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Journalism of Courage
Big-ticket acquisitions in the Indian IT sector do not live up to the expectations in most cases due to factors like management team exit of target companies and a hurried integration process,says a report.
As per a study by investment banking major JP Morgan of all Mamp;A deals valued at USD 500 million or above,the 8220;feel-good factor8221; that the prospect of a large acquisition sometimes induces may be 8220;more psychological8221; and may not square with the subsequent track record.
Big-ticket Mamp;As in Indian IT ordinarily have several objectives like introducing or raising growth profile in a distinct new function,selling the acquired capability into the broader base of the acquirer8217;s existing clients and achieving sufficient scalable offshore flow-through over time to scale and break even on margins.
8220;Our finding is that most large-scale Mamp;As do not meet many of their objectives,8221; it said,while adding that some deals have in fact done very badly.
8220;It could be due to inability to preserve the distinctiveness of the target,little incentive for target management to stay,especially if a fairly large portion of the consideration value is paid upfront,and hacking away too much of the muscle of the target firm,instead of the fat,8221; it added.
JP Morgan said that historically,the market has been initially sceptical of larger mergers of listed entities,especially the deals involving merger of a larger company into that of a comparatively smaller size.
8220;We find that it can be 12-18 months after a merger announcement that tangible value emerges if it happens for the investor,as the acquirer sets about tackling the initial burden-of-proof,8221; it added.
