THE BERGER DEAL: The Berger Paints plant in Jamaica is one of the assets aquired worldwide by Asian Paints through its Rs 58-crore deal. The deal has made Asian Paints the No. 1 player in Jamaica's market

Here's a bit of statistics that'll make you sit up: In just nine months beginning this calendar, more than 25 Indian companies have acquired either a company or some sort of a facility abroad. These include some of the high-profile deals like A.V. Birla Group's acquisition of a copper mine in Australia, and United Phosphorous' purchase of Dow Agrosciences. Of course, what would have been the biggest deal in the history of corporate India ever-M&M's acquisition of Finnish tractor-maker Valtra-did not happen, simply because America's AGCO Corporation outbid M&M by a huge margin: Euro 600 million (Rs 3,191 crore) versus M&M's Euro 350 million (Rs 1,861 crore). Just the same, it is obvious that more Indian companies than ever are beginning to take their first tentative steps into the world of global M&As. The problem: "Indian companies just don't have any experience of acquisitions abroad," says Baba Kalyani, Chairman, Bharat Forge.

Indeed. Until recently, the global M&A game was played by just a handful of Indian groups, including A.V. Birla, Ranbaxy, Dr Reddy's Labs, and Asian Paints. Inevitably, they too learned the hard way. For example, Asian Paints, which works in 13 time zones and 23 countries, has found that it makes more strategic sense to focus on emerging markets. It first acquired a plant overseas in Sri Lanka in 1999, but has since done four more acquisitions-incidentally, every September-including one in Fiji last month. Its biggest M&A deal, however, was Berger Paints of September 2002, when it paid Rs 58 crore for a 50.1 per cent stake. "We like the existing management to retain a stake in the acquired company," says Jalaj Dani, Vice President (International), Asian Paints. "It helps the acquisition work in the long run."

Face It, Mergers Are Complex

In any acquisition, the most important factor is integration. When that fails, mergers fail too. For instance, a large Indian it company recently acquired a US-based firm, which was mostly run by non-Indians. But post-acquisition, the middle- and lower-level executives of the target company were miffed at having to report to new bosses from overseas. That's where having a foolproof cultural integration plan helps. "Our biggest learning based on all the acquisitions we have done so far is that there is no cookie-cutter solution to integration," says Suresh Senapathy, CFO and Corporate Executive Vice President, Wipro. The company acquired the energy practice of American Management Systems in November 2002 and NerveWire, a banking and finance software company in the US, in May 2003.

M&A PITFALLS

» Valuation: It's easy to overpay; do a proper due diligence » Deal Structure: Stagger payment and mix stock with cash » Cultural Integration: Sort out people issue early on » Compensation: If the differences are too stark, avoid the acquisition » Customer Confidence: Reassure key customers on continuity

In it-related acquisitions, it is common for the promoter of the target company to quit following the change in ownership. That, however, leaves the acquirer in a lurch, since key executives and customers often tend to follow. "If your client relationship changes along with the management, then you lose the benefits of acquisition," says Shyam Shenthar, Vice President, Avendus Advisors. To prevent such a situation, the acquirer should create a top team that can reassure customers about continuity in quality and price of services. "A key to successful acquisition is the availability of management bandwidth," notes Rajiv Memani, Director, Ernst & Young.

But be it IT or pharma, structuring of the deal is always important. As a rule, staggered payment for acquisition makes more sense than a one-time payment. It is commonly believed that HCL Technologies burned its fingers with US-based Gulf Computers, which it acquired in 2002, because it had paid 50 per cent of the acquisition cost upfront based on rosy projections, which failed to materialise. An ideal situation would have been 20-25 per cent cash upfront, 20-25 per cent stock, and 50-60 per cent from cash earn-outs. Besides minimising cash outflow, it helps ensure the original promoter's commitment till integration is complete. Says Sudha Kumar, CEO, Prayag Consulting, a Bangalore-based strategic consultancy firm: "After all, you acquire a company for its customers, domain expertise, and its people."

HABIL KHORAKIWALA, Chairman, Wockhardt "The Wallis acquisition helped us understand the UK market and how to operate in it"

Compensation is another hurdle that the acquirer needs to negotiate. Typically, most mergers require rationalisation of workforce and reassignment of job responsibilities. Once that happens, it's easy to create some semblance of a balance in the compensation structure. But if the differences are stark and rightsizing seems difficult, then the company may have to rethink its strategy. Says Kishor Patil, CEO and MD, KPIT Cummins, a mid-cap it company that acquired US firm Panex in August this year for $7 million (Rs 32.2 crore) in a staggered part-stock-part-cash deal: "If there is a major difference in the pay structure of the two companies, then we'll not make the acquisition at all."

Ensuring customer buy-in into the deal is another important issue. A mid-sized Indian it firm made an acquisition in the US recently, but as soon as the deal was inked, a Fortune 100 client of the target company moved out. Reason: The customer, a bank, was already dealing with two Indian companies and didn't want to deal with a third one.

Even in M&As, practice makes the company perfect. Five years ago, Wockhardt acquired a loss-making UK-based Wallis Laboratories, for 2.9 million pounds (Rs 21.2 crore). But in turning it around, Wockhardt has learnt valuable lessons. "The Wallis acquisition helped us understand the UK market," says Habil Khorakiwala, Chairman, Wockhardt.

A more confident Wockhardt recently snagged another British company, cp Pharmaceuticals, for 10.85 million pounds (Rs 82.46 crore). CP Pharma has the US Food and Drug Administration approval for injectibles and, thus, is a shot in the arm of its global portfolio. Clearly, who dares wins.

Coping With Activism
MNCs count angry protesters among customers.

Tough customers: Global brands like McDonald's make soft target

Around the middle of last month, more than 40 Karnataka Rajya Ryota Sangha activists, protesting against genetically modified crops, descended on Monsanto India's old research facility in Bangalore, destroyed its greenhouse and even assaulted some of its employees. While the act of vandalism was unwelcome, it certainly wasn't anything that Monsanto hadn't seen before. As a global leader in farm products and crop technologies, it is often at the receiving end of angry "green" protesters. Therefore, it has a detailed crisis management plan with protest management guidelines, which set out roles for the country manager and his team. For example, when a mob attacks, top priority is given to protecting employees and the company assets. Therefore, employees are advised not to resist, but to inform managers higher up in the company. Finally, in cases where the company has prior information of an attack, police protection is sought. Says T.M. Manjunath, Director (R&D), Monsanto Research Centre, Bangalore: "The September attack did surprise us, but our crisis management plan ensures that we have a set procedure to follow."

Other activist-prone companies like Pepsi and Coca-Cola also have their own crisis management plans. Recently, when the pesticide controversy blew up, the two companies not just had to deal with a wave of negative publicity, but bottle-smashing protesters too. Coca-Cola's (Pepsi refused to comment) crisis management department swung into action, not just handling customer queries and concerns but looking at legal options to limit damage.

Sometimes MNC brands get attacked because, well, they are there. Take McDonald's, for example. To deal with everything from hot coffee to slippery floors and everything in between, all its outlets have a cross-functional crisis management team, which even obtains medical assistance for the complainant if need be. "Such responsiveness is integral to the McDonald's systems," says Vikram Bakshi, MD, McDonald's India (North). And you thought managing McDonald's was all about coke and fries.

-Payal Sethi

To Catch A False Note
Fighting music piracy is harder than you think.

Super cop II: It's an uphill task, even for Julio Ribeiro

For the last seven years, former super cop Julio Ribeiro has done just one thing: Chase music pirates all over the country. But is the 74-year-old Ribeiro, former Commissioner of Police and Director General of Police, Punjab, winning? Yes and no. So far Ribeiro, who heads Indian Music Industry's anti-piracy operations, has filed 4,000 cases against pirates, but only 200 have been convicted, and of that only 45 have had to spend any time in prison. Still, in the last three years alone the industry has lost Rs 1,800 crore in revenues. Part of the problem is technological. Replicating CDs has become so cheap and easy that an entire cottage industry has sprung up around music piracy. Admits Ribeiro, who has cops like himself on his 125-member team: "Cassettes were easy to fight against, but compressed CDs and MP3 CDs have increased the challenge." Besides, Ribeiro's annual budget of Rs 2 crore compares poorly with the music mafia's deep pockets.

-Dipayan Baishya

Direct-Seller Factory
You've met the direct sellers. Now meet the company that churns them out.

Growing cult: Britt-trained distributors rule the roost at Amway

Sometimes in November this year, 18,000-odd people will gather at Mumbai's NSE grounds in Goregaon to celebrate what they call Free Enterprise Day. As part of the day-long event, the crowd will be given a pep talk on direct selling, besides a spiel on the joy of financial freedom. Jobless Anonymous gone bad? Hardly. This is just one-albeit the largest-of the 900 events that Britt Worldwide India organises every year to recruit, train and motivate people who pack its primary client Amway's direct seller army of 3.5 lakh (active) distributors. "We act as the back office of Amway, and facilitate and sustain their business by training and motivating distributors," says Sachin Adhikari, CEO, Britt Worldwide India.

Britt follows Amway around the globe. Ergo, Britt also operates in the 80 countries where Amway has a presence. In India alone, Britt has more than 15 lakh Amway distributors under its fold, who fetch 70 per cent of its annual revenues. The Rs 55-crore direct-seller factory, which has offices in 23 cities in India and employs 225 people, has an exclusive training tie-up with Amway. Britt mirrors the industry's annual growth rate of 15 per cent. Just how critical do companies think what Britt does is? Says Harish Mariwala, Chairman, Marico: "Everybody knows that FMCG sales are stagnating, but if you include direct marketing figures, you'll find a growth." You can be sure, the Free Enterprise Day crowd will be told as much.

-Dipayan Baishya