Disrupting Deals: Deals Big & Small That Went Wrong

There is the ‘dirty dozen’ identified by the RBI, and then there are mega deals like UB and GM that unravelled or are unravelling. Add to this the list of startups, the new shine boys of the Indian corporate world. Some have lost their plot; others grew too fast and lost their way. What went wrong with these promising businesses?

The following article is based on a panel discussion during the annual CFO Conclave held between 15 and 17 September. Giri Giridhar, CFO, Indian Hotels was the moderator. The other panellists were (LtoR) Sayamdeb Mukherjee, VP-Planning & Control, UB; Anup Vikal, Group CFO, Snapdeal; and Anil Khandelwal, Managing Partners, Lantoms Advisors.

A few months ago, the Reserve Bank of India identified the ‘dirty dozen’ for bankruptcy proceedings. These 12 companies represent a quarter of the country’s estimated $120 billion bad loan problems. Since then, the list has expanded. Then there are the startups which lost their plot; others grew too fast and lost their way. What went wrong with these iconic businesses? Or is something fundamentally wrong in India’s corporate culture?
“I used to work as the M&A director of Diageo company in London three years ago. We were very tough on M&As. We were clear that we have to play by the right values. We looked at cash flows, we wouldn’t like terminal value. We always wanted cost of capital. The investors asked why your cost of capital is 2 per cent more than what it should be. We were always worried about how quickly the payback happens,” said Giridhar Sanjeevi, CFO, Indian Hotels Company. He added: “However, Diageo acquired United Spirits and we know the challenges that they are going through. So, even the change of people and change in strategy can result in making a company successful or unsuccessful.”    
“Failures in business are a part of life. Possibly in India we are not attuned to accept failures. With IBC coming in, there is an environment for bankruptcy to be addressed,” said Sayamdeb Mukherjee, VP – Planning & Control, United Breweries Ltd. He cited the example of the Jaypee Group, which was a very successful company in 2008-10. “They had the Agra Expressway going, the Formula Racing track was being constructed and things were in place,” he said. “Then the company went horribly wrong, they over-leveraged their assets. Then they were in a state of denial. So, it started unravelling. The real estate company blamed the business environment for the failure and anything else that had to do with their risk taking abilities. If you look at the real estate companies in South India, a lot of them are doing well and they have grown in that ecosystem as well. Problems arise when companies don’t go into the basics and instead look for salvation routes. Then these companies think that if they file for sins, they can wash their sins off them and come out of that, and finally the irrelevance of it. So, that’s how it happens,” he said. It has a lot to do with promoters’ over-enthusiastic response to the environment that puts them in a bad shape, he added.
Anil Khandelwal, Managing Partner, Lantom Advisors LLP said: “In fact, when we talk of M&As, we generally include D as well in it because it’s mergers, acquisitions and divestments. It sounds mad but it’s very good for growing the business and at some point of time to unlock the value as well.” Khandelwal joined Havells in 2007, when the company’s worth was around `1,400 crore. Today, the company is worth `13,000 crore plus in a period of about 10 years. Khandelwal, who has worked with other big companies like Arcelor Mittal and Ranbaxy said that how you deal with transactions helps the company scale new heights.
Anup Vikal, Group CFO, Snapdeal said: “There are multiple models of mergers and acquisitions and M&As do not fail. One of the two entities fails to achieve its objectives; the other one gets what it wants. So, classically there are no failures. Everyone makes good objectives. So, only when both parties do not meet their objectives and fail, will you call it a complete disaster.” The company decides on a strategic plan – whether it wants revenue or to cut down cost or bigger market share, and whether there is going to be dividend and cash flow from the merged entity. Based on that the company fixes up the jurisdictions and the other procedures, he said. 
Vikal has been working in the finance field for 27 years. At Snapdeal, he is the CFO as well as a general counsel. “Today I work on both legal and financial sides. So, I look at M&A from all perspectives.” In the first 25 years of his work, Vikal led six large size M&As, which also include the Aircel-Reliance deal. In the new age world of Snapdeal, there were 15 M&As, which is more than three times of what Vikal executed in his first 25 years. 
“In a new age company, the objectives are very different. We look at mergers and see the benefits that the company is going to derive financially and non-financially. One must first put the benefits that are going to accrue to the other party and only when you see that the other party is going to make substantial gains out of that M&A just like you, that M&As are done. Otherwise, it’s going to be a failure,” he explains. “If you lay out your risks well, it doesn’t happen to be so.”  
Giving the examples of Starbucks which failed in Australia and Walmart that failed in Germany, Mukherjee said, “These companies faced failures in their respective pockets, but they managed risks well and that’s why they never went out of business. Earlier, we were talking about promoters and investors, but I salute the promoters because the kind of vision and thinking they have. I think financial investors may not bring that in.” 
There were financial fiascos in 2008, but Havells recovered very soon. “The good thing is that they understand the value of money and where to put it. They set a great example in how to turn around a business after acquiring it,” Khandelwal encapsulates. 


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