e. JLR by Tatas. I have never doubted the ambitiousness of Tata Gr, but what happens to their calculations when they think of acquiring companies. If ambition is not combined with prudence & clear understanding of the competitive landscape, you can land yourselves with terrible consequences. $2.3 bn acquisition of JLR, when the market cap of GM is not even $3bn is a hopeless buy. (Market Cap of GM in October, it has further plummeted now). Even the Corus buy has landed them in huge debt. Further, these decisions were taken when the markets were peaking, thus leading to wrong estimation of valuations. Overall, I believe that the big ticket acquisitions are more of driven by the egos rather than valuations. But, yes when the fish becomes big only one has to survive. Market share becomes an issue. Either the merger of Arcelormittal or Corus or the recent oracle & sun marriage, big ticket acquisitions have more or less failed to deliver. The nature & cause of M&As is different in case of small & different for big companies. Companies should identify which part of the learning curve they belong to & then accordingly strategize for M&As. That’s why we don’t see Infosys, Wipro or HCL vying for big companies despite having billions in their kitty. They very well know their constraints. That’s why Wipro-Infocrossing or HCL-Axon acquisitions are giving good results compared to the brave M&As by Tatas. Yes, I agree big ticket acquisitions take longer time to yield fruits, but do you have that much cash to afford that. Take Tata Motors for instance. Onus is on the company’s management to believe in small takeovers which make strategic sense or be brave and be a Tata Motors.
