The Hindu Business Line : How to make European M&As successful

Given the complexity of making a success of European acquisitions, Indian dealmakers need to plan earlier, pay more heed to cultural nuances and post-deal integration. A look at some best practices and lessons in successful cross-border deals in Europe.

Like marriages, corporate mergers and acquisitions are made in heaven. However, triumph in both relationships is based on a concoction of `post-deal' blending, amalgamation and integration. Several Indian companies are heroically, fearlessly and audaciously, venturing into Europe with a gluttonous craving for a `coup d'état', incorporate Europe. My friends in the boardrooms of some well-known European Banks idiom India Inc. as the "peculiar punter". That aside, how can India Inc. account for the eventual success or failure of their acquisitions in Europe?

Many factors are critical: The need to buy the right company for the right price at the right time. Even with all of the correct elements in place upfront, a Euro-Indian corporate marriage "made in heaven" can turn into the nuptial from torment, anguish, nightmare of a hell. Millions of gigabytes in information is available on the sad stories in Europe of colossal and even petty merger failures. What goes offbeam with all these deals can be ascribed to poor synergy, bad timing, incompatible cultures, off-strategy decision-making, excessive pride or arrogance, and ravenousness. But, one widespread lesson has become obvious: Making a `deal' work is one of the hardest tasks of corporate takeovers in Europe.

Border crossing

Despite a promising start, Indian companies crossing borders, need to take a minute to stop and think. Like penitent schoolboys, Indian dealmakers can easily underestimate the complexities of the European cultural and political processes involved, and overestimate their ability to control those processes.

Given the complexity of making a success of European acquisitions, they need to plan earlier, pay more heed to cultural nuances and watch more closely over post-deal integration. Here are some best practices and lessons in successful cross-border deals, in Europe.

Integration Plan

Mergers may reflect inevitable economic logic, but it has never been easy to be in the middle of one. There's no academy to teach best practices in merger integration. And despite the volumes written on the subject, there is no science to making the process run smoothly.

Part of the problem is that while the economic goals of an M&A deal are hard and clear — improved profit margins, greater market share, economies of scale — the means to achieve them are largely `soft'.

These include management and leadership skills, planning and cultural issues — all annoyingly vague concepts for those making the merger succeed.

Planning

The problem with getting a behind schedule start, or of waiting until the deal is officially enacted before making noteworthy operational strategy, is that your acquired company drifts while vital decisions remain up in the air, and performance, therefore, deteriorates.

Even worse, some of the most endowed people in the acquired company will scram for greener pastures, reducing the value of the deal, since they are precisely the ones most likely to have other viable employment options.

Transition Management Team

The need is to assign a highly talented executive leader with excellent strategic and interpersonal skills to oversee the post-acquisition integration process full-time, with sufficient support and administrative staff to get the job done.

People Sensitivity

The very minute merger signals are heard in an organisation, the work ambiance begins to transform.

Employees become perceptively befuddled and anxious. They begin to divert time and energy to wonder how their career, power and prestige will be impacted. Gossip within the organisation competes with production and then the competition can gain a foothold.

Combining merged cultures requires a focus on one new vision and mission, developed by a cross-section team of representatives from both organisations.

Leadership Selection

Start as early as possible to get an insider's knowledge of the leadership of the new company to thwart wasted time, and loss of acquired asset value, during the integration phase.

Scrutiny of Information Flow

The organisation diagram tells very little about who holds genuine influence over opinion, the loosening of resources to accomplish work, the degree to which the organization is driven by feuds, rivalries and blockages in communication that generate inefficiencies. The need to capture the information flows is even greater when the value of an acquisition depends more highly on soft or intellectual assets.

Communications Strategies

Clear, timely, messages to the employees is part of a multi-pronged campaign that will include explicit, interactive feedback systems, through work groups, task forces, and so on, so that members of the `new' organisation can learn what it means to be a part of the new company. These would go a long way in facilitating the effective, communication processes.

Customers Flight risk

To avoid the nightmare of losing customers, buyers must act quickly to keep customers from defecting — or prevent rivals from stealing them.

Communicate Values and Expectations

The final part of an integration strategy involves communication and training.

Within weeks of completion of a new acquisition, top staff from the company need to be invited to the headquarters for an unlearning and re-learning process.

The aim is to teach them the values, the approach, the expectations and the processes you are using and to make them aware of what you tolerate and what you do not.

It is this part of the integration process, where speed is crucial. If you want to succeed, you have to be quick — you are better off doing it fast, and not doing things completely right, than to over-analysing and wasting time.

If you want to make a success of your acquisition in Europe, do something different! It's kind of reminiscent of the old Henny Youngman one-liner wherein a patient tells the doctor, "Doc, it hurts when I do this." The doctor replies, "Then don't do that."

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

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