The Hindu Business Line : Rumbles of acquisitions in Europe

DASGUPTA is Director, Strategic Acquisitions. His job, which he had held for a long and trusted time, is to purchase and nurture acquisitions on behalf of his holding company, an Indian family-owned pharmaceutical conglomerate.

He had just bought another company, in Germany. The opportunity to buy had come, as it often happens, through referral, his company being well-known in corporate circles. He had put the word out, found a target company, carried out an in-depth due diligence on it, negotiated the price, and finally bought it.

Dasgupta is not a lone Indian player in the acquisitions game in Europe that is seeing a lot of activity of late, and is expected to gather steam. Take the information technology sector, where the bigger Indian companies eye smaller, niche players. The acquisitions signal the onset of a consolidation phase in the IT sector that would result in the emergence of 10-15 global players.

Outsourcing and panic are working together. The lack of pricing power makes it necessary for European companies to venture to India to get services performed for cents on the euro. At the same time, companies such as Tata Consultancy Services, Wipro and Infosys are rushing to Europe for expansion and acquisition.

The lack of core competence beyond code development is forcing the Indian companies to venture into Europe to understand business processes and leverage existing companies in the Western world. Indian IT companies know well that sooner or later outsourcing will stop because of coding automation and advanced testing systems.

Several IT and pharmaceutical firms have announced that they want to shop for companies in Europe. The list includes Tata Consultancy Services, Wipro, and NIIT. Companies with strong operating capabilities in the technology and pharmaceuticals sectors are increasingly looking at going Europe. HCL acquired 100 per cent share of Deutsche Software, a subsidiary of Deutsche Bank, last October. HCL also acquired, and is successfully running a call centre in Ireland.

Reliance Industries Ltd (RIL) had acquired Trevira GmbH from Deutsche Bank, its second international acquisition and the first in the polyester sector. The acquisition has made RIL the world's biggest polyester producer in terms of capacity.

From four locations in Europe, the 2000-employee Trevira makes specialty value-added products that find application in automotive, aerospace and home textiles sectors, and is a leader in special sectors such as fibres for flame-retardant fabrics for customers in Europe and other world markets.

Last November, the Pune-based Kirloskar Group acquired certain assets and businesses of the UK-based SPP Pumps Ltd through a joint venture company. SPP Pumps was part of the Thyssen Bornemiscza Group of the UK and was making pumps for a variety of market segments, such as construction, irrigation, fire-fighting, and water supply and sewage, and had recorded sales revenue of £25 million in 2003.

In December 2004, Bharat Forge Ltd (BFL), the flagship of the $1-billion Kalyani Group, acquired CDP Aluminiumtechnik GmbH & Co KG (CDP-AT), a German company that made aluminium-forged components, for 6.30 million euros. The transaction was an all-cash deal and was funded by way of equity of 3.80 million euros and non-recourse debt of 2.50 million euros.

The acquisition is an important part of BFL's long-term business strategy and it marks entry of the company into the global aluminium auto-component business. Its clients include automobile-makers such as BMW, Audi, Volkswagen and Ford.

This is the second German acquisition by Bharat Forge, as the company had acquired the German operations of Carl Dan Peddinghaus GmbH & Co KG in 2003, later renamed CDP Bharat Forge GmbH. Not to be left behind, Indian pharmaceutical companies also went on an acquisition spree in Europe in 2004. In December, Nicholas Piramal India Ltd (NPIL) signed an agreement to acquire the global inhalation anaesthetics business of UK's Rhodia Organique Fine (Rhodia) for $14 million. The acquisition would create a significant presence in this niche global market for NPIL.

The Ajay Primal-promoted Nicholas Piramal would use the manufacturing technology and facilities of Rhodia, its global sales and marketing rights of two inhalation anaesthetics products — Halothane and Isofluorane. Rhodia had recorded sales of $14 million in 2003 from this business. Nicholas Piramal will also gain access to Rhodia's sales and marketing network of distributors in over 90 countries, including the US, Europe, Japan, Australia and many emerging markets.

Torrent Pharmaceuticals is close to acquiring a German company engaged in the generic drugs business. Wockhardt has acquired the business of Germany-based Esparma GmbH for $11 million. In 2003, the unlisted Esparma posted an EBIDTA of $2 million on sales of $20million. This is the third acquisition by Wockhardt in Europe. Its previous European acquisitions were Wallis Laboratories of UK in 1998 and CP Pharmaceuticals of UK in 2003.

With this acquisition, Europe now becomes the highest contributor to Wockhardt's total sales at 40 per cent, overtaking sales from India. Sales from Europe have crossed the $100mn mark at $110mn.

Drugs worth billions of dollars are set to go off-patent in lucrative markets in the European Union, prompting Indian companies to take the acquisition route to grow their presence in these geographies. In January 2004, Ranbaxy Laboratories acquired Aventis' generic arm RPG (Aventis) in France. Zydus Cadila acquired the formulations business of Alpharma of France for Euro 5.5million.

Indian managers are facing the reality, however uncomfortable, of buying and running companies in Europe. New and better ways are evolving, and plans drafted and committed in writing to bosses, peers and subordinates. As for Dasgupta, the day is done. He had a deep insight into each of the acquired company's aspects that drive performance and growth.

Of the things that needed fixing, many had already been changed — simply by bringing them to the attention of colleagues and documenting before all the irreversible decisions that were needed.

Indian managers like Dasgupta increasingly understand that, ultimately, it is people who make mergers or alliances work and, collectively, the cultures of the companies merging or cooperating. When different mindsets from different national cultures and languages exist on top of the differing corporate cultures, then the task becomes a mammoth one.

From this point of view, international mergers and alliances are fundamentally different from domestic ones, and have to be looked at slightly differently. They require the fundamental knowledge of cross-cultural appreciation, communication and business anthropology.

With the globalisation of the Indian economy, the likelihood of Indo-European cross-border mergers and alliances are increasing. This will create an increased demand and place new challenges for the ability of Indian managers, who will have to manage cross-border merger integration well.

(The author is a former Europe Director of the CII, and lives in Cologne, Germany. Feedback may be sent to mohan.murti@t-online.de.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Whither India-Pakistan relations?

Feel-good forecast

Rumbles of acquisitions in Europe

World Economic Outlook April 2005
US on notice: Cut spending, fiscal deficit

Elephant and dragon: Competing to co-operate

Transforming Rural India, the NGO way

Essential reading

Eradicating poverty

India's winning team