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Top 10 Indian Mergers & Acquisitions of the 2010!
by A SE EM RA STO GI
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India Inc. is back making multibillion dollar deals like never before. The total deal value this year has surpassed 2007 which was the big ticket year for mergers and acquisitions. The recession and economic slowdown had caused a lot of heartburn, disappointment and distress among the corporate honchos in the country. But with deals crossing US $55 billion this year, the smiles are back on the faces of the big guns. Along with hunting for organizations at bargains, the deals also involve going for loss making companies in developed countries to turn them around. Value buys became the order of the day. Though a number of acquisitions were in the developed world like Singapore, Australia, Europe etc, many of them happened in the developing world as well.
And then there were some which happened in India as well!
Top 10 Mergers & Acquisitions in India for 2010 Tata Chemicals buys British salt
Airtel’s acquisition gave it the opportunity to establish its base in one of the most important markets in the coming decade Abbott’s acquisition of Piramal healthcare solutions Abbott acquired Piramal healthcare solutions at US $ 3.157 cr in Ispat Industries to make it the largest steel producer in the country. The acquisition gives Tata access to very strong brine supplies and also access to British Salt’s facilities as it produces about 800. The money generated gave Aircel the funds for expansion throughout the country and also for rolling out its 3G services ICICI Bank buys Bank of Rajasthan This merger between the two for a price of Rs 3000 cr would help ICICI improve its market share in northern as well as western India JSW and Ispat Ki Kahani Jindal Steel Works acquired 41% stake at Rs 2. Though the valuation of this deal made Piramal’s take this move. a UK based white salt producing company for about US $ 13 billion. Since Zain is one of the biggest players in Africa covering over 15 countries.72 billion which was 9 times its sales. Abbott benefited greatly by moving to leadership position in the Indian market GTL Infrastructure acquisition of Aircel towers This acquisition was worth about US $ 1.Tata Chemicals bought British Salt.000 tons of pure white salt every year Reliance Power and Reliance Natural Resources merger This deal was valued at US $11 billion and turned out to be one of the biggest deals of the year. It eased out the path for Reliance power to get natural gas for its power projects Airtel’s acquisition of Zain in Africa Airtel acquired Zain at about US $ 10.7 billion to become the third biggest telecom major in the world.8 billion and brought GTL Infrastructure to the third position in terms of number of mobile towers – 33000. This move would also help Ispat return to profitability with time Reckitt Benckiser goes shopping Reckitt acquired Paras Pharma at a price of US $ 726 million to basically strengthen its healthcare business in the country. This was Reckitt’s move to establish itself as a strong consumer healthcare player in the fast growing Indian market .
After acquiring Hong Kong’s Quality Healthcare Asia Ltd for around Rs 882 cr last month.2 * in million / # according to data from Grand Thorton India However. the company’s management whiffed saturation of the urban markets in India along with regime of intensifying price wars. they are planning on acquiring Dental Corp. is to change the old technocrat mindset and think big and global. closure of mega-deals may need to determine and verify several aspects in order to envelope a seamless coming together of two different entities from different culture and locations altogether.6 MOnth Jan – 09 Feb – 09 Mar – 09 Volume 5 6 4 Value* 40. Without being content with their current market share and stature. telecom etc. the M & A’s have happened across industries and sectors like banking.8 12303. FMCG. the largest dental services provider in Australia at Rs 450 cr As you see in the list.Mahindra goes international Mahindra acquired a 70% controlling stake in troubled South Korea auto major Ssang Yong at US $ 463 million. 6 important Aspects of Global Mergers & Acquisitions Global Thinking The foremost requirement for a corporate looking to go global. .7 billion deal. healthcare. Bharti Airtel’s take-over of Zain Telecom is a case in point. inviting wrath of analyst’s community over valuations. Indian Mergers & Acquisition Deals Comparison over last year Month Jan – 10 Feb – 10 Mar – 10 Volume 15 13 17 Value* 341. This shows that this really has been the dream year of Indian industry.3 615. Along with the edge it would give Mahindra in terms of the R & D capabilities. the unlisted company owned by Malvinder and Shivinder Singh looks set to make it two in two in terms of acquisitions. Even as Bharti holds a numero uno position in the growing telecom markets of India.7 52. to start with. Companies working in overly competitive environment have to change fast as per the evolving dynamics in their industry of operation. the company initiated a bold step of acquiring African assets of Kuwait’s Zain Telecom in a whooping $10.2 135. automotive. this deal would also help them utilise the 98 country strong dealer network of Ssang Yong Fortis Healthcare acquisitions Fortis Healthcare.
The example of Bharti Airtel provided above fits perfectly well under this heading too. But. Diverse Tactics of Marketing . if the deal is likely to be earnings accretive over the longer duration it may be worth it to go for a bold move. Different countries are governed by diverse set of jurisdiction processes. both the CEO and the CFO of the company needs to figure out the net cost-benefit analysis involved in acquiring an overseas company. if the move is likely to give the company a quick head-start within a given market. Take the case of same company Bharti Airtel. And now the company is looking to replicate the same model in Africa’s too.As per an estimate only one in two Africans hold mobile phone and with Zain having strong presence in most of the countries in Africa. At the same time. In most of the megadeals. Abiding Local Laws An overseas company targeted to be acquired is governed by specific local laws and policies. In fact. it must be kept in mind that merely pricing and valuation should not form a base of final decision. where the initial strains have begun to show through labour issues and could likely result in labour strikes on account of Tata Steel’s decision to mothball its Teesside unit in northeastern England. The regulatory issues of overseas destination have to be tackled in conformation with local jurisdiction laws and rules under the recommendations of local legal experts. It could be in the form of local land acquisition laws or even local labour laws with different set of trade union rules. the company needs to be ready with a Plan B to quickly adapt to the diverse trend of local consumers. Take the case of Tata Steel’s acquisition of UK’s Corus. it could be worth it rather than going for slow organic growth process unless the valuations demanded are above realistic levels. it got a firm foothold through this strategy as India’s premier telecom operator. Similarly. If the volume game does not work over there. The telecom company played well its cards related to low-cost. Pricing and Valuations Pricing and valuations at which the targeted firm is being taken over is the most crucial decision to be taken while contemplating a global acquisition move. Even long term impact of the deal should be taken into account. It is not necessary that the same model would work over there too. high-volume game in the growing markets of India. Bharti has taken a lead in diversifying its risks involved in domestic markets. Flexible Decisions & Adaptability to Change Companies have to ensure that their business decisions and mandates are flexible and adaptable to change in the overseas markets. the valuations are often touted as being overtly expensive in terms of pricing. A product which is an instant hit domestically need not necessarily be as much viable in a foreign market. Preferably.
While on the marketing front. and the total number of deals rose 3. Whatever you give. It could be more sensible to hire employees from local state who are more acquainted of the local environment conditions and trend dynamics. according to data from Thomson Reuters. comes back – goes the saying. A responsible and accountable company would be better-off to part away some small portion of its earnings as a give-back to the local country and its people.4% in the first half of 2010 over the same period in 2009. Companies can initiate a number of societal objectives like adopting responsibility for improving infrastructure of a specific area or a location. Serving to Social Causes of Local Destination A foremost most rule that drives any top class company is to serve the social causes of the society. . Availing services of the local employee expertise in production and marketing aspect could be seen as a game clinching aspect for going along with overseas ambitions. even though the new entity becomes a part of one’s own company post-takeover. It could be donations to charity organization and leprosy hit people. Overall volume—at $1. the companies should also take accountability about the environmental aspects and welfare of the local country. It could as well be any other social cause which spreads awareness among the people. would act as an added boost for an able aid to top management in working our local business strategies for the company.1 trillion —rose 9. preferably even on the board seats.8%—to more than 19. it could entail relating to diverse tastes of consumerssituated in the destination country. Employing local people would attract less stiffness from local people on issues related toemployment concerns. By Denise Bedell – Project Coordinator: Alessandro Magno L Worldwide mergers and acquisitions activity rose significantly during the first half of 2010—showing the strongest first half for M&A since 2008. Higher levels top executives. Most of all.000 announced deals.An acquisition abroad is like marrying with an entity with distinct features and characteristics altogether. Taking part in rehabilitation of areas hit with natural disasters.
. respectively.3 billion.Cross-border M&A rose to $389 billion in the first half of 2010. followed by financials and telecommunications.5 billion. for $27. The most active overall sectors for M&A in the first half of 2010 were the energy and power sectors. in the US and Australia. This was an increase of more than 84% over the same period in 2009. The transaction was valued at $13. according to Thomson Reuters data. was the purchase of UK group British Sky Broadcasting (BSkyB) by media and entertainment powerhouse News Corp. the second-largest transaction was the purchase by US group CenturyLink of Qwest Communications—again a US-based firm. up from $243 billion in the first half of 2009.5% of overall worldwide M&A volumes. the largest individual transactions in the first half of 2010 were in telecommunications. The largest crossborder transaction was US group Kraft Foods’ purchase of the UK’s Cadbury for $19.5 billion and BHP Billiton’s acquisition of Rio Tinto’s iron ore assets for $58 billion. In the largest transaction by value. It accounted for 36. by value.7 billion. Mexico’s American Movil purchased Carso Global Telecom. Much of the M&A activity seen in the first half of 2010 came from the emerging markets—which accounted for 32% of overall M&A activity. Also in telecommunications. They are both in the telecommunications industry. out of the US. The largest cross-border transaction. However. which is also based in Mexico. demonstrating the faster recovery from the financial crisis that was seen emerging markets versus developed economies. In 2009 the largest transactions were Pfizer’s acquisition of Wyeth for $64.
40 Qwest Communications United States $22.00 Citigroup Inc United States $28.470.00 Liberty Entertainment Inc United States $14.078.000.80 NBC Universal Inc United States $14.730.979.483.20 acquirer name Exxon Mobil Corp United States Pfizer Inc United States Merck & Co Inc United States BHP Billiton-WA Iron Ore Asts Australia Treasury United Kingdom Suncor Energy Inc Canada Comcast CorpUnited States DirecTV Group Inc United States Vehicle Acq Holdings LLC US Enel SpAItaly Preferred Shareholders Unknown Shareholders Canada Kraft Foods IncUnited States Berkshire Hathaway IncUnited States BlackRock Inc United States 2010 Target name acquirer name Carso Global Telecom SAB de CV Mexico $27. Click on the column heading to sort the table.948.Data is from Thomson Reuters Mergers and Acquisitions Review.10 Wyeth United States $64.24 America Movil SAB de CVMexico CenturyLink IncUnited States American Life InsuranceCo Inc United States $15.245.40 Burlington Northern Santa Fe United States $35.00 RBS United Kingdom $41.40 Rio Tinto PLC-WA Iron Ore Asts Australia $58.30 Cenovus Energy Inc Canada $23.70HM Petro-Canada Canada $18.440.54 MetLife Inc United States British Sky Broadcasting United Kingdom $13.345.659.10 General Motors-Cert Asset United States $42.499.00 Barclays Global Investors Ltd United States $13.42 Coca-Cola Entr Inc-NA Bus United States $13. 2009 Target name XTO Energy Inc United States $40. 2009 and 2010.65 News CorpUnited States Coca-Cola Co United States .704.543.400.312.90 Cadbury PLC United Kingdom $19.255.70 Schering-Plough Corp United States $45.170.479.50 Endesa SA Spain $13.878.
120.7 billion for a 40% stake in a joint venture with Pittsburgh-based Atlas Energy that will extract natural gas from one of the larger shale formations in the northeastern United States. and it remains so.261. India-based Reliance Industries agreed to pay $1. Two of the three largest M&A transactions in the Americas in March involved state-owned oil companies from China and India buying into energy properties in South America.html#axzz1E2YVUdH4 Mergers and acquisitions in emerging markets are heating up. Meanwhile. The Indian government approved an investment of $2. and China and India are at the center of a bidding war for global resources.com/tools/global-database/economic-data/10551- largest-maa-deals-2009-and-2010.60 NBN Australia Reference:.700 Schlumberger Ltd United States Williams Partners LP United States Novartis AG Switzerland Bharti Airtel Ltd India KazakhGold Group Ltd Kazakhstan Telefónica SA Spain FirstEnergy Corp United States Newcrest Mining Ltd Australia Caja Madrid Spain Polyus Zoloto Russian Fed $10.http://www.36 Zain Africa BV Nigeria $10.943. agreed to pay $3.140.932. China's national offshore oil company. known as the Marcellus Shale.2 billion over the next five years by three state-run oil companies in Venezuela's Carabobo oil-field acreage.gfmag. but the competition for hydrocarbons is global.742.51 Bancaja SA Spain $8. especially energy and metals.577. It spread deeper into North America in April when Sinopec.Smith International Inc United States $12. M&A transactions involving companies based in emerging markets more than doubled in the first quarter of 2010 compared to the same period a year earlier. Africa has been one of the major battlefields in the quest for resources. CNOOC.223. the international arm of China Petroleum & Chemical.94 Lihir Gold Ltd Papua N Guinea $8. Meanwhile.1 billion to buy a . snared a $4.750.64 Williams Companies United States $11.35 Telstra Corp Ltd-Wholesale Australia $7.65 billion stake in the Syncrude Canada oil-sands project from Houston-based ConocoPhillips.14 Brasilcel NV Brazi l$9. that is boosting cross-border deals.79 Allegheny Energy Inc United States $8.37 Alcon Inc Switzerland $11. according to Thomson Reuters.
"Expect to see upward of $50 billion in M&A activity out of China for 2010. Petrobras." Bender says. "China continues to emerge as a world powerhouse. highways and other infrastructure and will repay the loans by supplying China with oil. National Security Issues In August 2005 CNOOC withdrew an $18." says John Bender. Last year CNOOC acquired stakes in the Gulf of Mexico from Norway's Statoil. Brazil's state-controlled oil company. one of the largest independent US oil and gas producers. India lacks the resources to meet its current needs and is expected to import 90% of its oil by 2030. China is extending its influence in Latin America with huge "soft loans" provided by the state-owned China Development Bank. "The US government is tracking China's activities closely and will jump in when they are considered a threat. It promised $20 billion in loans to Venezuela in April. and it is getting more aggressive in overseas acquisitions.50% stake in Argentina-based oil-producer Bridas. managing director of Bender Consulting. received a similar $10 billion loan last year from China Development Bank and is seeking another $10 billion to be repaid in oil." ." he says.5 billion offer for Unocal. and it recently surpassed the US as the world's biggest automobile market. President Hugo Chávez said Venezuela will use the funds to build new power plants. in CNOOC's biggest overseas acquisition to date. India already has an energy and power shortage. making its first entry into the oil reserves in the gulf. "It is in head-to-head competition with China and the international independent oil companies. a San Francisco-based global consulting firm that focuses on the energy and technology industries. Its energy consumption has been growing and is being met by increasing reliance on oil. after US lawmakers complained that the deal could threaten national security. Head-to-Head Battle "India is severely energy constrained." China is the world's second-biggest energy consumer after the US.
The firm says there were 45 deals involving the acquisition of foreign assets by Indian companies in the first quarter." After avoiding the M&A market for two years during the global recession. The firm said confidence is growing in Indian mergers and the focus is shifting away from divestments and toward acquisitions. Bender says. as is the acquisition of Indian companies by international companies. according to the International Monetary Fund. according to Ernst & Young's latest Capital Confidence Barometer. Ernst & Young surveyed 58 mid. technology and consumer products. "The general mood in the market has improved." he says.The share of emerging and developing countries in world gross domestic product is expected to overtake the developed countries by 2014. "There are more than 800 companies in China that have expressed global aspirations in the last three years. "There are more buyers around than sellers. This includes companies in energy and natural resources. Brent says. Asian M&A deals outpaced Europeantargeted activity in the first quarter of 2010 for only the second time on record. Confidence Improves "Indian M&A is certainly on the increase. . up from 15 in the first quarter of 2009. according to accounting and consulting firm Grant Thornton India. partner and head of corporate at London-based international law firm Davies Arnold Cooper. Bender says. companies based in India are once again considering acquisitions as a means of boosting growth. and there is optimism in the market. Meanwhile. Some 54% of the Indian companies surveyed in April said they were likely or highly likely to acquire other companies in the next 12 months.to top-tier companies. the total value of outbound M&A deals by companies based in India grew to more than $12 billion in the first quarter of 2010 from just $52 million in the same period last year." he says." says Ian Brent. as confidence improves and the global economy rebounds and financing is more readily available. This is in line with a general recovery in the global M&A market in the first quarter.
larger deals are back in vogue for 2010. Most companies are making strategic deals and are not interested in making large acquisitions outside of their core businesses. Russia. a member of the World Bank Group." Thunell says. "Private equity in developing countries is based on growth. the outlook is improving for private equity investment in emerging markets as economic growth picks up. Bender says. according to Bender of Bender Consulting. not leverage. executive vice president of IFC. which have experienced a marginal improvement in credit conditions." Meanwhile." he says." he says. A global survey by the firm found that credit conditions in the BRIC countries (Brazil." . India and China) have improved significantly over the past six months compared to the developed markets. With improvement in the capital markets. which was held in Washington last month in association with the Emerging Markets Private Equity Association." says Ranjan Biswas. Ernst & Young India partner and national director of Transaction Advisory Services. "Deal scrutiny by company boards remains very high. The developing world's faster growth and lower debt burden makes it less vulnerable to cyclical downturns. we are seeing companies more willing to make acquisitions that they had previously deferred. and a more attractive destination for private equity. says Lars Thunell. "It is the early stages of a recovery that are the most promising times to invest for private equity. "It is not as risky as people think." Thunell told IFC's annual global private equity conference. "The deals being announced are aligned with corporate strategy and are initiated by companies within the same industry seeking complementary businesses or entries into market adjacencies to achieve dominant positioning in their business category.Pent-Up Demand for Deals "With greater liquidity. "They are also looking to acquire technology and to create global brands. according to IFC. Bender was previously a senior director in Hewlett Packard's strategic change office and played a key role in the firm's acquisition of Compaq Computer.
Source: Thomson Reuters .* Figures may not add up. as more than one bank typically obtains credit for any one transaction.
html#ixzz1E5z87279 Under Creative Commons License: Attribution Share Alike Get a FREE subscription to Global Finance magazine : http://www.Read more: http://www. CEO.html Transcript: By Jim Tompkins.com/subscribe.gfmag. Tompkins Associates .com/archives/124-june-2010/10340-mergers-aacquisitions.gfmag.
Can you give us your perspectives on M&A in China and the other emerging economies from an operational perspective? Multinationals are extending their reach in the BRIC countries in two basic ways – organic growth of existing operations and acquisition of local companies. For the first time ever. Kim." Supply chains and distribution channels were built around the needs and products of individual plants and were relatively simple.Brazil. China was basically virgin territory for most multinational manufacturing companies. distribution. make. Receive an e-mail when a new podcast is available. move. It's a pleasure to be back and glad to see you started me off with a nice simple multiplechoice question here. in your browser. So from being "In China for China.in short they were "In China for China.the entire supply chain from plan. this company has now integrated its China operations with global manufacturing. India. and return. a division of Tompkins based in Shanghai and that he is a China hand with some 40 years of experience in the region as well as an experienced M&A dealmaker. so a lot is happening. Ten or fifteen years ago. Naturally this leads to a lot of duplications of processes and decreased efficiency. a second part of a podcast. Let's take a step back from the macro M&A trends that we discussed last time. and supply chain operations. One client of mine in the bearing business went from one small joint venture and $30 million a year in sales to six large plants in multiple locations and half a billion dollars in sales within a ten-year period. Last week at Tompkins Associates we had ten different M&A activities that we were involved with. you have put your finger on a major shift in the operations of multinational companies in large emerging markets like China. sell. Furthermore. Russia. Doesn’t this create an increasingly complex and challenging operating environment as they "bolt on" local companies that have completely independent operating standards and practices? What are your insights how this is working? Kim: Thanks Jim. It now exports half of the bearings produced in China to global markets and imports half of the bearings sold in China from plants around the world. and for . Company operations grew dramatically as the domestic market exploded in size. You will recall that Kim is Vice President of Technomic Asia. This is Jim Tompkins the President and CEO of Tompkins Associates and Tompkins International. Welcome back. I can tell you from a personal point of view. They were looking for local joint ventures or building up their own grass-roots manufacturing operations primarily to serve the domestic market and to get around import restrictions and high tariffs . These are our areas of core competence and the way we help our clients achieve competitive advantage." we are now moving toward "In China for China. for Asia-Pacific. store. Fast forward to today and the situation has changed dramatically. Listeners: Register to win Caught Between the Tiger and the Dragon by Jim Tompkins. this is really occurring. and China. Tompkins is all about operations integration . Our last podcast focused on the trends and global M&A as we emerge from the Great Recession and move into the Great Comeback. Actually.Jim: Welcome back to the Global Supply Chain podcast series on Mergers and Acquisitions. buy. Kim . China's entry into the World Trade Organization ten years ago lowered tariffs and other trade barriers. We ran out of time just as Kim was getting into some interesting issues that touch on cross-border operational integration. to come back again to extend the comments he made last time on trends in M&A activity in the BRIC countries . I have invited Dr. or through any podcatcher to receive this feed by clicking here or the subscribe button above. Kim Woodard. You can subscribe via iTunes.
with low level of integration from parent.5 billion U. Companies are afraid to Tyco-ize or Wal-mart-ize the local company. The deal structure included a three-year earn-out period that gave the original owners significant incentives to stay in the operation and to help it succeed. particularly at the front end. This is a whole new operating environment and it is one well suited to the expertise that Tompkins brings to the table. telecom equipment company acquire a local $50 million company in Shenzhen a couple of years ago. have to be imposed at the outset. There is almost always a fear of burdening the local acquisition with the high costs and bureaucratic burden of the parent. say under $100 million in transaction value. The short answer is that integration of relatively small acquisitions in emerging countries. The larger the acquired operation. but also working from the outset to plan and execute on operations that are integrated to the extent permitted by the legal and regulatory environment in the two countries. local sales practices may not conform to the business standards imposed by the Foreign Corrupt Practices Act and may need to be cleaned up right away to avoid non-compliance with U. And I think you would find the same pattern in Brazil and Russia as well. and higher environmental standards. Let me give you a specific example. The operational issues posed by this change are indeed very challenging. The transition went exceptionally well. Kim: That's right." Multinationals increasingly view their China operations as just one part of the global operating platform. The sales operation usually poses a problem. the more swiftly the target company must be integrated with all aspects of the global operation. If the parent fails to integrate key operations. Jim: I love it! Integration of complex supply chains is where Tompkins lives and what we deliver.global markets. And as we discussed last time. thereby destroying its original value.if it ain't broke. such as financial reporting. I will give you the short answer first and then dig down a bit. But this still leaves the longer term issue. is usually done very slowly. it is like that old saying that I don't know if I even like all that much . or Europe already a tough process that frequently fails. sourcing. We find a lot of clients that are not only developing their China and India operations in parallel. The management of the Shenzhen company was left independent and the local company actually took over parts of the sales operation of the parent in China. But as a general rule. Jim: I understand Kim.S. Makes sense. I helped a $1. China is just the largest and fastest growing BRIC country. Every multinational with significant operations in China now has dedicated materials handling. Then deeper integration is needed to capture distribution and supply chain synergies and to secure the customer base.S. don't fix it and if it is broke. IT. But let me bring you back to the M&A environment again. this looks an order of magnitude more difficult than integration of two similarly structured companies in the U. law. and supply chain organizations embedded in their central China management structures and closely linked with similar departments at headquarters and around the world. Furthermore. Some systems. the multinational tries to hold onto local management and allows a relatively independent operation for the first three to five years. This rule only applies to relatively small acquisitions. This is because the new parent company wants to preserve the cost advantage and the existing sales channels and customer base of the local company. One way to avoid doing this is to simply let the local acquisition operate on its own for a few years. sales revenue and profits exceeded . since the parent is likely to have its own sales channels and needs to at least coordinate the sales operations of the local affiliate to avoid confusing customers. don't acquire it. How are your M&A clients in China handling this challenge? Kim: Good question. such as distribution and supply chain management that will build in long-term inefficiencies and higher costs and will also fail to capture potential synergies in the supply chain. key telecom customers were retained. How can multi-billion dollar companies cope with the integration of companies in China or Brazil that have maybe $50 or $100 million a year in sales and with very backward distribution operations and supply chains? From where I sit. The independence of the acquired company should only be allowed to stand for the first 3-5 years.S.
That's it for the take-aways. with old projects being re-started and new projects moving into the deal pipeline. initially integrating only key functions such as financial reporting. 1. will be a period of spin-offs or disposals . such as distribution operations. I am really excited about the Technomic Asia M&A practice and we hope to invite you back at a future time to talk more to our Tompkins audience about M&A. Thanks for the opportunity to visit with your podcast audience. Here we go on the take-aways. I see we are nearing the end of this podcast. In the BRIC countries . Without this integration we will not capture the synergy and the real return on investment of the acquisition in the first place. Many multinationals choose to leave the local managements of these acquired companies relatively independent for the first three to five years. and the deal became a bright spot in what was otherwise a dismal year because of the global recession. Russia. Companies are now coordinating their investments and manufacturing platforms across multiple emerging markets like India and China and are no longer simply focused on relatively small and isolated in-country operations. but it just takes time to get there. Jim. following M&A. and China. thank you very much I certainly agree with what you are saying about the importance of the supply chain with the parent and the subsidiary. talk to you real soon. This topic is so important it is the topic of the sixth portion of this podcast. The last and final portion of this series will be with Genet Tyndall on the importance of SC Integration. glad you were with us. But there will need to be a second round of operational integration of these companies after the first few years to ensure that available synergies cost savings are achieved and that the acquired company contributes fully to the regional and global growth of the parent.com/podcast/transcripts/5-18-10_podcast42-operationsintegration. I really look forward to having Gene with us. Thank you so much Kim. My client wants to capture this supply base and to integrate it not only with other manufacturing operations in China. I would like for you to summarize by giving us a few key takeaways of the global M&A operations issues that we need to get our heads around. But there will be a second phase of the integration that will need to be executed in another year or two. The first stage. which has thousands of local suppliers of electronic components. and supply chain management. Kim: OK. but also with their global supply chain. Kim. 3. materials sourcing.as As the search for new sources of growth and new areas for strategic expansion grows. Kim Woodard. Jim: Thank you Kim. Thanks so much. But the M&A market in these countries is rebounding this year. One of the key logics for the acquisition is that the Shenzhen company sits in the middle of the Pearl River Basin area. network optimization. http://www.Brazil. Multiple acquisitions of relatively small local companies in different geographies will present special challenges in terms of operational integration. India. These cover the last podcast and this one on global M&A. Recovering volumes of cross-border investment and M&A deals will lead to increased emphasis on operations integration in the emerging markets . So ultimately the supply chain management of the parent and the subsidiary must be integrated to capture synergies and lower cost.expectations. Global M&A took a big hit in 2009 as a result of the Great Recession and the financial crisis as multinational companies locked down their capital budgets to preserve cash and the strength of their balance sheets. Jim: Kim. So this is critically important. inbound acquisitions by multinationals took a big dip last year. 2. groups may initiate more aggressive external growth operations in 2011. Supply Chain Integration. Jim. We expect a very robust level of global M&A activity in 2010 to 2011.tompkinsinc.particularly on integration of outside-the plantoperations. however. Well that ends our 2-part podcast with Dr.
Takeovers will be less spectacular. and so are seeking to consolidate their core business through two. The possible characteristics of a likely target company are very varied given the large number of exceptional situations. Faced with the challenges of globalisation. more than 40% of companies listed amongst the top 50 global groups have been involved in large scale mergers which have radically changed their profile. Based on our analysis of sector consolidation. although there are strong variations between sectors) and in the current context of relatively low interest rates. three or four strategic entities. it is better to be the hunter than the hunted. with cross-border mergers limited. oil. etc. with low profitability (return on equity). especially since European competition authorities remain vigilant and may obstruct certain transactions. but the financial sector was the scene of spectacular transactions. • sectors where emerging countries still have little presence but wish to develop these industries. a high valuation in relation to the sector average. At sector level. against only 25% in 2000. leaders have been of mixed benefit to shareholders. The formation of big international groups The Nineties saw the creation of national market leaders in Europe. Besides these factors. Fortis was taken over by BNP Paribas and Royal Bank of Scotland was bailed out by the UK government. the sale of AXA’s UK assets. 3. despite the high valuations of companies already established in these markets. the British spin-off of Carphone Warehouse and Cable and Wireless. the big international groups have chosen in recent times to consolidate their core activities and sell their nonstrategic businesses. criticized both by the UK government and some Kraft shareholders). with instead a pattern of development through organic growth (pharmaceuticals. Gearing (the ratio of net debt to equity) is under control (estimated at 30%. 1. Acquisitions could take place in either direction. with on the one hand a high number of spin-offs and sales (in France the Accor spin-off. since numerous companies today are too diversified. and in Italy the announcement of a Fiat spin-off and the partial sale of Enel’s renewable energy subsidiary expected in the Autumn) and on the other a low number of mergers of any size (the biggest in Europe being the acquisition of Cadbury by Kraft. Few transactions with these countries are predicted. Emerging countries are currently looking attractive and acquisitions made with a view to opening up these new markets for growth are part of a long-term trend.of non-core activities. 2. companies were focusing on globalization and the opening up of new markets and undertook cross-border mergers at an unprecedented rate. Asia and Latin America: new growth Alongside spin-offs. Overall. in the last 15 years. The most common are: • a valuation that is lower than the sector average. THE MOTIVES BEHIND MERGERS AND ACQUISITIONS Four factors can drive a company’s management to launch a takeover: the need to find new sources of growth. The two main players in the acquisition of ABN Amro were the first to suffer from this situation. the automobile industry and certain technological fields where emerging countries already have national champions and are directly or indirectly in competition with western groups.). an acquisition can be initiated through opportunism or with the aim of avoiding takeover by a competitor: in other words. Mid-sized businesses in the firing line Large-scale transactions and the creation of European. culminating in the disaster caused by the credit crunch of 2008-2009. although currently groups prefer to retain such surpluses in the expectation of improved transparency in the US and European economies. Between 2000 and 2008. • the need to restructure. . The pattern since the start of the year has confirmed this assessment. the search for a complementary country or product(s). The next targets for mergers and acquisitions will be medium-sized businesses. below 3 billion euros. IMF economists are predicting that nearly 50% of global GDP will be generated in these countries in 2014. with buyers aiming to avoid downgrades by the credit rating agencies. sometimes global. will be preferred. with subsidiaries that are barely profitable or not at critical mass. Groups are currently looking for areas of growth. companies which succeed in consolidating their core business and developing new skills in emerging markets will be the big winners in tomorrow’s global markets. disposals and targeted acquisitions are likely. leading to doubts concerning profit growth in years to come. agriculture and food. making payments in share capital attractive. We anticipate a return to classic buying patterns. as well as any criticism linked to the risks of an aggressive strategy. the second current trend seems to be a move towards emerging markets. • a weak strategy accompanied by the publication of successive disappointing results. like the takeover of ABN Amro. two specific cases can be identified: • sectors like banking. we believe that mid-level transactions. in which case companies turn to emerging markets if they can find appropriate targets. in contrast to the grand scale of transactions seen in the last fifteen years. Strategic consolidation under way At present a number of groups are becoming aware of the difficulty of managing companies that are too diverse. surplus cash-flow. 4. All sectors were involved. against a background of erratic financial markets. In this environment.
• subsidiaries with majority shareholders who wish to delist the company.• small size in relation to the sector average – these companies need partners (unless they operate in a niche market). SG CIB | 01/09/10 . Reference:- By Daniel Fermon | Socially Responsible Investment (SRI) Research Manager.