Posted on : 2023-01-29 21:42:08
Article : Good morning, Monday management solution for TASK 227- At the core of today's M&As is the need for balanced growth across geos, growth in product portfolios and often simply to seize an opportunity rather than seed and hope for success in volatile markets.
Since the recent past, Merger and Acquisitions (M&As) are on a significant rise in the Consumer Goods (CG) industry. Last year, there were 50 acquisitions in the food and beverages category alone. Eight of those deals were over US$ 500m, including one above US$10,000m. The biggest was ThaiBev's US$ 11,200m purchase of Singapore's Fraser and Neave. Coca Cola had three large bottler mergers. Pringles business was acquired by Kellogg, VF acquired Timberland, Pfizer Nutrition was acquired by Nestle, SAB Miller bought the beer business from Fosters, the list goes on.
M&A are indicative of a larger trend sweeping business. This is best exemplified in the case of British American Tobacco's (BAT) acquisition of UK based CN Creative late last year. CN Creative is a manufacturer of electric, smokeless cigarettes. The acquisition was a quick way to access a new product that provides a safe alternative to BAT's customers. At the core of today's M&As is the need for balanced growth across geos, growth in product portfolios and often, simply to seize an opportunity rather than seed and hope for success in volatile markets.
It is almost impossible for IT organizations to be completely prepared for integration with the target company, especially on the scale and geographical spread we are witnessing today. Also, to unlock the full potential of an acquisition, speed of IT integration becomes critical. It is not surprising therefore, to see that CIOs in the Consumer Goods industry are spending a considerable amount of time designing and implementing architectures that will be scalable and set a foundation for quicker more successful M&A integration.
M&A transactions may seem simple prima facie, however, they can often have a very complex side. Each transaction is entered into for a different purpose – the terms and conditions of each may vary significantly from the other; thus, even the result of one deal/transaction may be quite different from that of another deal. Mergers and acquisitions can be categorized into several types depending on the objective that the entities seek to achieve through the transaction, the way in which the transaction is structured and the nature of the entities entering the transaction. Some types are horizontal mergers, vertical mergers, congeneric mergers, conglomerate mergers, hostile takeovers etc. Now let us discuss certain brand marketers’ examples of merger and acquisition.
Vodafone-Idea Merger-In August of 2018, the National Company Law Tribunal approved the merger of the U.K based Vodafone Group (comprising of Vodafone Mobile Services Limited (VMSL) & Vodafone India) with Aditya-Birla Group’s Idea Cellular. The purpose of the merger was to create the largest telecom network in India with the highest customer base in India. Post the merger, the Vodafone group owns approximately 45% stake in the merged entity whereas Idea Limited has a share of approximately 26%.
The telecom market India is an oligopolistic market and the two companies were facing stiff competition from the two other major operators, Reliance’s Jio and Bharti-Airtel. Moreover, a ruling of the Supreme Court which ordered them to pay crores worth of Adjusted Gross Revenue necessitated that the two companies combine in order to leverage each other’s customer base in order to comfortably pay the dues.
L&T’s Acquisition of Mindtree- One of the most talked about acquisition in the Indian M&A market in recent year, was the acquisition of information technology services company Mindtree by construction and engineering major Larson and Toubro (L&T). The deal was one of a kind because it has been called the first ever hostile takeover in the Indian market. It was a hostile takeover as L&T, was interested in acquiring a controlling stake in Mindtree to enlarge its technology arm, offered to purchase Mindtree’s shares from its promoters who unanimously rejected the same. Thereafter, L&T purchased a 20.32% stake in Mindtree from its non-promoter shareholder. Thereafter, it purchased 15% stake from, post which it acquired a stake of another 31% after making an open offer, to finally acquire approximately 60% shareholding in the company. The merger was followed by resignations by at least three co-founder promoters.
Endpoint- Since now we are presently in technology dependent world, M&A playbooks need to be designed such that they can handle different types and sizes of acquisitions. For example, if the acquisition is going to be cross border, how are communication and cultural challenges managed? How are IT systems that help vendor collaboration going to be managed? If the acquisition is going to be on a large scale, across geos, what rules guide the retirement of proprietary technologies?
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