Where acquisitions worked and where they didn't

THE GLOBAL GAME

WIPRO
American Management Systems (Nov 2002)

Wipro acquired the global energy practice of American Management Systems (AMS) in November, 2002, for $26 million in cash.

The move strengthened Wipro's IT service offerings in the energy and utilities space. Wipro's energy and utilities practice has been growing rapidly in the last few years with 1,000 consultants servicing clients in regulated and de-regulated markets across USA and Europe.

"The acquisition strategy has worked out in favour of Wipro," says Ganesh Duvurri, IT analyst at Motilal Oswal Securities.

Prior to the acquisition, Wipro had a couple of large clients in the utilities segment and it achieved a breakthrough in client additions after the merger.

The acquisition instantly added $25 million to Wipro's topline. Duvurri says the route ahead for Indian IT companies is via acquisitions. Wipro's experience of three very successful acquisitions gives it an edge over its peers, he says.

ASIAN PAINTS
Delmege (Oct 99), Pacific Paints (Nov 2000)

Asian Paints had made two overseas acquisitions between 1999 and 2000 - it acquired Delmege Forsythe & Co, the second-largest paint company in Sri Lanka in October 1999 and the paints business of Pacific Paints, Australia, for Australian $3,75,000 in November 2000.

"Acquisitions are the way for a company which is dominant in a saturated market with slow growth to boot," says FMCG analyst Atul Rastogi of Motilal Oswal Securities.

Though Asian Paints has been the leader in the domestic paints industry for the last three decades, it has been losing market share in the domestic decoratives market to Goodlass Nerolac due to its divided attention.

However, analysts feel that Asian Paints' acquisition strategy fits into its plan of selecting markets where there are not many competitors. The fact that emerging markets are among the fastest growing markets works out to the company's advantage.

TATA TEA
Tetley (Feb 2002)

In one of the most talked-about acquisitions, Tata Tea acquired operations of global tea giant Tetley for $271 million in February 2002.

Tetley is a leading brand in the UK, US and Canada. The Tetley group purchases tea from more than 35 countries and 10,000 tea estates.

The sore point is the debt component that the Tatas took on Tetley's loan and its repayment, but Tata Tea's international business turned positive recently.

In the domestic market, even though HLL still has a dominant 30-40 per cent share, Tata Tea has garnered around 20 per cent share at the expense of smaller players and some of HLL's brands. That Tata Tea's marketshare is on an ascent while HLL's tea division's has slipped, tilts the scale in favour of the former, feel analysts.

GRASIM
Atholville (Apr 1998)

Grasim acquired Canadian company Atholville at a competitive price in April 1998, restarting the ailing company's textile business.

Grasim is among the lower-cost producers of VSF in the world mainly due to its vertically integrated operations. Grasim sources almost one-third of its raw materials from Atholville.

Analysts say Atholville's low-cost structure has helped Grasim reduce raw material costs. Grasim's facilities now produce enough volumes of caustic soda and RGWP (main raw materials) to meet most of its requirement.

RANBAXY
OHM Labs, Rima Labs, Basics Gmbh

Ranbaxy Pharmaceuticals had a slew of international acquisitions between 1995 and 2000. The company acquired OHM Laboratories in 1995 for Rs 60.5 crore while it bought US-based Rima Labs and German company Basics Gmbh for Rs 17.5 crore and Rs 31.2 crore respectively.

OHM Laboratories manufactures diverse over-the-counter and Rx generic pharmaceuticals. Experts say, till a few years ago, Indian companies were desperate to seek a global foothold and that made them pick up whatever came cheap.

Ranbaxy's acquisitions fell into this category while being strategically correct - the acquisitions gave Ranbaxy a global presence while the company's inherent skills helped it turn around the acquired entities over a period of time.

Ranbaxy invested in infrastructure (like manufacturing) while its closest competitor, Dr Reddy's invested in research and development. Both strategies have augured well for these companies but the benefits are difficult to quantify, say analysts.

ESSEL PROPACK
Propack (Dec 2000)

Essel Packaging announced a merger with Swiss company Propack through a stock-cash deal involving a payment of $11 million and an offer of 22 per cent equity to the Swiss company towards its valuation in December 2000.

In the process, the merged entity - Essel Propack - became the biggest producer of laminated tubes in the world. The merger gave Essel access to operational units in China, the Philippines, Indonesia, Venezuela and Columbia.

The company had aimed to raise its global marketshare to 50 per cent and India and China marketshare to 80 per cent by 2005. The merger is especially significant since the company derives around 50 per cent of its revenues from overseas operations and looks for bigger growth opportunities in the global arena.

The company also bagged a five-year contract to manufacture 100 per cent of P&G's requirement for the North American market. Contracts like these have given the company global recognition and a presence in the highly lucrative markets, which would not have been possible without the global scale provided by the acquisition, feel experts.

HCL TECHNOLOGIES
Deutsche Software, Jones Apparel,
British Telecom's BPO division

HCL Tech had acquired a 51 per cent stake in Deutsche Software for Rs 120 crore in October 2001. The acquisition proved to be a major growth driver, say analysts.

Deutsche Software provides software development and maintenance services for the parent. It was expected to create businesses worth $100 million a year till 2004, at which time HCLT would acquire the remaining 49 per cent in the joint venture.

However, this was among the three good acquisitions (out of its 10 acquisitions) the company had undertaken in the last few years, the rest of them being duds, say analysts. One of the duds has been a US-based IT services company.

"HCL Tech had gone berserk with acquisitions," says Duvurri. Analysts say the company's acquisitions other than Deutsche Software, Jones Apparel and British Telecom's BPO failed due to the absence of synergy with the acquired companies.

However, Duvurri says HCL Tech is still among India's top five IT companies and that the company's experience with acquisitions would help it to be more prudent with buy-outs going forward.