As every financial analyst say, the time is just right for acquiring companies overseas. The valuations are low and so the acquisition will be better for the acquiring company in terms of lower debt etc. The logic is correct, but I would like to put a fresh perspective on what kind of companies should be avoided.
Let us take the case of Tata Motors taking over JLR. This has all the proponents of turning out to be a disaster. There is no match. Tata Motors entire set up is to cater to mass base, its products and technology is low-end. On the other hand JLR is just the opposite, it caters to the high-end (probably the highest end) consumer and is of low volumes. Its technology is as its market, the highest end. What can TM hope to achieve? Improve its own mass base technology, or bring down JLR technology to reach out to a larger mass base? Neither is possible as little of the technology and the manufacturing philosophy of JLR can be transported to Tata Motors, the gap is too wide at both ends to migrate. If history is any indication, save an exception here or there (like Toyota – Lexus), no company has been able to straddle the entire gamut, not even when the gap has never been so wide. Even in the heydays the famed American trio could not produce a car with the technology of a Daimler Benz. Why so? Because the entire thinking within a company cannot handle the thinking required for the other end of the spectrum. I believe, in about a couple of years, Tata Motors will have to put JLR on the block, unable to handle the financial strains.
Or take the failed case of Reliance taking over Lyondell-Basel. Reliance is lucky they missed the opportunity, for the two companies are vitally different. While the focus of Reliance is manufacturing as the larger part of their website focus on that, Lyondell-Basel is more to reach out to customers and empowerment and development of new technologies. It is telling that Reliance contact is centralized in Mumbai, while Lyondell-Basel is worldwide. So, if Reliance was looking at enhancing their manufacturing facility and customer base, it is obvious they seem to have forgotten how to handle the culture, and they may have found it impossible to do so. It would have led to breakdown of the efficiencies that built the company and would have to resort to major financial restructuring to keep it afloat.
The key message I want to leave the reader with is that greater emphasis is required on the integration aspects of the two businesses, beyond the financials. These are never documented, but omnipresent within a company and shows up in its daily working, things that make a company tick. Within a company it is never discussed or articulated and dissent is never seen as positive thinking. Only an outsider is able to transcend and advice correctly. If not addressed, it leads to waste, both in terms of energy as well as resources as in the process of integration, the working values of the two entities come to the fore in greater obviousness. And the problem gets compounded when the two institutions in the integration process are equally large and influential. Don’t we remember the strain of integration and its breakdown when HP bought Compaq.
Ever so often the decision for a M&A is made on emotional or non-rational reasons. Reasons like we wish to be number one, we wish to be respected; we wish to be in a position where we can dominate and control and so on. There is nothing wrong with that but thereafter it needs to be thought thru dispassionately on what it will take. It is easier to buy a product, a facility etc., all which are inanimate, but a corporate M&A is not about acquiring inanimate assets, it is about integrating values and people; assets which work on beliefs in life principles. Only a honest and straight talking outsider can guide a company CEO thru this maze and before the damage is done. And this outsider needs to be trusted, not seen as a consultant who has been given an assignment to deliver.
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