You are on page 1of 35

• An acquisition without a strategy is like

impulse shopping . Do you agree ?


• Why do you need a well defined Corporate
Strategy for M&A ?
• Not for growing sake but for building a
viable sake.
•It is said that “Indian Companies is on
buying spree in UK,” . Is London a correct
Gate Way for India?
Strategic Perspective

strategy- a concept

- a process

- a way of thinking
How the acquisition of Wockhardt gives the
much desired national presence to Fortis ?
 8 months – Rs 909 crore
 Pan India presence – strong footprint in
south, west and east.
 38 hospital and 5180 beds
 Hospitals in Mumbai(2), Kolkata(3),
Bangalore (5), 2 under construction
 Culture, value systems, performance,
management strength, clinical work
 3 hospitals with the coveted Joint Commission
International accredation- attract overseas
patients, cost efficiency, quality management
 Habil Khorakiwala – Rs.1000 crore
 Fortis raise rights issue (Rs.350 crore), debt
and internal accruals
 Premium paid – strategic fit
 Rs.70 lakh to put up a bed in metro( 60 lakh)
 Returns positive and increase in EPS
 120 days to complete
 12 key managers + chief executive officer
 Talent pool 9250 people including 1575
doctors
 Wokhardt – 10 hospitals add 5 more soon
 Clear Rs. 500 crore debt
 Fortis – No. 1, inorganic growth
It is clear that Indian health care
market is shifting to an
oligopolistic nature. Does it
translates into better price and
service for the consumer?
Substantiate the statement
rationally and logically.
Factors considered to formulate a strategy:
1.External Factors : Government policies
Tax aspects
Legal bodies
Competition
Natural conditions
2. Internal Factors:
 Stake holders expectation
 Share holders expectation
 Company’s resources
 Company’s mission
 Product life cycle
 Niche opportunity
 Profitability
 Market share
 Product quality
 Organisation culture
 Organisation culture:

 Strong top leadership v/s Team approach


 Management by paperwork v/s MBWA
 Individual decision v/s Group consenses
 Evaluation based on performance v/s Long Term
Relationship based on loyality
Risk taking encouraged v/s One mistake you are
out
ITC,s Paperboards tie – up with leading IT
companies.
• Waste Paper – raw material for paper
boards to make packaging materials.
• ITC – 2 mills : 1000 tonne a day mill at
Bhadrachalam, 300 tonne mill at
Coimbatore.
• Shortage of raw materials – cost increased
• Rajesh Memani, Partner , Earnst &
Young( Sify’s acquisition India World)
This is the first time an Indian
Company has paid for a strategic value
of this size to demonstrate leadership.
People will realize this is necessary
eventually.
• Valuing these high growth, high loss
firms has been a challenge to say the
least some practioners have even
described it as a hopeless one –
McKinsey & Company
• Estd in Dec 1998 in Secunderabad
Satyam Infoway Ltd (SIfy) – one of the
first internet service provider in India
• November 29, 1999 announced
acquisition of India world communication
for Rs. 4.99 billion
• One of the 1st and largest dotcom
acquisition in terms of deal
• Huge amount paid for acquistion
• Problem faced – Valuing Dotcom
companies using traditional model
Acquisition : Through the funds raised IPO
of ADS on Nasdaq
•Sify 2nd phase – June 30th 2000 cash +
stock
• Synergies:
• Strategic Objectives
• Exploit cross selling opportunities within
its own portal & ISP service is ready access
to the existing customer base
• India World – 2nd largest portal in India
• Good brand Equity
• Good Strategic fit to Sify ‘s portal business
adding a large overseas Indian Audience to
the large India based audience
• Combined portal network – expected to be
a mega portal for India.
1.What were the strategic and financial
benefits to Sify from this acquisition ?
2.How had Sify arrived at Rs.4.99 billion
figure while valuing the acquisition deal?
Factor analysis method:
SWOT analysis
GAP analysis
goals and objectives can be expressed in
quantitative terms. They can be
compared with the future projections.
Top down v/s bottom up forecast
Projections can be made at company
level & divided among individual segments.
Projections are made with the requirements
& assignments of individuals segments so
that overall company results could be
achieved.
Computer models
Reflects theory or logic to guide the
complex content. (considerable detail)
Competitive analysis
Competitive position is determined
by important factors involved in demand &
supply condition.
Synergy
How the extra gains are to be achieved?
Logical incrementalism
Major changes in strategy are carried out
most effectively when the changes involved
are relatively small or on an incremental basis.
Mudling through
Lindblom: “disjointed incrementalism”
Decision makers focus only on those policy
alternatives that differ incrementally.
Comparative histories
used to monitor the behaviour of their
rivals.
Delphi method
Group discussion technique
Adaptive process

What are the approaches to formulate a


strategy?
1.BCG Model
cash cow: mature business ,low growth
opportunities, high mkt share.
low investment
profitable
good CIF
matured mkt position
Finds growth prospectus outside its industry
with its surplus money.
Star: High growth opportunities, high mkt
share.
high profit
high investment
high CIF
strong mkt
Find growth within & outside the purview
of their industry.
Dog: Market growth is low, low profit, low invt
(disinvt), negative CIF, declining mkt.
Question mark: Young business, plenty of
growth prospects, low mkt share, face heavy
competition.
2.The product life cycle:
Evolution of a product & its associated mkt
a)Launch:1st mover
Market is small ,profit margin high
Cost on bldg up demand, exp on market
developent.
b) Growth: Increased supply, lower profit
margin. wide competition,expansion of mkt.
c) Maturity: Excess production, slow
growth, keen competition, squeez profit.
d) Decline :Profit margin low, investment
requirement low. disinvestment.
Ansoffs model of strategic choice:
Maps out the alternative direction to
choose.
Strategic choices for firm depending on
existing products & markets.
Products
Existing New

Markets
Existing Market Product
Penetration Extension

New Market Diversificati


Extension on
1.Market penetration
2.Market extension
3.Product extension
4.Diversifaction
Porters five forces model
a) Existing competition in the firms industry.
b) The threat of new entrants
c) The relative bargaining power of suppliers of
input
d) Threat of substitutes
e) Relative bargaining power of the buyers of the
firms output.
2 steps in strategy formulation:
1.strategic situation analysis
Self examination of the corporations
existing strategic posture.
2.strategic choice analysis
Forward looking , scenario building
approach to the firms future strategic posture.
Uses of porters model:
1.Can be used for both strategic situation and
strategic choice analysis.
2.Enables the firm to assess firms SWOT
3.Helps to examine the strategic strength /
market attractiveness .
4. Useful to examine the future configuration of
strategic strength & attractiveness of markets in
which the firm wishes to enter.
Strategic perspective on mergers
1. Generic competitive strategies
a) Cost leadership; being the lowest cost
producer & seller.
b) Product differentiation or perceived
customer benefit
c) Segmental focus
2.Resource based view (RBV) of competitive
strategy
firms compete on the basis of R&C.
3.Resources of firms
4.Organisational capabilities
5.Path dependency of resources & capabilities
on what sort of corporate genes are being
spliced & how
6.Resource – based competition & mergers
If gap is wide M&A. eg: Internet company
poaching Investment bankers from wall street.
7.Value chain & R&C sharing. Resulting in cost
reduction, sales revenue enhancement, growth.
The 5 stage model
1.corporate strategy development
2.organising for acquisition
3.deal structuring & negotiation
4.post acquisition integration
5.post acquisition audit & organisational
learning
1.How good is the corporate strategy
development process?
M&A –achieve the objective of corporate &
business strategy.
• Business strategy is concerned with the ways
of achieving, maintaining or enhancing
competetitive advantage in product markets.
•Corporate strategy is concerned with ways of
optimising the portfolios of business that a firm
currently owns & how this portfolio can be
changed to serve the int. of the organisation.
2.How well does the company organise for
acquisition?
•Reasons for failure of many acquisition
•Acquisition decision process important
•Deficiency of the decision process can
deminish the chance of a successful acquisition.
3.What are the pitfalls in deal structuring &
negotiation?
•Value target, leveraging its own assets with
those of the target
•Choice of advisers to the deal
•Obtain of information about target from all
other sources.
•Determine the range of negotiation parameters
(price ,warranties.)
•Negotiation of the position of senior
management
•Develop the appropriate bid & defence
strategies & tactics
•Perform due diligence
4.Don’t count your chickens yet! post
acquisition integration.
•Characteristics of a change management
programme
•Change of the target firm
•Change of the acquiring firm
•Change in the attitude & behaviour of both to
accommodate coexistence or fusion of two
organisation.
5.How did the merger go ? post acquisition
audit and organisational learning
• Lack of organisational emphasis on Learning
• Each deal considered so unique
Financial considerations in M&A

Financed by cash or exchange of share or


debentures.

Cash offer:
Share holders of the target co. are paid
cash in exchange of their shares in the target
company.

EPS increases due to increased earnings after


merger
Share exchange:
the acquiring company issues shares to the
share holders of the target company in exchange
of their shares in the target company.
Exchange ratio:
the number of the acquirers share to be
offered to the shareholders of the target
company for the share held by them in the target
company.
Maximum price to be paid and minimum price
it is willing to accept.