Sunday, December 16, 2007

Humanise M&A

Human aspect of mergers and acquisitions is grossly missing!!

Over the years, in each of the graduating classes, interestingly, I find more and more students opting for finance as their specialisation. On further probing, I realise that most of them want to make a career in lucrative investment banking services. The reasons are quite evident though, as over the years as more and more Indian companies are strengthening their global foothold through Mergers and Acquisitions (M&A), the job of an investment banker is getting even more exciting and rewarding.

In fact, the transition has been quite interesting, as in 1991, when the then Finance Minister Dr Manmohan Singh took to economic reforms, India Inc. was up in arms as they believed that global corporations would threaten their ‘cushioned’ existence through deep pockets and superior technology.

But, ten years down, Indian companies, in a generic fashion have gone way ahead in terms of buying global companies, as if there is no tomorrow.

In 2001, a tiny step that India Inc. took in terms of outbound deals worth USD 0.7 billion has eventually swollen to a staggering USD 15 billion by 2006. In fact, during January-May 2007, the total M&A deals were worth USD 47.37 billion, of which the cross border deals were worth USD 28.19 billion. Though currently, in relative terms, India is still a baby in terms of the total global M&A market (which has been around USD 2.7 trillion, for the same period), but then the manner things are proceeding, in no time it is going to be a formidable player in the global scene. And so it is pertinent that Indian companies should learn from the mistakes of the failed global M&A and not get driven by the herd mentality of buying companies, world over. In fact at our business school, we teach that management is all about people and the art of finding people at the right places and to see to it that they are taken care, for, that is the key to success and failure of any corporation. Interestingly, the same is observed in the case of global M&A too. It is a well known fact now that almost 70% of mergers fail because of people/cultural issues, yet intriguingly even today M&A deals are restricted to the domains of corporate lawyers, strategists, merchant bankers and financial analysts, and for the human resource team, nowhere to be seen.

Globally, it is almost like an implicit practice that whenever it comes to any M&A deal, focus is invariably on the financial and business issues and a host of other strategic issues, except for human issues. However much firms try to justify the failed merger through strategic or financial reasons or in terms of myriad economic rationalities, the truth is that there are certain softer and finer human facets involved invariably, which no rationality can justify.

And ought to be! As more and more Indian firms buy out global counterparts and as more and more of my students take up investment banking as their career, they should remember that buying out corporations is about directing people’s lives and their associated dreams and aspirations! If it is people who create world class organisations, nothing could be more strategic than their happy existence. In absence of this, every deal would remain a failed deal, for people management complements strategy and processes.


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