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STORY so far: When you are in a successful company, there is always the temptation to be complacent. The threat of change can make one averse to any suggestion about acquiring other businesses. I realise why it is important to keep growing, because success is not a plateau to stagnate in, but a peak to keep climbing on and on. In the meantime I try my hand at golf.

Episode 60

Growing up means becoming responsible. This is no grandma advice, but something that holds good for companies too. One day, we are trying to get a foothold in the market, clear our bank loans and achieve a decent profit so as not to disappoint our shareholders. Another day, we are taking a hilltop view of the business scene, looking at the horizon to spot acquisition targets.

"One day I am hitch-hiking," I said, when Chandru and I were in a pensive mood at the canteen. "And then you are kidnapped," said Chandru. "Not that I would do so if I were the driver." I shot him an angry look, and said, "No, another day, I am offering lift." He nodded. "From a finance angle, one day I am borrowing, another day, I am lending. But, Swati, if you thought our problems are over when we move from one stage to another, you might be wrong."

I couldn't understand, so he continued: "As borrower, my worry is to somehow earn enough to pay the instalments back... " I interrupted, "As lender, you are in a comfortable position, aren't you?" Chandru resumed, "That's a myth, Swati. In fact, I have spent more sleepless nights as a lender than as a borrower. Because of the worry whether the money advanced would come back, or if I had to increase the provisioning for bad debts in the account books."

True, I thought to myself. "That is where our responsibility comes in," said Chandru. "To invest or spend that marginal rupee after the many crores with as much care as we did with the first one." I said, "Chandru, you talk wiser than I thought you are capable of." He shrugged, "Perhaps, you are getting mature enough to understand these concepts." "Aaarrhh... .," I grunted.

*********

Over the next four days, the whole town seemed to be lost in festivities, but the boss proposed that the top people in the company spend time over something crucial. "Let us know what takeover is," he said.

"Takeover means conquest, invasion, occupation, and capture," I said, looking up synonyms of Word. He smiled, and continued, "The nitty-gritty, Swati, of acquisition. I thought we could invite Zakhir to talk to us about the subject." Gupta remarked, "Will he teach us in the golf course?" Boss said, "No, in the conference hall."

*********

The programme started off on the dot. "The first lesson," said Zakhir, "is punctuality." We all looked at each other. "This is no kindergarten lesson. But since you are talking about making more money, every second counts. In fact, every first counts. Early bird gets the worm. But what about the earlier one? We are not in a race, as in bus-stands where to grab a seat, people try all tactics.

The essence of an effective takeover is that it is smooth, hassle-free and at your own pace." Chandru asked, "Are there things to look for when going on a hunt for possible targets?" Zakhir nodded, "It is like hunting. You need to watch for sounds, look for footprints, notice the broken twig, factor in the wind direction, and so forth."

I had read how if a company were trading at less than its net asset value, it could be a good candidate for investment. Zakhir put a bullet point on the board and wrote, "Cash-rich company in market's blind-spot."

I had seen Chandru once working out a comparison between cash-flow and market value of a company he wanted to invest in, and now the consultant was explaining the technique in simpler ways. And there were more tips and tools he was equipping us with.

During the tea break I told the boss, "Your golfing buddy is good." He asked me with a conspiratorial wink, "You like him?" I said, without batting an eyelid, "No, I am in fact angry that I didn't know this earlier. Else, I could have bought your company long back." Zakhir was already back at the mike and counting down from 10 to 1, for us to assemble for the next session.

*********

"Sometimes, assets are good, but management is weak," he said. "Market doesn't like to value such companies high. Yet, if you are good at management and know how to turn the company around, there it is for peanuts. No different from plundering runs when the opponent has the best of the teams but places his men in the wrong fielding positions."

Gupta put up his hand to give his point of view on the matter. Zakhir allowed, and Gupta spoke: "Friends, if you remember, this problem has been plaguing many of the old companies in our industry. They were doing well in the first generation, then slowly became inefficient because of ineffective management. Their offices are in the best of prime locations, and their brands are some of the longstanding ones, yet we find their market share getting eroded day by day, as if getting eaten by the virus of mismanagement."

Zakhir went on to discuss some of the ratios I had learnt in college and CA course, but now there was a greater relevance for the inputs. I could see that if I plugged the right number in the numerator and had the appropriate denominator, out popped a measure which would read as plain as a digital thermometer, telling me if the company were healthy or not, if it was managing its receivables all right or not, and if it was having trouble with its inventories.

"Take your time," said Zakhir, looking at me. "Some targets can remain as quiet as the grave for years, then suddenly a whole host of suitors emerge in a bidding war," he quoted from what Nick Louth had written in MSN Money. "The real money is in getting in long before the others," he added. That was, however, a tip I could use to great advantage at the lunch buffet.

(To be continued)

Swati_CA@hotmail.com

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