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Indian firms? acquisitions buck global success trend

Indian companies that have made acquisitions over the last few years have managed to do a better job at running them and hitting a higher success ratio.

Indian companies that have made acquisitions over the last few years have managed to do a better job at running them and hitting a higher success ratio. Globally, one in every two acquisitions fails but Indian companies have bucked this trend and only one in three acquisitions was a failure. So there is something right that the acquiring companies are doing and foremost among them is that Indian companies tend to leave the acquired companies alone and do not attempt to impose any Indian way of doing business on these overseas companies, says Prashant Kale, associate professor of strategic management with Rice University?s Jones School of Management and research fellow with Wharton School?s Mack Centre for Technological Innovation.

American companies tend to take over companies and transplant their way of doing business on the acquired companies so they take complete control of the acquired companies while acquiring Indian companies have a hands-off approach when it comes to the acquired companies, points out Kale. Another critical reason is that Indian companies have a lot of money and are binging ?Patient Capital? into the business and give a lot of leeway and are not focused on the immediate results, says Kale.

The Tatas did that with Corus and the Aditya Birla Group did that with Hindalco in Novelis as they leave the company alone and just the Indian way of doing things or it could be because it is early days in this kind of business, reckons Kale, who works on research in the area of corporate strategy, strategic alliances and acquisitions, and his current projects are on examining issues such as how do companies choose whether to ally or acquire, how do acquisitions create value in emerging markets and how do companies build alliance capability. This is not only true for India but for most of the acquisitions made by emerging economy countries.

The reason for this success could be because Indian companies make acquisition for different reasons. ?We acquire companies to bring something ? superior technology, knowhow, good brands and understanding of global markets so Indian companies want to learn from them rather than teach them,? says Kale.

The thinking is also that they have spent billions to acquire it why destroy it, he adds. Acquiring companies are clear that they are making these acquisitions to be globally competitive.

The Tatas have learnt to do acquisitions and are getting better at it after acquiring Corus and Jaguar Land Rover. The companies in the Tata group have mechanisms to gain through cross learnings from these experiences and improve upon them, points out Kale. The Aditya Birla Group too is on top of this learning curve. The Essar Group, the RPG Groups and Avantha Group are among those who have got it right.

Kale along with Harbir Singh, senior faculty at Wharton studied at almost all the major overseas acquisitions by Indian companies and met about 50 people involved in these deals for their study on ?overseas acquisitions by emerging multinational companies?, which shows that the Indian companies are doing the right thing with their acquisitions.

But there have been failures too and have not achieved what they set out to do with acquisitions and their core business suffers as the top management attention gets distracted. Suzlon Energy could have stretched itself too far in its acquisitions and had to sell one of the acquisitions (Hansen Transmission), says Kale.

Then there is the Kalyani Group that made a lot of acquisitions in Europe which are high cost operations and the Group had to put in a lot of effort to get these acquisitions into shape, says Kale. They had to turn them around to get value out of these companies and so they slowed down their pace of acquisitions to consolidate and are now getting it right, says Kale.

Patient capital and hands-off approach has worked well so far for Indian companies but the jury is still out on whether what the Indian companies have done would be beneficial in the long run, say Kale. It is early days for India in the M&A game.

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First published on: 16-04-2012 at 01:19 IST
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