Merging to Conquer

This book is an excellent primer that executives and dealmakers alike can learn from. It is, in fact, two books in one. The first part shows, through informative case studies, how Asian companies are now engaging in more outbound mergers and acquisitions (M&As) than their European counterparts, thereby turbocharging their growth. The second part is a primer on how to plan for a successful acquisition and avoid the many pitfalls that are inherent to the M&A process.

In Part II, the authors, both partners at the Singapore offices of global consultancy AT Kearney, argue that in Europe, where markets are much more homogeneous, M&A consolidation follows a predictable pattern with two or three global companies often ending up dominating each sector. But in Asia, the highly fragmented nature of both markets and sectors gives rise to local champions who use their strong local knowledge not just to survive alongside global companies but to thrive. They can then break out through M&As.

Taking the example of Asia’s retail sector, the authors show how in the fragmented retail sector in India, local companies seem to be vulnerable to global companies such as Walmart once foreign direct investment is opened up. But in China, after Carrefour and Walmart had built out the organised retail sector during the 1990s, local retailers used their local knowledge to carve out a niche for themselves alongside the global companies. In China, local players now account for seven of the top 10 retailers.

According to the authors, Asian companies use M&A as a tool to boost their growth in different ways. Over the past five years, the two most acquisitive countries in Asia have been China and India. In China, the state-sponsored national champions have typically acquired businesses overseas in the resources space for strategic reasons, often assisted by low interest loans. In India, private sector national champions such as Tata, Bharti, and Reliance, backed by the surging stock market, have broken out of their domestic scene through cross-border M&As.

There are plenty of risks inherent in M&As, particularly for growing Asian companies with no merger experience. While the authors show that fewer than half of all M&A deals are successful, in Part II they explain the factors that can be managed to improve chances of success on deals – pre-deal screening, the key elements of due diligence, and managing successful post merger integration. And an entire chapter is devoted to the importance of culture.

At a time of faltering growth and liquidity constraints across Asia, the authors’ two main conclusions are interesting and provocative. First, Asian companies will not only survive but thrive in spite of the continent’s fragmented markets. Second, companies do not have to be big to use cross-border M&As and break out of their home market, as Tata Tea (now called Tata Global Beverages) demonstrated in 2000 by acquiring Tetley – a company thrice its size.