Why big deals crumble

Indian telecom companies have had a bad record of sealing up large acquisition attempts. Bharti continued this infamous legacy when its attempt on an `African Safari’ turned out to be a missed call. Reliance Communications is still hot on the trail – some hope there. But what’s the big  deal about big deals? Ms Sairee Chahal, Co-Founder, SAITA Consulting (www.saitaconsulting.com), feels that big deals are like marriages – few are happy but we still have a lot of marriages.

“If they weren’t, they wouldn’t be such a big deal. So expecting all large deals to work out and be successful in entirety is very utopian,” she tells Business Line in an email interaction. True that for every large deal that works out, there are at least 10 canned in the dark. Are Indian companies good at the game?

“Unlikely bedfellows – parties in a deal can be. Sometimes, it is just the nose for success, which converts business owners into successful deal makers,” Chahal reflects. Like some marriages, which are write-offs originally, there are some deals, which just defy all odds and turn into freak successes. To find out more about the big giants and their bigger combos, read on.

Excerpts from the interview:

Big deals – what’s the mantra?

It’s about finding the right match. When the dealmakers play matchmakers, there are very few right fits. Finding the right parties is  one of the most acute challenges that dealmakers face. So sometimes, it is better to nip it in the bud than go through a bad marriage.

Acquired wants to make acquirer a subsidiary –  aren’t big deals convoluted?

I will tell you something personal. When I got married my mother told me, marriages are not between two people but between two eco-systems. The same applies to deals, where it is all about managing complexity that it brings with it. Managing mergers and acquisitions (M&A)  is a function of the degree of complexity that can be managed within the eco-systems of the two identities in question. This includes the larger socio-economic scenario, the micro business roadmap and the touch points for all stakeholder groups. A fair extent of success is required in managing all these links for a deal to be successful.

One of the recent deals in public memory is the Bharti-MTN proposed merger. What’s your take on that?

An acquaintance of mine put it succinctly – Mr Rakesh Shukla, Managing Director of Amatra Consulting, says that Bharti is a company based in India and knows that environment well. However, in the case MTN the scale and complexity differs completely. The three major triggers one needs to identify in a situation like this are: the macro environment, the micro environment and the regulatory or political situation. So for a deal like MTN, it is 19 locations multiplied by three large variable factors, which further get divided into multiple sub-factors,  making the entire context a complex one.

Some say the right price can be a clincher?

A bit like background checks in marriages, the background check of all the parties involved in creating M&A successes is crucial  to bring about a scenario of merit and arriving at the Net Present Value (NPV) of any deal. Mr Rakesh says that one also has to consider the  NPV of the deal in question. That’s a good argument.

For example, one would like to consider that a company has difficult markets – like Sudan, Somalia, Iran, Nigeria – whose Average Revenue Per User (ARPU) might be $25, he points out. But here’s the killer argument! The complexity one is battling involves investments from the US banks ( as European PE investors have never been very adventurous) for an Indian company with very little global footprint, and for a large, diverse and very unstable region.

Good point. But can sellers be so choosy?

That’s what we call buyer-seller readiness. Traditional wisdom says that both sides need to give their best  to make marriages work.

It is a 50:50 partnership. The same logic applies to the M&A space. Great deals invariably need a certain kind of readiness, managerial calibre and mindset which is not very quantifiable.Partners choose themselves – is that what you are indicating?

Something like that! Let’s take an example. The Tata group has done some successful deals in the past on back of the confidence and the culture that the group has held to for the last 100 years or so.

In the case of JLR, it lent a lot of confidence to labour unions, a key stakeholder group in the deal. In eight out of ten times, deals are not about money or investments but about the likelihood of success of prospective relationships – investor-acquirer-acquired identity. Faith in the acquiring company is a huge plus and has worked in cases like JLR, whereas in Orient Hotels or Arcelor-Mittal it was something that needed to be built steadily. Deals that go through are in favour of both the parties and both of them need to be in that situation of wanting it to go through.

Then there are global players like Mittal Steel (Arcelor Mittal now)  which, in most cases, leave the operational running to the locals and home-grown managers. The company strengthens the existing structures by bringing its own leadership expertise and the larger vision to the table.

But when you have a good company to be acquired, doesn’t time make things complex? The Sun Pharma-Taro deal, for instance. Agreement struck one year ago, now showing signs of falling apart.

`Take your time’ is key here. Like all relationships, deals need time, space and attention.

Most large deals have a gestation period, and this is critical to their success. The deal incubation time needs un-intruded time, diligence and confidence building, before they are shared in public domain. Not all people having a conversation will strike a deal; only the ones that figure out the best mutual value will. A lot of times, M&A conversations are shopping in visibility exercises and many a trusted name may fall prey to that.

Let’s get down to the brass-tacks. What’s the winner?

In the end, it boils down to the nitty-gritty of daily lives for marriages and operational strength for businesses. Ones who succeed are the ones who put  on-the-ground effort to make it work by foreseeing obstacles, building systems to handle them, preparing managers to handle change and building economic value at the heart of it all, irrespective of the cultural-financial-social-economic challenges.



This piece was originally published in The Hindu Business Line

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