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Monday, July 30, 2007

Buyout Fallout

Business Standard ran an Op-Ed - taking stock of the impact of global acquisitions made by Indian companies recently.

It goes that many of these big ticket acquisitions fail because they are peppered with large doses of high cost debt that affects the financial health of the combined entity adversely for years to come. It also suggests the benefits – faster go to market, instant expansion of market share, new geographical presence etc.

There is one more problem. Cross border acquisitions don’t increase market size. It’s an existing market that’s being serviced by a different owner. Coming from a different culture, the buyer runs the risk of cultural mismatch that fuels widespread distrust. Then there’s also the ethnic sensibilities resulting in dilution of a brand. Whyte & Mackay, the Scotch whisky brand when bought out by India’s UB group, is no longer owned by a Scotsman. The competitors immediately go to town with this noise and it takes enormous efforts to convince people of status quo in brew and taste. Eventually when the high cost of acquisition is sought to be serviced by incremental prices, the misery is attributed to the change at the top or worse, the ethnic gap.

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