India Inc's overseas journey to continue in '06

The wave of overseas acquisitions initiated by Indian companies reached new levels in 2005 with India Inc. shelling out over $3.5 billion to acquire stakes in 104 overseas companies.

The trend seems to be continuing with Indian companies investing $1.15 billion in the first three months of 2006 for buying 17 companies abroad, according to a study by MAPE Advisory Group.

Says Jagdish N Seth, Charles H Kllstadt, professor of marketing in the Goizueta Business Scool at Emory University, "People in advanced countries are exiting non-competitive industries and focussing on other sectors that provide acquisition opportunities for the Indian firms."

The ageing of other nations is putting India at centrestage in the world economy.

Legal issues is a key area to focus on while going for acquisitions overseas. According to Sunil Kakkad, India head of Lawrence Graham LLP, a leading law firm based out of London, a company planning acquisitions overseas should be clear in its strategy as to what it is buying and why it is buying.

"Since the tax pattern from country-to-country is different, companies going for overseas acquisitions should be clear in their approach from the very beginning keeping in mind that it is not only acquiring the assets but also the liabilities," he pointed out. The company should also not forget that it is going to acquire only the identified assets and the liabilities.

The most intricate problem following an overseas acquisition is in HR practices. The most important role before a HR manager following an M&A is how to retain the key people.

Pallab Bandhyopadaya, chief people officer of Scandent Solutions Corporation says, according to study conducted in the IT & ITeS sector, while 76 per cent of CEOs prefer retention of key talent in the company they are acquiring, 67 per cent prefer the retention of key managers and 51 per cent prefer integration of corporate culture.

Scandent had acquired the US-based Cambride Services Holding in September 2005 for $120 million.

"While acquiring an overseas company, an HR manager should have an understanding of the culture and value of the acquiree, sort out geography-specific legal issues and structure compensations since you are paying as per the currency of the particular country," he told Business Standard.

He said that the strategy should be to build a structure and once the structure was ready, the next stage was staffing. "The HR manager should undertake a proper post-merger scenario planning keeping in mind the levelling of roles and distribution of designation, as this differs from place to place," he said.

According to MAPE Advisory Group study, the M&A trend is going to move further in 2006 as India emerges as a fast-growing economy fuelled by an optimistic and buoyant capital market. Easing of regulations have helped the Indian companies through increased access to cheaper funds, it added.