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Buy-outs - India Inc finds diamonds in the dust

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Cover story in 4PS Business & Marketing, June 2009 edition

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Buy-outs - India Inc finds diamonds in the dust

  1. 1. coluMn A ‘Strategically fit’ Kalpesh Desai target – necessary or CEO, Agile Financial Technologies simply a want? Valuations are low during times like today & you will notice aggressive moves from India Inc. Yet, low valuations should not become the sole reason for a deal! D uring times of economic un- In current times, exits are difficult and You will notice enterprises with strong certainty most prospective new investors would prefer to see their balance sheets still pursuing acquisi- buyers would consider acquisi- cash infused into the company and not tions aggressively as a key component tions as high risk. However for Indian paid out of the system as far as possible. of their growth and expansion strategy, enterprises with strong balance sheets, With pe Funds and banks constricting more so when the economy is facing or the ability to leverage, here is some investing and lending activities, these the kind of turbulence we have just re- food for thought. are tough times for entrepreneurs. It is cently experienced. Signs of economic recovery are just time for them to examine the possibil- Having said that, acquisitions should in. equity markets have been on the ity of partnering and becoming part of not be pursued just because valuations upswing and that is the first sign of larger and nimble enterprises which are down. An enterprise must examine economic recovery and increase in in- will support their priorities, compli- if the company or business being ac- vestor confidence. emerging markets ment their values and ensure that a quired is a strategic fit with respect to are showing positive growth with mar- platform and foundation will be created imbibing new technology, skills and the kets like India targeting a 7% growth in for what has been created by them to ability to penetrate a market. Acquisi- its GDp Valuations are still attractive . move to the next stage. tions just to accrete revenues and prof- and for those of us who are looking at There can be no better time than a its perhaps might be a short term play acquisitions as a mode to add on new recession to acquire and merge busi- and neither the buyer nor the seller products, service capabilities, strength- nesses since more time is available to may derive long term value generation en our core business and to penetrate transition the merged firms. These are by coming together. As a case in point, new geographies – now is the time to times when valuations are reasonable we include the founders of businesses pursue buy outs. and business owners are amenable to a being merged into our group’s core The window of opportunity is quite pragmatic approach of achieving target team, engage them in functions, create small whilst valuations remain beaten exit values based upon actual perfor- minimum disruption for their clients down, and for those enterprises with mance, and not just a pe Multiple. Top and employees and ensure that the significant cash reserves or the ability line and book profits do not count un- earn-out structures are aligned to the to leverage investor resources or debt, less the business can generate cash, overall results of the combined entity this is a once in a lifetime opportunity and enterprise valuations are back to without creating silos. to bolster their offering, gain key com- including the fundamentals of cash ef- In cross-border acquisitions, inte- petencies and increase their reach in ficiency and cash generation. M&A ac- gration can pose challenges if we do not new markets through significantly un- tivities have not dried up. The activity take into cognizance the differences in derpriced acquisitions. levels seem low because of the absence operating styles, practices, processes These are also very interesting times of private equity players in the past year. and culture of the seller. people and and we can see the investor commu- core values are create the bridge be- nity and the industry working hand-in- hand. We see investors, entrepreneurs, This is the time tween two enterprises and financial results are a direct result of the how pe Funds and Vcs partnering with to identify rough disruptive or inclusive the integration high-growth enterprises to support process will be. their portfolio companies that have diamonds in the dust This is the time to identify rough dia- seen the stress of the recent past. These are enterprises that have re- – invest, grow and monds in the dust – invest, grow, nur- ture and bring out the sparkle. now is ceived strong management inputs from their investors and are in different nurture and bring the time for even mid-sized Indian en- terprises to spread their wings and make stages of a growth and maturity cycle. out the sparkle their mark in the global arena. 4Ps 5 june - 18 june 2009 4ps BuSIneSS AnD MARKeTInG 29

Cover story in 4PS Business & Marketing, June 2009 edition

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