But making these decisions requires multiple discussions and analysis. Shiju PV, Senior Partner, IndiaLaw LLP, says, “The most important aspect of corporate leadership is to understand the strengths and weaknesses of the organisation. The leader should have a proper vision and a realistic time frame and strategy to accomplish the growth. If progression towards the vision is not achievable alone, then they should think of M&As (mergers and acquisitions). So the right time to think of M&A is the time you realise that your current strength is not enough to accomplish the vision.”
Satish Kishanchandani, Managing Partner, Pioneer Legal, says, inorganic growth can become an option in many cases: for example, when there is a need to acquire a new technology or in the face of a changing business environment, “or in some cases, even to ensure a company’s existence”.
How leaders can plan ahead
The right leadership plans and prepares the company for M&A from day one, says Shiju. The most important step to do this is to develop the right work culture. “Giving proper attention to process and compliance is also equally important. While choosing a company, paying attention to these details are equally important in addition to business and revenue.”
Kishanchandani points out that an acquiring company benefits from a M&A only if there are synergies. This means it should be able to integrate the acquired business easily and that should lower costs. The process involves taking multiple decisions on teams and functions such as accounting, technology, legal and more.
The first step for CEOs in this journey is finding the right target acquisition, says Kishanchandani. For example, in the case of manufacturing, one might want to find a company that is close to the buyer market. Or in case of market expansion, one might look for a company that is in a different geography in order to extend the market coverage and market share.This work also requires engaging with experts such as investment bankers who can search for the right companies based on defined parameters. As the process goes forward, legal experts also get involved. In cases of listed companies, the Securities and Exchange Board of India’s guidelines should be met.A close eye should be maintained to ensure the multiple minute actions that are necessary are taken properly. These can involve acquiring shares the right way, agreeing on valuation, assessing taxation and liabilities and more. In some cases companies acquired go through the National Company Law Tribunal process. There could be a court process for leaders to negotiate.
Vidisha Krishan, Partner at law firm MV Kini, says, “Unlike capital markets transactions, M&A (merger and acquisition) transactions see a lot more assessment in terms of corporate governance, financial negotiations and tax structures. A limited disclosure aspect is not the only aspect. The due diligence exercise is vital but the fragmented regulatory framework and the investor requirements keeps pressure on all parties involved.”
At each step, the CEOs should have access to expert internal teams, investment bankers and legal experts. But they have to make the critical decisions themselves. The cost of failures can be potentially high. The process is time consuming and can take up to 1-2 years in some cases.
“Mismatches in expectations, money and people succession can lead to issues. For example, a promoter might want to sell the company, but his heirs might want to continue with the business. Figuring out such expectations are critical to the success of the deal,” adds Kishanchandani.
And through the entire process, it is critical to keep a focus on employees, too. There won’t be any point in achieving successful acquisitions if at the end employees become disgruntled.