- Mr. Ajay Nair, Senior Manager
Kaustubh Verma (ISB Co2008)
- Rahul Mishra (ISB Co2008)
Kaustubh: He is presently with Accenture’s M&A Strategy consulting practice. Currently he is working on an assignment involving PE firms scouting for acquisition targets.
Rahul: prior work experience in HPCL and Honeywell. He is presently with Accenture’s M&A Strategy consulting practice. He is currently involved in a project involving metals and mining client in Orissa.
Ajay gave a brief introduction about Accenture. Acc has around 250 consultants and is adding resources across all the levels. Acc is also pioneering the concept of offshore consulting. Acc was one of the first management consulting firms in India. Till late 90s Acc was mainly into management consulting. With the advent of IT boom, Acc diversified into IT and Outsourcing. Prior to being branded as Accenture, it was known was Anderson Consulting.
Accenture has broadly 3 Business Units: Consulting, IT and Outsourcing. Industry verticals and industry groups are present. Accenture has 5 service lines, Strategy, CRM, Human Performance, Logistics and SCM.
Initially new recruits start with the horizontals and then move into verticals. After gaining wide horizontal experience, people move into industry specific verticals.
Bulk of the work in Accenture is around M&A, Post M&A integration (PMI) and transformation. Acc works with the management team and defines areas of improvements. Acc is also involved in implementations. Acc’s USP is implementation of its recommendations to the clients. The strategy part of the projects is over in 2 months. The bulk of the time is taken up by the implementation. PMI is critical and forms an important part of the implementation. This is what the clients are demanding today. They want the consultants to stay back and see through the implementation of their recommendations.
Acc banks on the breath of the IT practice to back it up on the implementations. He gave an example of a consumer goods manufacturer. There was a requirement of tracking the sales and times spent by different sales men in different outlets. The client had 150 stock keeping Units (SKUs). The sheer scope of the assignment required the assistance of an IT solution to manage the project. He used CRM and IT solutions to enable the implementation of the solution. This is where the IT BU of Acc enhances Acc’s competencies.
Today’s presentation was focused on these topics:
- Merger and Acquisition Execution and
- Post Merger Integration Execution (PMI)
Ajay talked about the drivers of M&A. the key drivers of M&A are
- Growth – new technologies, new products, new avenues of growth, new customers, manage regulation environment.
- Profitability through consolidation
Sometimes organizations want to enter a particular segment of a market. But due to the presence of a regulation, they can not enter those segments. Such organizations scout for acquisitions which would enable them to enter. Some of the acquisitions that have taken place in the Indian marketplace are
- Aviation – Jet-Jetlite, Kingfisher-Deccan, Air India-Indian
- Freight and Logistics – DHL-Blue Dart, TNT-Speedage
- Retail – Walmart-Bharti
- Auto – Nissan-Mahindra, Tata Motors-Ford
- Telecom – Idea-Spice, Vodafone-hutch
- Pharma – Ranbaxy-Daichi
- Banking – HDFC-Centurian
- Steel – Tata-Corus
An important question that the client should answer before acquiring a firm is – what is required to achieve the vision for the business and should I buy or build?
The larger problem is the decision to build or buy the capacity/capability? Sometimes it is profitable to build the capacity/capability, but at other times it makes economics sense to acquire the capacity/capability. The important metric to arrive at a decision is the correct cost model. If there are errors in estimation, then it could lead to severe problems.
Some of the key steps during the M& activity are:
- Identify potential growth or profitability opportunities
o Conduct market sizing and understand growth drivers
o Estimate future growth and profitability
o Prioritize opportunities
- What is the best way of leveraging the opportunity – build/buy/JV
o Develop scenarios for build
o Identify potential targets for buy, value them, estimate synergies
o Prioritize based on investments and returns
- Manage the deal process
o Exchange information through information memo/data room
o Conduct due diligence, refine valuation/ synergies (Tax, accountants, legal and various players are involved in this process)
o Define the parameters for negotiations, conduct negotiations to agree on valuation.
Risks involved from the legal and accounting angle is thoroughly explored. Tax is a difficult and sensitive subject. Management consulting team evaluates and verifies the data that is thrown up after the end of the above processes. The Management Consulting team assists in negotiation between both the parties.
Key reasons why deals break in M&A
Both the seller and the buyer have their own estimates of the valuations. The negotiation process is responsible for the deal breaker. Both the seller and buyer
- Regulatory challenges
Non-payment of taxes and liabilities of the seller
- Personality challenges
The personality of the negotiators plays an important role. Ego issues in the case of family business also come into play
- Organization culture challenges
- Breakdown in Mutual Trust between the buyer and the seller
- Post Merger Integration Challenges
Some of the examples are different IT systems, cultural issues
PMI Execution: How does one do it?
The organization could acquire and not ingrate, if the processes are complex and does not make economic sense
If so which functions? Some of the functions that share synergies could be integrated, for example: Sales team, HR etc
Validation of synergy opportunities and identification of new opportunities
Form teams focused on implementing and realizing synergies
Focused monitoring of synergy realization – identify and realize the synergies
Fair and transparent processes
Select the better of the two processes
Assess technology involved on delivery of business requirements
Evaluate the cost/business impact of standardizing
Form focuses team for evaluation and implementation
Monitor progress of implementation
Key reasons why PMI are not successful
- Limited focus on implementation
- Inability to retain key people
- Absence of a fair and structured process in organization integration
- Absence of open communication
- Absence of a focused team and a senior leader driving the integration
- Organization culture differences
The success of the PMI is measured by the deviation from the forecasted P&L of the merged entity.
Accenture has lined up series of events over the year. They will hold CV workshops, case prep, interview prep and people skills workshop. Accenture was the day zero firm last year.