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    A ‘Strategically fit’                                                             Kalpesh Desai
  target – necessary or                                                               CEO,
                                                                                      Agile Financial Technologies

        simply a want?
   Valuations are low during times like today & you will notice aggressive moves
 from India Inc. Yet, low valuations should not become the sole reason for a deal!



D
         uring times of economic un-        In current times, exits are difficult and     You will notice enterprises with strong
         certainty most prospective         new investors would prefer to see their       balance sheets still pursuing acquisi-
         buyers would consider acquisi-     cash infused into the company and not         tions aggressively as a key component
tions as high risk. However for Indian      paid out of the system as far as possible.    of their growth and expansion strategy,
enterprises with strong balance sheets,     With pe Funds and banks constricting          more so when the economy is facing
or the ability to leverage, here is some    investing and lending activities, these       the kind of turbulence we have just re-
food for thought.                           are tough times for entrepreneurs. It is      cently experienced.
   Signs of economic recovery are just      time for them to examine the possibil-           Having said that, acquisitions should
in. equity markets have been on the         ity of partnering and becoming part of        not be pursued just because valuations
upswing and that is the first sign of       larger and nimble enterprises which           are down. An enterprise must examine
economic recovery and increase in in-       will support their priorities, compli-        if the company or business being ac-
vestor confidence. emerging markets         ment their values and ensure that a           quired is a strategic fit with respect to
are showing positive growth with mar-       platform and foundation will be created       imbibing new technology, skills and the
kets like India targeting a 7% growth in    for what has been created by them to          ability to penetrate a market. Acquisi-
its GDp Valuations are still attractive
         .                                  move to the next stage.                       tions just to accrete revenues and prof-
and for those of us who are looking at         There can be no better time than a         its perhaps might be a short term play
acquisitions as a mode to add on new        recession to acquire and merge busi-          and neither the buyer nor the seller
products, service capabilities, strength-   nesses since more time is available to        may derive long term value generation
en our core business and to penetrate       transition the merged firms. These are        by coming together. As a case in point,
new geographies – now is the time to        times when valuations are reasonable          we include the founders of businesses
pursue buy outs.                            and business owners are amenable to a         being merged into our group’s core
   The window of opportunity is quite       pragmatic approach of achieving target        team, engage them in functions, create
small whilst valuations remain beaten       exit values based upon actual perfor-         minimum disruption for their clients
down, and for those enterprises with        mance, and not just a pe Multiple. Top        and employees and ensure that the
significant cash reserves or the ability    line and book profits do not count un-        earn-out structures are aligned to the
to leverage investor resources or debt,     less the business can generate cash,          overall results of the combined entity
this is a once in a lifetime opportunity    and enterprise valuations are back to         without creating silos.
to bolster their offering, gain key com-    including the fundamentals of cash ef-           In cross-border acquisitions, inte-
petencies and increase their reach in       ficiency and cash generation. M&A ac-         gration can pose challenges if we do not
new markets through significantly un-       tivities have not dried up. The activity      take into cognizance the differences in
derpriced acquisitions.                     levels seem low because of the absence        operating styles, practices, processes
   These are also very interesting times    of private equity players in the past year.   and culture of the seller. people and
and we can see the investor commu-                                                        core values are create the bridge be-
nity and the industry working hand-in-
hand. We see investors, entrepreneurs,
                                            This is the time                              tween two enterprises and financial
                                                                                          results are a direct result of the how
pe Funds and Vcs partnering with            to identify rough                             disruptive or inclusive the integration
high-growth enterprises to support                                                        process will be.
their portfolio companies that have         diamonds in the dust                             This is the time to identify rough dia-
seen the stress of the recent past.
These are enterprises that have re-
                                            – invest, grow and                            monds in the dust – invest, grow, nur-
                                                                                          ture and bring out the sparkle. now is
ceived strong management inputs from
their investors and are in different
                                            nurture and bring                             the time for even mid-sized Indian en-
                                                                                          terprises to spread their wings and make
stages of a growth and maturity cycle.      out the sparkle                               their mark in the global arena. 4Ps


                                                                           5 june - 18 june 2009 4ps BuSIneSS AnD MARKeTInG 29

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Buy-outs - India Inc finds diamonds in the dust

  • 1. coluMn A ‘Strategically fit’ Kalpesh Desai target – necessary or CEO, Agile Financial Technologies simply a want? Valuations are low during times like today & you will notice aggressive moves from India Inc. Yet, low valuations should not become the sole reason for a deal! D uring times of economic un- In current times, exits are difficult and You will notice enterprises with strong certainty most prospective new investors would prefer to see their balance sheets still pursuing acquisi- buyers would consider acquisi- cash infused into the company and not tions aggressively as a key component tions as high risk. However for Indian paid out of the system as far as possible. of their growth and expansion strategy, enterprises with strong balance sheets, With pe Funds and banks constricting more so when the economy is facing or the ability to leverage, here is some investing and lending activities, these the kind of turbulence we have just re- food for thought. are tough times for entrepreneurs. It is cently experienced. Signs of economic recovery are just time for them to examine the possibil- Having said that, acquisitions should in. equity markets have been on the ity of partnering and becoming part of not be pursued just because valuations upswing and that is the first sign of larger and nimble enterprises which are down. An enterprise must examine economic recovery and increase in in- will support their priorities, compli- if the company or business being ac- vestor confidence. emerging markets ment their values and ensure that a quired is a strategic fit with respect to are showing positive growth with mar- platform and foundation will be created imbibing new technology, skills and the kets like India targeting a 7% growth in for what has been created by them to ability to penetrate a market. Acquisi- its GDp Valuations are still attractive . move to the next stage. tions just to accrete revenues and prof- and for those of us who are looking at There can be no better time than a its perhaps might be a short term play acquisitions as a mode to add on new recession to acquire and merge busi- and neither the buyer nor the seller products, service capabilities, strength- nesses since more time is available to may derive long term value generation en our core business and to penetrate transition the merged firms. These are by coming together. As a case in point, new geographies – now is the time to times when valuations are reasonable we include the founders of businesses pursue buy outs. and business owners are amenable to a being merged into our group’s core The window of opportunity is quite pragmatic approach of achieving target team, engage them in functions, create small whilst valuations remain beaten exit values based upon actual perfor- minimum disruption for their clients down, and for those enterprises with mance, and not just a pe Multiple. Top and employees and ensure that the significant cash reserves or the ability line and book profits do not count un- earn-out structures are aligned to the to leverage investor resources or debt, less the business can generate cash, overall results of the combined entity this is a once in a lifetime opportunity and enterprise valuations are back to without creating silos. to bolster their offering, gain key com- including the fundamentals of cash ef- In cross-border acquisitions, inte- petencies and increase their reach in ficiency and cash generation. M&A ac- gration can pose challenges if we do not new markets through significantly un- tivities have not dried up. The activity take into cognizance the differences in derpriced acquisitions. levels seem low because of the absence operating styles, practices, processes These are also very interesting times of private equity players in the past year. and culture of the seller. people and and we can see the investor commu- core values are create the bridge be- nity and the industry working hand-in- hand. We see investors, entrepreneurs, This is the time tween two enterprises and financial results are a direct result of the how pe Funds and Vcs partnering with to identify rough disruptive or inclusive the integration high-growth enterprises to support process will be. their portfolio companies that have diamonds in the dust This is the time to identify rough dia- seen the stress of the recent past. These are enterprises that have re- – invest, grow and monds in the dust – invest, grow, nur- ture and bring out the sparkle. now is ceived strong management inputs from their investors and are in different nurture and bring the time for even mid-sized Indian en- terprises to spread their wings and make stages of a growth and maturity cycle. out the sparkle their mark in the global arena. 4Ps 5 june - 18 june 2009 4ps BuSIneSS AnD MARKeTInG 29