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M&M's acquisition route to growth hinges on the success of integration

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Mahindra & Mahindra is one group in a hurry. And the probable $400-million (around Rs 1,850-crore) acquisition of Korean car and sports utility vehicle maker SsangYong by November will mark only the latest in a string of strategic acquisitions that have marked the Mumbai-based group’s voracious appetite over the past half a decade or so.

The success of the SsangYong purchase, however, will hinge on how well it is integrated into the M&M group. Management gurus point out that a majority of acquisitions fail at this crucial step, and therefore the gains are less than anticipated. This is more so in cross-border acquisitions, where cultural differences and sensitivities need to be handled well.

 

M&M President (automotive & farm sector) Pawan Goenka is aware of the challenge ahead, but says there is no special team that focuses on the job, although it takes a lot of the time and energy of the senior management team. The merger & acquisitions team of the company submits to the board of directors a docket before any acquisition, detailing an integration plan.

The plan lays down to the last detail how the integration can be achieved as quickly and as smoothly as possible. Once the acquisition is closed, a 100-day integration plan is rolled out. Its progress is monitored by a cross-functional steering committee. The one for SsangYong could be under preparation right now.

Naturally, the plan for each acquisition is different. But there are some common strands. First, none of the integration plans is radical. Most Western companies bring in abrupt changes: new enterprise resource planning, new systems, new organisational structures and, often, large layoffs. “The Indian DNA is different. We want people (in acquired companies) to feel important, so that they can embrace our core values,” says Mahindra Group CIO and Executive Vice-President (finance and M&As) VS Parthasarathy.

Secondly, the brands of the acquired company — provided they enjoy good equity — are rarely killed. Punjab Tractors, for instance, continues to sell under the Swaraj brand. Though it has been merged into M&M, the Swaraj team has its own identity and, according to Parthasarthy, will not play second fiddle to the Mahindra team.

Similarly, M&M’s Chinese tractor companies have continued with their brands (Jinma and Feng Shou), though some have started using the Mahindra prefix.

Third, the old management is usually retained. Thus, the CEOs of the forging units in Europe have continued in their job, though the scale of operations has increased substantially. Maini also continues to serve as the chief of technology and strategy at Reva (now renamed Mahindra Reva). M&M knows that Maini drove Reva single-handedly and is crucial for its success in the days to come. So, his family still holds 30 per cent in the company, and he continues to be closely involved in its affairs.

Of course, Maini has signed a no-compete agreement with M&M, which bars him from entering the same line of business — electric cars — for several years. But the real incentive to stay on is different. “What he couldn’t do as a standalone company, he can do now. The technology that he couldn’t bring to the market, he can do that now. While Reva had good technology for electric engines, it was perhaps not so good in vehicle technology. Mahindra Reva, we hope, will help India create an eco-system for electric vehicles,” says Goenka.
 

FAST TRACK
M&M’S RECENT ACQUISITIONS

Jiangling Tractors, China

2004

tractors

Stokes Group, UK

2006

forging

Punjab Tractors, India

2007

tractors

Jeco Holding, Germany

2007

forging

Schoneweiss, Germany

2007

forging

Yueda Yancheng Tractor, China

2008

tractors

Europe Engines Engineering, Italy

2008

two-wheeler design

Kinetic Engineering, India

2008

two-wheelers

Satyam, India

2009

software

Reva Car Company, India

2010

electric cars

So, what will happen at SsangYong is reasonably predictable. To start with, the current management will remain in place; replacing them could cause disruptions as M&M does not have the managerial bandwidth to run a business of that scale (SsangYong sells in 98 counties around the world). The SsangYong brand will also remain alive and kicking. The Korean staff will train in batches in India, so that they know what M&M wants.

Something similar was done when the Chinese tractor companies were acquired. Instead of ramming any particular ethos down their throats, employees were exposed to the M&M way of work in India over time. This helped transfer the M&M culture from India to China without disruptions.

In the final analysis, how successfully has the M&M group integrated its long list of acquisitions? “Very successfully,” says Parthasarathy, though he is unwilling to quantify the results on a scale of one to 10. But he knows that more needs to be done. “It is a journey of continuous improvement,” he says.