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The Art Of Growing Internationally

Monday, February 10, 2014
By Satish Khanna

Satish Khanna was Former Group President at Lupin Ltd and now helps entrepreneurs to create International alliances

Each business be it small, medium or big has a common macro objective and that is to achieve Profitable and Sustainable Growth, which happens through deploying right tools to excel in SKILL, SCALE, SPEED and REACH. Compromise with any of these four tools would hit either growth or profitability or sustainability of the profitable growth.

Managements of progressive companies understand this aspect very well and consciously tend to keep these tools in ever-sharpened status. During the business journey, companies often come across situations where they discover that in-house sharpening of some of above mentioned four tools, is either not possible at all internally or will take inordinate time and that is when they explore M&A activity to acquire the tool. Be it some technology in the target company that will sharpen the SKILL tool, Be it some Geographic reach that will sharpen the REACH tool, Be it some backward-forward integration opportunity that will enable sharpening of SCALE tool or be it ready made position that is faster and safer to acquire rather than creating similar position in-house, to sharpen SPEED tool.

Either of above situations will normally sharpen one or more of the above mentioned four tools for meeting macro business objectives. And, even-though M&A action is based on well thought intentions to create fresh business value, still we see over a time more than 50% of M&A activities fail to create intended value and many a times it even erodes.

When Daiichi Sankyo (DS) acquired Ranbaxy in June 2008, they did mention, “Acquisition of Ranbaxy dramatically enhances our ability to pursue business in emerging economies and extends our reach to include both proprietary drugs and non-proprietary drugs”. This acquisition was to enhance REACH.

DS acquired Ranbaxy valuing it at 4.6 Billion US$; what happened since then? Market capitalization of Ranbaxy has exactly halved in 5-6 years, despite DS putting in very sincere efforts, resources and additional money in it, whilst market cap of other leading Pharma companies in India has gone up by multiple times, during the same period.

Extremely well intended acquisition of the then leading Indian pharma company (Ranbaxy), by one of the finest pharma company (Daiichi Sankyo) from one of the most developed economy (JAPAN) met with an accident.

Warren Buffet, Chairman of Berkshire and Hathaway, once commented on acquisitions, that most of the acquisitions display a kind of undesirable imbalance, where acquisitions

  • Normally is a bonanza for the shareholders of the acquiree company
  • It tends to increase income and status of the acquirer’s management
  • It offers a kind of honey pot for the investment bankers and the other professionals on both sides.
  • But unfortunately, Acquisitions usually reduce the wealth of the acquirer’s shareholders, often to a substantial amount.

Many of what Warren Buffet expressed about M&A in general, did come true in the case of Ranbaxy too. Significant regulatory issues did surface up in Ranbaxy, post its acquisition, at very regular intervals and beyond expectations. Large Forex currency hits did happen beyond expectations. Major management change did happen at the very top-table, far earlier than expectation. Somehow, these unexpected issues did not help DS to realize well-intended benefits, atleast till now.

Japanese companies normally do not believe in acquisitions, though mergers are common. In Japanese culture, Human resources and the value system of a company is considered a very big asset and not just for saying it, they mean it. They believe buying a company means buying people, so very rarely companies go the route of selling their people; but merger is not selling people. DS itself is a product of merger between Daiichi and Sankyo, way back in 2005. Astellas is another example of very successful merger of Yamanouchi and Fujisawa again in 2005.

For a successful acquisition or merger, it is very essential that acquiring company or the leading company must guard against “Conquering army mentality” during the integration process, mobilization of change must happen but with very humane approach.

People are really the real assets and they should not feel alienated. There is always a need of having suitable integration leader who has to be multi-directional person with leadership skills of “Aggressive project management, exceptional people skills and extra-ordinary leadership skills in techno-tacto-commercial fields. 100 days before and 100 days after the acquisition or merger date are very critical; it is during this period right signals need to be transmitted, right kind of tuning need to be done to see that sooner both sides become one, with common goals and common aspirations. This approach only can result in putting the Acquisition or Merger event in the category, where value is truly created for ALL the stakeholders.

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