Walking on water: International acquisitions by Indian firms
By | Dr. Sundar Parthasarathy | Helping you with insights and actions for success
The recent announcement by India’s Suzlon Energy Limited of its aim to re-internationalize reminded me of what one of my bosses said long ago – “You can walk on water ……. only if you knew where the stones were!”
Suzlon’s entry into the wind power business came about when they put up windmills to serve their textile unit’s need for electric power. The group’s entrepreneurial agility saw it emerge as India’s #1 wind power equipment manufacturer, installer and operator, with over 11000 MW of installed base in India as on date. That is quite a position in a country that has a total installed capacity of about 25000 MW and is the 4th largest producer of wind energy in the world.
So, how ‘international’ is Suzlon today? While Suzlon says, that it “has installed over 17,000 MW of wind energy in 18 countries across six continents,” its foreign revenue is less than 10% of the total on a consolidated basis. Its foreign assets account for barely 7% of the total assets – primarily made up by one manufacturing unit in China! But the company’s international business is a significantly watered down version of what it was less than a decade ago. Two serial acquisitions in the EU (the gearbox manufacturer Hansen of Belgium in 2006; the wind turbine manufacturer REpower Systems of Germany in 2007/2008) saw its degree of internationalization (seen in terms of the foreign revenue and foreign assets) go up significantly. But Suzlon could not sustain its internationalization that came about with these two debt-funded acquisitions. Early warning signs could be seen from the rumours in 2011 (though denied by the company management) that the Spanish windmill manufacturer, Gamesa, was in talks to acquire Suzlon. Eventually, Suzlon de-internationalized. To deal with its mounting debt obligations, Suzlon sold both these acquisitions (Hansen in 2011; REpower in 2015).
Suzlon’s post-acquisition challenges that led to its de-internationalization underscores a critical success factor in cross-border M&As by multinationals of emerging market origin: the unlocking of the value that a merger potentially holds to justify the steep deal prices. The acquisitions of UK’s JLR (by Tata Motors), USA’s Novelis (By Hindalco), Israel’s Taro (by Sun Pharma), UK’s Visiocorp and Germany’s Peguform (by Motherson), USA’s Rain CII and Netherlands’ Rutgers (by Rain) are all good examples where the acquirers have succeeded at unlocking value and creating successful foreign subsidiaries.
My recent PhD dissertation (Title: Strategic orientations and the internationalization of firms of Indian origin) identifies a few firm-level imperatives related to cross-border M&A. These are:
- doing M&As for acquiring/bolstering international competitiveness
- having clear criteria for evaluating M&A targets
- being clear on how to significantly improve performance of the target after the acquisition
- being clear on the pace of growth target after the acquisition
- having realistic and well-executed value creation strategies after the acquisition
- scaling up of the target after the acquisition
- doing the ‘light-touch’ integration of target after the acquisition
Suzlon’s acquisitions mirrored the strategic asset-seeking motive of acquiring targets in developed regions that had superior capability and competencies that can step up its international competitiveness. Both Hansen and REpower are renowned for being world-class with strong competitive advantages that are rooted in technological sophistication. However, the firm’s ability to successfully embrace many of the above imperatives got tested severely.
My study finds that for succeeding at post-merger value creation, firms put first things first. They start with having a clear set of criteria to evaluate potential acquisition targets. Often such evaluation includes the assessment of potential (within the target – and those arising from post-integration synergies) for value creation. Firms study the possibilities (and deploy the actions after that) for the strong integration of the target with its global/international value chain. Post-acquisition integration of a target is balanced with the need for the target’s autonomy. Post-acquisition moves often see a target becoming the flagship overseas subsidiary with a significant international mandate.
Suzlon’s many valuable learnings from its previous forays will hold it in good stead. But clearly, its aim to re-internationalize comes when times are even more challenging than before, marked by the rising concerns on economic protectionism and the technological intensification of competition in the global wind turbine industry. It will be interesting to see Suzlon succeed at the act 2 of its internationalization.
Republished with permission and originally published at Dr. Sundar Parthasarathy,s LinkedIn