Post Merger Integration

MBAZG541 (Assignment)
Consultancy Practice
BITS Pilani Kumar Krishna k.krshn@gmail.com
Pilani Campus Tuesday, November 27, 2018
Summary

Group Member Details

Background

About Participating Companies

Industry Analysis

Integration Challenges and Risks

Promising Solutions

Kumar Krishna k.krshn@gmail.com

BITS Pilani, Pilani Campus

Background, Context & Assumption

• Company A - Shoppers Stop Ltd

• Company B – ShopClues.Com

Business Case:
• Shoppers Stop Ltd acquired ShopClues.com

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

 About Company A
• Shoppers Stop is an Indian retailing company promoted by the K Raheja Corp Group. It began in
1991 with its first store in Andheri, Mumbai.
• Shoppers Stop Recognitions
 Shoppers Stop Ltd has been awarded "the Hall of Fame" and won "the Emerging Market
Retailer of the Year Award", by the World Retail Congress at Barcelona, on 10 April 2008.
 Shoppers Stop is listed on the BSE and National Stock Exchange of India. As of 2013,
Shoppers Stop had 73 stores in India.
• Shoppers Stop began by operating a chain of department stores under the name “Shoppers'
Stop” in India. Shoppers Stop has 83 stores across 38 cities in India. It retails clothing,
accessories, handbags, shoes, jewellery, fragrances, cosmetics, health and beauty products,
home furnishing and decor products.
• Shoppers Stop launched its e-store with delivery across major cities in India in 2008 and
released an app for smartphones in 2016. Estore does not have any significance presence
• Revenue: 491013.89 Lakhs(2017 march)
• Employees: 14000+
• Business Units: Shoppers Stop, Home Stop, Mother Care, Crosswords, Arcelia

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

SWOT Analysis

SWOT ANALYSIS
1. It has strong domestic presence with 50+ stores in India
2. Shoppers stop has become highest benchmark for retail industry
STRENGTHS 3. Loyal customer base with more than 750,000 first citizen members
4. Increasing footfalls and conversion rates
5. Management team is strongly established as well as skilled labor force
1. It has lesser promotional strategies on both ATL and BTL level compared to global leaders
WEAKNESSES 2. It always follows low risk strategy in business or entering into new segment
3. Negligible online presence

1. Big opportunity to enter into new geographies nationally

OPPORTUNITIES 2. Foreign players see it as preferred partner for making investment in India

1. Due to global slowdown consumers’ purchase power has reduced for top high value brands
2. Increasing brand awareness among consumers across all socio-economic classes
THREATS 3. Technological advancement leads to rapid change in customer behavior
4. Online Market Place – Heavy Discount
COMPETITION
1. Vishal Mega mart
COMPETITORS 2. Westside
3. Willslifestyle

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

About Company B

• ShopClues.com is an online marketplace, headquartered in Gurgaon, India. The

company was founded in California's Silicon Valley in 2011. It has over 12,000 registered
merchants retail 2,00,000+ products on the platform to over 42 million visitors every
year across 9500 locations in the country.
• The e-commerce company is incorporated in Delaware
• ShopClues joined as 35th entrant in the Indian e-commerce in 2011. The company
employs about 700 people across different locations.
• Shopclues handles about 1.8 million transactions annually and around 42 million visitors
a year. The company is already doing Rs 100 crores in annualised revenue based on its
monthly run. The company witnessed growth of 250 percent from January 2012 to
January 2013.
• In January 2013, Shopclues posted a revenue of about Rs 8 crore and handled 1.52 lakh
transactions compared to Rs 11 lakh in revenue and 200 transactions in January 2012.
The company was expecting 30 lakh transactions and also expected the total visitors to
website to cross 10 crores.
• Revenue: 178 Cr
• Loss: 383 Cr

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

Industry Analysis-
Shopclues’ Revenue and Expenses
• Around 64% of the revenue comes from the sale of services and 30% from
advertising and marketing services. Advertisement and marketing services,
which probably refers to the native ads service to sellers on their platform, has
grown considerably in this fiscal and has increased its share in the revenue pie
two folds.
• The following chart and table depict a breakup of their revenue

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

 Shopclues’ Revenue

Source of Revenue (In INR Crores) FY 14-15 FY 13-14 % change

Sales of Services 50.7 22.04 130%

Technology Support Services 3.01 3.57 -16%

Advertisement and Marketing Services 23.57 4.87 384%

Other Income 1.91 1.11 72%

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

 Shopclues’ Expense

Expense Description (INR Crores) FY 14-15 FY 13-14 % Change

Service Costs 71.1 27.2 161%

Employee Expenses 23.1 16.5 40%

Marketing & Promotion Expenses 32.9 13.4 146%

Advertisement Expenses 25.1 1.8 1294%

MBA ZG541-Consultancy Practices

Kumar Krishna
BITS Pilani, Pilani Campus
k.krshn@gmail.com
Industry analysis-
Shoppers Stop Revenue and Expenses
• Shoppers Stop operations expanded to 80 stores in 38 cities
• July 28 (Reuters) - Shopper's Stop Ltd ::June quarter loss 37.2 million rupees versus
loss of 135.6 million rupees last year. June quarter total income 9.46 billion rupees
versus 7.80 billion rupees last year

Performance Review
• During the year under review, your Company has opened 8 departmental stores
i.e. one store each at Mangalore International Airport, Meerut, Kolhapur, Kolkata,
Jaipur, New Delhi and two stores at Bengaluru taking its chain of stores to 77
stores (including five airport stores) spread across India. Further, the Company also
has 18 HomeStop stores.
• The revenue of the Company is Rs. 343,450.83 lacs (previous year Rs. 306,763.15
lacs), registering a growth of 11.96% y–o–y basis. The net profit achieved was Rs.
2,517.62 lacs (previous year Rs. 4,073.53 lacs).

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

Key Reasons of
Merger and Acquisition

 Mergers and Acquisitions are a great way to transfer

resources where they are needed and also a very effective
way to remove underperforming management.

 Increase Revenue & Decrease Expenses

 There are also other than just purely financial reasons for
them

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

…Other than just purely financial reasons
Theory Motivation
Operating Synergy Improve operating efficiency through
Economies of scale economies of scale or scope by
Economies of scope acquiring a customer, supplier or
competitor
Financial Synergy Lower cost capital

Diversification Position the firm in higher growth

New Products/Current Markets products or markets
New Products/New Markets
Current Products/New Markets
Strategic realignment Acquire capabilities to adapt more
Rapidly
Tax Considerations Obtain unused net operating losses
and tax credits, asset write-ups, and
substitute capital gains for ordinary
income
Market Power Increase market share to
improve ability to set prices above competitive levels

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

Integration
Challenges

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

Human Resource

 Identifying and communicating the reasons for the M&A to

employees. Often employees see change as dislocating and
upsetting. HR must communicate effectively and openly with
all employees throughout the transition. Specifically, HR must
communicate with employees about the necessity for the
change, explain how the change will benefit them, and
manage the stresses that accompany change

 Retention

 Compensation
Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

Cultural and Organizational Changes

• Culture is the long standing implicitly shared values,

beliefs and assumptions that influence the behaviour,
attitudes and meaning in an organisation.
• It’s difficult for a merged company to carry the culture
of the previous organisations, because employees
seldom replace their underlying values and beliefs in
the long run.
• Generally, when mergers and acquisitions occur, they
bring shifts in management practices and strategies,
which can have negative implications on the people at
the organisation. A sudden shift in these practices,
brings disruption and unease to a company.

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

Communication Challenges

• Communication challenges came out as one of the top

factors that caused company synergies to fail.
Communicating with employees, empowering them and
creating a culture for them to thrive are all fundamental
parts to integration.
• When mergers and acquisitions occur, employees and
management are generally left in the dark. Fear and lack of
answers deter top management from providing the
information that employees need to redirect their actions
in the merged company
• Lack of communication creates distrust and uncertainty in
the workplace, leading to lower employee engagement
levels.

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

Sales & Marketing

• One of the biggest—the integration of sales

forces—is central to ensuring revenue growth
and driving the value that mergers promise
but often fail to realize.

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

Power & Control

• One company may be driven by a sales

mentality while another may be focused on
innovation. Or decisions in one company may
be top down while the other may be used to
more participative decision making.

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

Branding

• It has the potential to create chaos, expense, and confusion

in both the short- and long-term. Before you acquire a
company you must have an understanding of and a plan for
the target’s brand before, during, and after the deal.
• Are you getting your money’s worth?
• How strong is the brand’s connection with its customers?
• Can it withstand competitors’ advances while your deal
closes and the company integrates into yours?
• How are you going to pay for integration costs when it’s
time, and what does that look like exactly?
• Is it re-skinning a web site or more extensive like changing
signage on buildings and vehicles in multiple cities?

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

Finance

• According to the preparatory stage of the pre-merger,

merger and acquisition phase and the integration phase,
the financial risk classified into three categories: objective
business valuation risk, financing risk and integration risk.
• The value assessment of target corporate is the essence of
mergers and acquisitions, which depends on the
expectation of future earnings, including: the risk of the
financial statements, profit forecast risk, the discount
coefficient risk.
• Financing risk mainly refers to the acquisition of enterprises
which whether can raise funds in full and on time to ensure
the merger going smoothly or not

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

Financing risk

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

Infrastructure

 IT Infrastructure of ShopClues

 Retail Stores of ShoppersStop

 Warehouse

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

Promising Solution(s)

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

M&A Team

• Forming an M&A team and choosing and

coaching an M&A leader. The team leader must
focus solely on the M&A rather than be involved
in running the business, be sensitive to cultural
differences, lead the change process, and retain
and motivate key employees.
• Comparing benefits, compensation and union
contracts and deciding on HR policies and
practices
Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

Cross Cultural strategies

• Pre merger due diligence will weed out all the

measurable processes within an organisation, however
it’s vital to conduct culture surveys to determine the
norms within both organisations.
• Through continuous feedback, managers will be able to
understand their employees concerns and issues
before they are a threat to the company in the long
run.
• By implementing such a strategy, the merging company
can understand where the cultural differences are,
engage with employees throughout the merging period
and carry out a successful culture shift.

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

Positive Communication

• Communicating is a skill that should come

naturally, however it can be the hardest skill to
learn. When managing any key project, such
as mergers and acquisitions, it’s important to
keep the employees from both parties
informed at all times. Inform the employees of
the progress of the integration through
different communication channels (emails,
intranet, etc)
Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

Organisational Structure

• HR must determine the new power and

control structure, and retain and motivate key
talent. Our workforce planning template can
help you better assess this issue.

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

Brand Synergy

• Exploit the synergy created by the M&A

• Retain the strength of the individual entities
• Project the acquisition as a symbol of strength
• Since this will be the first M&A of its kind,
combining e-commerce and brick & mortar.
Highlight the brand which now covers the
entire universe

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

Future Roadmap

• Realistic Target
• Short Term & Long Term Goal

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

Infrastructure

• Create list of existing infrastructure

• Map them to increase efficiency
• Allot existing resources to fill in gaps of the in
the merged company

Kumar
MBAKrishna
ZG541-Consultancy
k.krshn@gmail.com
Practices

BITS Pilani, Pilani Campus

 BITS Pilani
Pilani Campus

Thank You!

BITS Pilani, Pilani Campus