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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
Tata Chemicals bought British Salt; a UK based white salt producing company for about US $ 13
billion. The acquisition gives Tata access to very strong brine supplies and also access to British
Salt’s facilities as it produces about 800,000 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.
Since Zain is one of the biggest players in Africa covering over 15 countries, 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 $ 3.72 billion which was 9 times its sales. Though
the valuation of this deal made Piramal’s take this move, Abbott benefited greatly by moving to
leadership position in the Indian market

GTL Infrastructure acquisition of Aircel towers

This acquisition was worth about US $ 1.8 billion and brought GTL Infrastructure to the third position
in terms of number of mobile towers – 33000. 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 2,157 cr in Ispat Industries to make it the largest steel
producer in the country. 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
Mahindra goes international

Mahindra acquired a 70% controlling stake in troubled South Korea auto major Ssang Yong at US $
463 million. Along with the edge it would give Mahindra in terms of the R & D capabilities, this deal
would also help them utilise the 98 country strong dealer network of Ssang Yong
Fortis Healthcare acquisitions
Fortis Healthcare, the unlisted company owned by Malvinder and Shivinder Singh looks set to make it
two in two in terms of acquisitions. After acquiring Hong Kong’s Quality Healthcare Asia Ltd for around
Rs 882 cr last month, they are planning on acquiring Dental Corp, the largest dental services provider
in Australia at Rs 450 cr
As you see in the list, the M & A’s have happened across industries and sectors like banking,
automotive, healthcare, FMCG, telecom etc. This shows that this really has been the dream year of
Indian industry.

Indian Mergers & Acquisition Deals Comparison over last

year
Month Volume Value* MOnth Volume Value*

Jan – 10 15 341.3 Jan – 09 5 40.2

Feb – 10 13 615.8 Feb – 09 6 135.7

Mar – 10 17 12303.6 Mar – 09 4 52.2

* in million / # according to data from Grand Thorton India

However, 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 important Aspects of Global Mergers & Acquisitions

Global Thinking
The foremost requirement for a corporate looking to go global, to start with, is to change the old
technocrat mindset and think big and global. Companies working in overly competitive
environment have to change fast as per the evolving dynamics in their industry of operation.

Bharti Airtel’s take-over of Zain Telecom is a case in point. Even as Bharti holds a numero uno
position in the growing telecom markets of India, the company’s management whiffed saturation of the
urban markets in India along with regime of intensifying price wars.
Without being content with their current market share and stature, the company initiated a bold step of
acquiring African assets of Kuwait’s Zain Telecom in a whooping $10.7 billion deal, inviting wrath of
analyst’s community over valuations.
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, Bharti has taken a lead in diversifying its risks involved in domestic
markets.

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. Preferably, both the CEO and the
CFO of the company needs to figure out the net cost-benefit analysis involved in acquiring an
overseas company.

At the same time, it must be kept in mind that merely pricing and valuation should not form a base of
final decision. Even long term impact of the deal should be taken into account. In most of the mega-
deals, the valuations are often touted as being overtly expensive in terms of pricing.
But, if the deal is likely to be earnings accretive over the longer duration it may be worth it to go for a
bold move. Similarly, if the move is likely to give the company a quick head-start within a given
market, it could be worth it rather than going for slow organic growth process unless the valuations
demanded are above realistic levels. The example of Bharti Airtel provided above fits perfectly well
under this heading too.

Abiding Local Laws

An overseas company targeted to be acquired is governed by specific local laws and policies.
Different countries are governed by diverse set of jurisdiction processes. It could be in the form of
local land acquisition laws or even local labour laws with different set of trade union rules.

Take the case of Tata Steel’s acquisition of UK’s Corus, 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.

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. A product which is an instant hit domestically need not
necessarily be as much viable in a foreign market.

Take the case of same company Bharti Airtel. The telecom company played well its cards related
to low-cost, high-volume game in the growing markets of India. In fact, it got a firm foothold through
this strategy as India’s premier telecom operator.
And now the company is looking to replicate the same model in Africa’s too. It is not necessary that
the same model would work over there too. If the volume game does not work over there, the
company needs to be ready with a Plan B to quickly adapt to the diverse trend of local consumers.
Diverse Tactics of Marketing
 An acquisition abroad is like marrying with an entity with distinct features and characteristics
altogether, even though the new entity becomes a part of one’s own company post-takeover.

While on the marketing front, it could entail relating to diverse tastes of consumerssituated in the
destination country. It could be more sensible to hire employees from local state who are more
acquainted of the local environment conditions and trend dynamics.
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. Employing local people would
attract less stiffness from local people on issues related toemployment concerns.
Higher levels top executives, preferably even on the board seats, would act as an added boost for an
able aid to top management in working our local business strategies for the company.

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. Whatever you give, 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.

Companies can initiate a number of societal objectives like adopting responsibility for improving
infrastructure of a specific area or a location. It could be donations to charity organization and
leprosy hit people.

It could as well be any other social cause which spreads awareness among the people. Taking part in
rehabilitation of areas hit with natural disasters. Most of all, the companies should also take
accountability about the environmental aspects and welfare of the local country.

By Denise Bedell – Project Coordinator: Alessandro Magno

Worldwide mergers and acquisitions activity rose significantly during

the first half of 2010—showing the strongest first half for M&A since
2008, according to data from Thomson Reuters. Overall volume—at $1.1 trillion
—rose 9.4% in the first half of 2010 over the same period in 2009, and the total
number of deals rose 3.8%—to more than 19,000 announced deals.
Cross-border M&A rose to $389 billion in the first half of 2010, up from $243
billion in the first half of 2009. It accounted for 36.5% of overall worldwide M&A
volumes.

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. This was an increase
of more than 84% over the same period in 2009, demonstrating the faster
recovery from the financial crisis that was seen emerging markets versus
developed economies.

The most active overall sectors for M&A in the first half of 2010 were the energy
and power sectors, followed by financials and telecommunications. However, the
largest individual transactions in the first half of 2010 were in
telecommunications.

In the largest transaction by value, Mexico’s American Movil purchased

Carso Global Telecom, which is also based in Mexico, for $27.5
billion. They are both in the telecommunications industry. Also in
telecommunications, the second-largest transaction was the purchase by US
group CenturyLink of Qwest Communications—again a US-based firm.

The largest cross-border transaction, by value, was the purchase of UK group

British Sky Broadcasting (BSkyB) by media and entertainment powerhouse News
Corp, out of the US. The transaction was valued at $13.7 billion, according to
Thomson Reuters data.

In 2009 the largest transactions were Pfizer’s acquisition of Wyeth for

$64.5 billion and BHP Billiton’s acquisition of Rio Tinto’s iron ore assets
for $58 billion, in the US and Australia, respectively. The largest cross-
border transaction was US group Kraft Foods’ purchase of the UK’s Cadbury for
$19.3 billion.
Data is from Thomson Reuters Mergers and Acquisitions Review, 2009 and 2010.

Click on the column heading to sort the table.

2009

Target name acquirer name

XTO Energy Inc United States $40,659.10 Exxon Mobil Corp United States
Wyeth United States $64,479.70 Pfizer Inc United States
Schering-Plough Corp United States $45,704.40 Merck & Co Inc United States
Rio Tinto PLC-WA Iron Ore Asts Australia $58,000.00 BHP Billiton-WA Iron Ore Asts Australia
RBS United Kingdom $41,878.70HM Treasury United Kingdom
Petro-Canada Canada $18,245.80 Suncor Energy Inc Canada
NBC Universal Inc United States $14,400.00 Comcast CorpUnited States
Liberty Entertainment Inc United States $14,499.10 DirecTV Group Inc United States
General Motors-Cert Asset United States $42,979.50 Vehicle Acq Holdings LLC US
Endesa SA Spain $13,470.00 Enel SpAItaly
Citigroup Inc United States $28,078.30 Preferred Shareholders Unknown
Cenovus Energy Inc Canada $23,312.90 Shareholders Canada
Cadbury PLC United Kingdom $19,255.40 Kraft Foods IncUnited States
Burlington Northern Santa Fe United States $35,948.00 Berkshire Hathaway IncUnited States
Barclays Global Investors Ltd United States $13,345.20 BlackRock Inc United States

2010
Target name acquirer name

Carso Global Telecom SAB de CV Mexico $27,483.40 America Movil SAB de CVMexico
Qwest Communications United States $22,170.24 CenturyLink IncUnited States
American Life InsuranceCo Inc United States $15,543.54 MetLife Inc United States
British Sky Broadcasting United Kingdom $13,730.42 News CorpUnited States
Coca-Cola Entr Inc-NA Bus United States $13,440.65 Coca-Cola Co United States
Smith International Inc United States $12,223.64 Schlumberger Ltd United States
Williams Companies United States $11,750.37 Williams Partners LP United States
Alcon Inc Switzerland $11,120.36 Novartis AG Switzerland
Zain Africa BV Nigeria $10,700 Bharti Airtel Ltd India
Polyus Zoloto Russian Fed $10,261.14 KazakhGold Group Ltd Kazakhstan
Brasilcel NV Brazi l$9,742.79 Telefónica SA Spain
Allegheny Energy Inc United States $8,943.94 FirstEnergy Corp United States
Lihir Gold Ltd Papua N Guinea $8,577.51 Newcrest Mining Ltd Australia
Bancaja SA Spain $8,140.35 Caja Madrid Spain
Telstra Corp Ltd-Wholesale Australia $7,932.60 NBN Australia

Reference:- http://www.gfmag.com/tools/global-database/economic-data/10551-
largest-maa-deals-2009-and-2010.html#axzz1E2YVUdH4

Mergers and acquisitions in emerging markets are heating up, and China
and India are at the center of a bidding war for global resources,
especially energy and metals, that is boosting cross-border deals. 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, according to Thomson Reuters.

Africa has been one of the major battlefields in the quest for resources,
and it remains so, but the competition for hydrocarbons is global. It
spread deeper into North America in April when Sinopec, the international
arm of China Petroleum & Chemical, snared a $4.65 billion stake in the
Syncrude Canada oil-sands project from Houston-based ConocoPhillips.
Meanwhile, India-based Reliance Industries agreed to pay $1.7 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, known as the Marcellus Shale.

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. The Indian government approved an
investment of $2.2 billion over the next five years by three state-run oil
companies in Venezuela's Carabobo oil-field acreage. Meanwhile, CNOOC,
China's national offshore oil company, agreed to pay $3.1 billion to buy a
50% stake in Argentina-based oil-producer Bridas, in CNOOC's biggest
overseas acquisition to date.

China is extending its influence in Latin America with huge "soft loans"
provided by the state-owned China Development Bank. It promised $20
billion in loans to Venezuela in April. President Hugo Chávez said
Venezuela will use the funds to build new power plants, highways and
other infrastructure and will repay the loans by supplying China with oil.
Petrobras, Brazil's state-controlled oil company, received a similar $10
billion loan last year from China Development Bank and is seeking another
$10 billion to be repaid in oil.

National Security Issues

In August 2005 CNOOC withdrew an $18.5 billion offer for Unocal, one of
the largest independent US oil and gas producers, after US lawmakers
complained that the deal could threaten national security. Last year
CNOOC acquired stakes in the Gulf of Mexico from Norway's Statoil,
making its first entry into the oil reserves in the gulf.

"The US government is tracking China's activities closely and will jump in

when they are considered a threat," says John Bender, managing director
of Bender Consulting, a San Francisco-based global consulting firm that
focuses on the energy and technology industries. "China continues to
emerge as a world powerhouse," he says. "Expect to see upward of $50
billion in M&A activity out of China for 2010."

China is the world's second-biggest energy consumer after the US, and it
recently surpassed the US as the world's biggest automobile market. India
already has an energy and power shortage. Its energy consumption has
been growing and is being met by increasing reliance on oil. India lacks
the resources to meet its current needs and is expected to import 90% of
its oil by 2030.

Head-to-Head Battle
"India is severely energy constrained, and it is getting more aggressive in
overseas acquisitions," Bender says. "It is in head-to-head competition
with China and the international independent oil companies."
The share of emerging and developing countries in world gross domestic
product is expected to overtake the developed countries by 2014,
according to the International Monetary Fund. Asian M&A deals outpaced
European-
targeted activity in the first quarter of 2010 for only the second time on
record, Bender says. "There are more than 800 companies in China that
have expressed global aspirations in the last three years," he says. This
includes companies in energy and natural resources, technology and
consumer products, Bender says.

Meanwhile, 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, according to accounting and
consulting firm Grant Thornton India. The firm says there were 45 deals
involving the acquisition of foreign assets by Indian companies in the first
quarter, up from 15 in the first quarter of 2009.

Confidence Improves
"Indian M&A is certainly on the increase, as is the acquisition of Indian
companies by international companies," says Ian Brent, partner and head
of corporate at London-based international law firm Davies Arnold Cooper.
This is in line with a general recovery in the global M&A market in the first
quarter, as confidence improves and the global economy rebounds and
financing is more readily available, Brent says. "The general mood in the
market has improved," he says. "There are more buyers around than
sellers, and there is optimism in the market."

After avoiding the M&A market for two years during the global recession,
companies based in India are once again considering acquisitions as a
means of boosting growth, according to Ernst & Young's latest Capital
Confidence Barometer. 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. Ernst & Young surveyed 58 mid- to top-tier
companies. The firm said confidence is growing in Indian mergers and the
focus is shifting away from divestments and toward acquisitions.
Pent-Up Demand for Deals
"With greater liquidity, we are seeing companies more willing to make
acquisitions that they had previously deferred," says Ranjan Biswas, Ernst
& Young India partner and national director of Transaction Advisory
Services. A global survey by the firm found that credit conditions in the
BRIC countries (Brazil, Russia, India and China) have improved
significantly over the past six months compared to the developed
markets, which have experienced a marginal improvement in credit
conditions.

Most companies are making strategic deals and are not interested in
making large acquisitions outside of their core businesses, according to
Bender of Bender Consulting. "They are also looking to acquire technology
and to create global brands," he says. 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.

With improvement in the capital markets, larger deals are back in vogue
for 2010, Bender says. "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,"
he says. "Deal scrutiny by company boards remains very high."

Meanwhile, the outlook is improving for private equity investment in

emerging markets as economic growth picks up, according to IFC, a
member of the World Bank Group. The developing world's faster growth
and lower debt burden makes it less vulnerable to cyclical downturns, and
a more attractive destination for private equity, says Lars Thunell,
executive vice president of IFC.

"It is the early stages of a recovery that are the most promising times to
invest for private equity," Thunell told IFC's annual global private equity
conference, which was held in Washington last month in association with
the Emerging Markets Private Equity Association.

"Private equity in developing countries is based on growth, not leverage,"

Thunell says. "It is not as risky as people think."
* Figures may not add up, as more than one bank typically obtains credit for any one transaction. Source:

Thomson Reuters
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Transcript:
By Jim Tompkins, CEO, Tompkins Associates
Jim:
Welcome back to the Global Supply
Chain podcast series on Mergers and
Acquisitions. This is Jim Tompkins the You can subscribe via iTunes, in your browser,
President and CEO of Tompkins or through any podcatcher to receive this feed
Associates and Tompkins by clicking here or the subscribe button above.
International.
Our last podcast focused on the trends
and global M&A as we emerge from
the Great Recession and move into the Receive an e-mail when a new podcast is available.
Great Comeback. I can tell you from a
personal point of view, this is really
occurring.
Last week at Tompkins Associates we
had ten different M&A activities that we
were involved with, so a lot is
happening. I have invited Dr. Kim
Woodard, to come back again to
extend the comments he made last
time on trends in M&A activity in the Listeners: Register to win Caught Between the
BRIC countries - Brazil, Russia, India, Tiger and the Dragon by Jim Tompkins.
and China.
We ran out of time just as Kim was
getting into some interesting issues that touch on cross-border operational integration. You will recall
that Kim is Vice President of Technomic Asia, 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 deal-
maker. Welcome back, Kim. For the first time ever, a second part of a podcast.
Let's take a step back from the macro M&A trends that we discussed last time. Tompkins is all about
operations integration - the entire supply chain from plan, buy, make, move, store, sell, and return.
These are our areas of core competence and the way we help our clients achieve competitive
advantage.
Kim - 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. 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's a pleasure to be back and glad to see you started me off with a nice simple multiple-
choice question here.
Actually, you have put your finger on a major shift in the operations of multinational companies in
large emerging markets like China. Ten or fifteen years ago, China was basically virgin territory for
most multinational manufacturing companies. 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 - in short they were "In China for China." Supply chains and
distribution channels were built around the needs and products of individual plants and were relatively
simple. Naturally this leads to a lot of duplications of processes and decreased efficiency.
Fast forward to today and the situation has changed dramatically. China's entry into the World Trade
Organization ten years ago lowered tariffs and other trade barriers. Company operations grew
dramatically as the domestic market exploded in size. 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.
Furthermore, this company has now integrated its China operations with global manufacturing,
distribution, and supply chain operations. 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. So from
being "In China for China," we are now moving toward "In China for China, for Asia-Pacific, and for
global markets." Multinationals increasingly view their China operations as just one part of the global
operating platform.
And as we discussed last time, China is just the largest and fastest growing BRIC country. We find a
lot of clients that are not only developing their China and India operations in parallel, 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. And I think you would find the same pattern in
Brazil and Russia as well.
The operational issues posed by this change are indeed very challenging. Every multinational with
significant operations in China now has dedicated materials handling, sourcing, and supply chain
organizations embedded in their central China management structures and closely linked with similar
departments at headquarters and around the world. This is a whole new operating environment and it
is one well suited to the expertise that Tompkins brings to the table.
Jim:
I love it! Integration of complex supply chains is where Tompkins lives and what we deliver. But let me
bring you back to the M&A environment again. 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, this looks an order of
magnitude more difficult than integration of two similarly structured companies in the U.S. or Europe -
already a tough process that frequently fails. How are your M&A clients in China handling this
challenge?
Kim:
Good question. I will give you the short answer first and then dig down a bit.
The short answer is that integration of relatively small acquisitions in emerging countries, say under
$100 million in transaction value, is usually done very slowly, particularly at the front end. 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. There is almost always a fear of burdening the
local acquisition with the high costs and bureaucratic burden of the parent. Companies are afraid to
Tyco-ize or Wal-mart-ize the local company, thereby destroying its original value. One way to avoid
doing this is to simply let the local acquisition operate on its own for a few years, with low level of
integration from parent.
Some systems, such as financial reporting, IT, and higher environmental standards, have to be
imposed at the outset. The sales operation usually poses a problem, 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. Furthermore, 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.S. law. But as a general rule, 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. The larger the acquired operation, the more swiftly the
target company must be integrated with all aspects of the global operation.
Jim:
I understand Kim, it is like that old saying that I don't know if I even like all that much - if it ain't broke,
don't fix it and if it is broke, don't acquire it. Makes sense.
But this still leaves the longer term issue. If the parent fails to integrate key operations, 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.
Kim:
That's right. The independence of the acquired company should only be allowed to stand for the first
3-5 years. Then deeper integration is needed to capture distribution and supply chain synergies and
to secure the customer base.
Let me give you a specific example. I helped a $1.5 billion U.S. telecom equipment company acquire
a local $50 million company in Shenzhen a couple of years ago. 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. 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. The transition went
exceptionally well, key telecom customers were retained, sales revenue and profits exceeded
expectations, and the deal became a bright spot in what was otherwise a dismal year because of the
global recession.
But there will be a second phase of the integration that will need to be executed in another year or
two. One of the key logics for the acquisition is that the Shenzhen company sits in the middle of the
Pearl River Basin area, which has thousands of local suppliers of electronic components. My client
wants to capture this supply base and to integrate it not only with other manufacturing operations in
China, but also with their global supply chain. So ultimately the supply chain management of the
parent and the subsidiary must be integrated to capture synergies and lower cost, but it just takes
time to get there.
Jim:
Kim, 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. This topic is so important it is the topic of the sixth
portion of this podcast, Supply Chain Integration. Without this integration we will not capture the
synergy and the real return on investment of the acquisition in the first place. So this is critically
important. Kim, I see we are nearing the end of this podcast, 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.
Kim:
OK, Jim. Here we go on the take-aways. These cover the last podcast and this one on global M&A.
1. 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. In the BRIC countries - Brazil, Russia, India, and China, inbound acquisitions by
multinationals took a big dip last year. But the M&A market in these countries is rebounding this year,
with old projects being re-started and new projects moving into the deal pipeline. We expect a very
robust level of global M&A activity in 2010 to 2011.
2. Recovering volumes of cross-border investment and M&A deals will lead to increased emphasis on
operations integration in the emerging markets - particularly on integration of outside-the plant-
operations, such as distribution operations, network optimization, materials sourcing, and supply chain
management. 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.
3. Multiple acquisitions of relatively small local companies in different geographies will present special
challenges in terms of operational integration. Many multinationals choose to leave the local
managements of these acquired companies relatively independent for the first three to five years,
initially integrating only key functions such as financial reporting. 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.
That's it for the take-aways, Jim. Thanks for the opportunity to visit with your podcast audience.
Jim:
Thank you Kim. 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. Well that ends our 2-part
podcast with Dr. Kim Woodard. Thank you so much Kim, glad you were with us. The last and final
portion of this series will be with Genet Tyndall on the importance of SC Integration, following M&A. I
really look forward to having Gene with us. Thanks so much, talk to you real soon.
http://www.tompkinsinc.com/podcast/transcripts/5-18-10_podcast42-operations-
integration.as

As the search for new sources of growth and new areas for strategic expansion grows, groups may initiate more
aggressive external growth operations in 2011. The first stage, however, will be a period of spin-offs or disposals
 of non-core activities, since numerous companies today are too diversified, with subsidiaries that are barely
profitable or not at critical mass.

The formation of big international groups

The Nineties saw the creation of national market leaders in Europe, with cross-border mergers limited. Between
2000 and 2008, companies were focusing on globalization and the opening up of new markets and undertook
cross-border mergers at an unprecedented rate. All sectors were involved, but the financial sector was the scene
of spectacular transactions, like the takeover of ABN Amro, culminating in the disaster caused by the credit
crunch of 2008-2009.
The two main players in the acquisition of ABN Amro were the first to suffer from this situation; Fortis was taken
over by BNP Paribas and Royal Bank of Scotland was bailed out by the UK government. Overall, in the last 15
years, 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.
Strategic consolidation under way
At present a number of groups are becoming aware of the difficulty of managing companies that are too diverse,
and so are seeking to consolidate their core business through two, three or four strategic entities. Gearing (the
ratio of net debt to equity) is under control (estimated at 30%, although there are strong variations between
sectors) and in the current context of relatively low interest rates, disposals and targeted acquisitions are likely.
The pattern since the start of the year has confirmed this assessment, with on the one hand a high number of
spin-offs and sales (in France the Accor spin-off, the sale of AXA’s UK assets, the British spin-off of Carphone
Warehouse and Cable and Wireless, 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, criticized both by the UK government and
some Kraft shareholders).
Asia and Latin America: new growth
Alongside spin-offs, the second current trend seems to be a move towards emerging markets. Groups are
currently looking for areas of growth, despite the high valuations of companies already established in these
markets.
At sector level, two specific cases can be identified:
• sectors like banking, oil, the automobile industry and certain technological fields where emerging countries
already have national champions and are directly or indirectly in competition with western groups. Acquisitions
could take place in either direction;
• sectors where emerging countries still have little presence but wish to develop these industries. Few
transactions with these countries are predicted, with instead a pattern of development through organic growth
(pharmaceuticals, agriculture and food, etc.).
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. IMF economists are predicting that nearly 50% of global GDP
will be generated in these countries in 2014, against only 25% in 2000.
Faced with the challenges of globalisation, against a background of erratic financial markets, the big international
groups have chosen in recent times to consolidate their core activities and sell their nonstrategic businesses.
Takeovers will be less spectacular, with buyers aiming to avoid downgrades by the credit rating agencies, as well
as any criticism linked to the risks of an aggressive strategy. In this environment, 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.
Mid-sized businesses in the firing line
Large-scale transactions and the creation of European, sometimes global, leaders have been of mixed benefit to
shareholders. The next targets for mergers and acquisitions will be medium-sized businesses, especially since
European competition authorities remain vigilant and may obstruct certain transactions. We anticipate a return to
classic buying patterns, in contrast to the grand scale of transactions seen in the last fifteen years. Based on our
analysis of sector consolidation, we believe that mid-level transactions, below 3 billion euros, will be preferred.
THE MOTIVES BEHIND MERGERS AND ACQUISITIONS
Four factors can drive a company’s management to launch a takeover:
1. the need to find new sources of growth, in which case companies turn to emerging markets if they can find
appropriate targets;
2. the search for a complementary country or product(s);
3. surplus cash-flow, although currently groups prefer to retain such surpluses in the expectation of improved
transparency in the US and European economies;
4. a high valuation in relation to the sector average, making payments in share capital attractive.

Besides these factors, an acquisition can be initiated through opportunism or with the aim of avoiding takeover by
a competitor: in other words, it is better to be the hunter than the hunted.

The possible characteristics of a likely target company are very varied given the large number of exceptional
situations. The most common are:
• a valuation that is lower than the sector average;
• the need to restructure, with low profitability (return on equity);
• a weak strategy accompanied by the publication of successive disappointing results, leading to doubts
concerning profit growth in years to come;
• small size in relation to the sector average – these companies need partners (unless they operate in a niche
market);
• subsidiaries with majority shareholders who wish to delist the company.

Reference:- By Daniel Fermon | Socially Responsible Investment (SRI) Research Manager, SG CIB | 01/09/10