The Indian M&A landscape, particularly on the sell-side with founder-led or family-run businesses, presents a unique set of challenges for global acquirers. Beyond the standard complexities of dealmaking, one encounters a fascinating – and sometimes bewildering – tapestry of internal politics, intricate power dynamics, and occasionally, Shakespearean-level family drama. Deal planning often takes a backseat to internal power struggles, creating a high-stakes reality show where the banker becomes not just a witness, but often an unwilling participant in the machinations.
However, this intricate environment also presents immense opportunities for a seasoned advisor. A deep understanding of these dynamics is crucial for navigating successful acquisitions, especially for global firms unfamiliar with the nuances of the Indian market. In this note, I aim to provide some helpful pointers for navigating these complexities and maximizing the chances of a successful M&A in India.
When navigating M&A transactions with Indian founders, particularly those leading businesses established between the 1970s and early 1990s, a nuanced understanding of their unique perspective is paramount. Unlike their global counterparts, these founders come from a generation that built their empires in a nascent Indian market. Back then,institutional frameworks were less robust, and the entrepreneurial landscape far less forgiving.
It's important to acknowledge the inherent difficulty they faced, compared to founders today who benefit from a more established ecosystem. This formative experience fosters a deep emotional connection to their businesses. Financial gain,while significant, pales in comparison to the social standing and identity built by being a successful employer and leader.These businesses represent years of struggle and sacrifice, a testament to their resilience. Approaching them solely through the lens of financial valuation overlooks the immense emotional capital invested in their creation.
One encounters a distinct dynamic when negotiating M&A transactions with Indian founders, particularly those who helmed businesses established between the 1970s and early 1990s. Their initial asking prices often appear inflated,potentially frustrating global acquirers who perceive a wide valuation gap. However, attributing this solely to unrealistic expectations would be a misreading of the situation.
Indian founders, shaped by a challenging entrepreneurial environment, are inherently pragmatic. Their high initial asks reflect a desire to secure a valuation that acknowledges the immense effort poured into building their businesses. It's not uncommon for them to avoid appearing overly eager to sell, a cultural nuance that can be misconstrued.
The key takeaway for international buyers is to recognize that the initial asking price is often a starting point to gauge genuine buyer interest. Indian founders are receptive to fair offers that reflect the true value of their enterprise. By engaging in transparent negotiations, a global acquirer can bridge the perceived valuation gap and reach a mutually beneficial agreement.
Indian M&A transactions often present a fascinating – and sometimes frustrating – aspect: the presence of unseen stakeholders. These individuals, often external to the company and absent from traditional due diligence, wield significant "soft power" that can influence the deal's outcome.
Key figures to consider include long-time family advisors, former auditors, or senior banking professionals who have built trust with the founders or specific shareholder groups. Their influence is rooted in loyalty and personal connection,not necessarily a deep understanding of the target business or its future prospects.
It's not uncommon to encounter advisors with a limited grasp of the business's core value drivers or future outlook, potentially hindering their ability to objectively assess the deal's timing or suitability. While some unrelated industry veterans can offer valuable insights, others may simply leverage their soft power to maintain influence, prioritising their own position over the transaction's financial merits.
Understanding these dynamics is crucial. Indian M&A can, at times, resemble a complex political game where financial considerations take a backseat to personal relationships and power struggles. A seasoned advisor can navigate these invisible forces, fostering trust and aligning interests to ensure a successful transaction for all parties.
Indian M&A transactions demand a nuanced approach that goes beyond traditional deal structuring. Here, I offer some key considerations to navigate the complexities and maximise success.
1. Unveiling the True Motive: Is a Deal Truly on the Table?
Don't be lulled by a seemingly straightforward M&A proposition. In some cases, the proposed transaction might be a strategic maneuver by a shareholder faction seeking to consolidate power. The buyer may be an unwitting pawn in a larger internal struggle.
Underlying motives can range from ousting a rival group to influencing specific decisions like capital expenditure or management changes. Historical power dynamics within the organization may prevent them from achieving these goals internally, hence the need for an external "shoulder to shoot from" – the potential buyer. Be wary of deals that stall after initial engagement; they may have served their purpose for the initiating shareholder group.
2. Beyond the Cap Table: Unmasking Hidden Influence