india going global.indd - The IIPM Think Tank

RESEARCH
the due diligence if it is necessary,
and should carry necessary mandate
from the acquirer for such purpose.
Unfortunately it is commonly seen
that the due diligence team during
due diligence process take due
diligence to a routine, time bound,
and target oriented exercise. On the
other hand the directors of the acquirer
always want to know whether
the due diligence has been properly
performed, whether the buyer understands
the transaction, whether the
target company is a strategic fit and whether there is a
sound post deal implementation plan. There is increased
board scrutiny on the subject which reflects an awakening
on the implications of risk arising out of due diligence
relating to M&A. The Board of the acquirer wants to
know the measures to be adopted to mitigate the risks
arising out of the Merger and Acquisition proposal.
Watson Wyatt’s Worldwide Mergers & Acquisitions Survey
– Asia Pacific shows a difference in approach between
the East and the West on M&A issues. However sector-wise
combination is a continuing trend, mainly to achieve bigger
volume of business and competitive
size beside synergistic resemblance and
cost reduction. However, lack of proper
documentation from the end of the target
company and reluctance on the part
of the target in some cases pose difficulty
in gathering information. This difficulty
was further compounded by a lack of
efficient data collection process in the
acquiring organization and the lack of
time in which to gather information.
The survey also states that experienced
acquirers dedicate longer time in making
due diligence in a comprehensive and
realistic manner covering the pertinent
issues involved. A rigorous approach to
commercial due diligence helps acquirers to negotiate better,
reduce risk and perhaps avoid disaster.
80 Need the Dough July-October - 2007
Information gathered through due diligence Scale 0-40
Hard assets 35
Market share, distribution 31
Financial aspects and HR function 30
Management capabilities and willingness to co-operate 26
Technological and business competencies 26
Major shareholders 25
HR Policy matters 20
Workforce potential 19
Organizational culture and dynamics of change 18
Watson Wyatt’s M & A survey discloses the following:
From the above it is apparent that due diligence study makers
give more importance to hard assets and market share
but focus less on workforce potential and organizational
culture. Due diligence makers assume some time that the
knowledge pool or the competency level of the acquirer
is greater and better than the target company. Therefore,
the intellectual capital and managerial capability are the
two important casualties in normal due diligence process.
Learning ability, sharing ability, adoptability of new
knowledge and courage for further invention are the key
areas through which the level of intellectual capabilities
of any organization could be assessed. The due diligence
team through a knowledge audit may try to ascertain the
level of intellectual capital of the target company or may
even reconcile the findings of the knowledge audit with the
acquirer to ascertain its real intellectual strength. These are
issues examined by the due diligence and post deal integration
teams. The nature of queries and their response on
the degree of importance is quite signifacant and may be a
Nature of queries Critical Important Unimportant
Retention of key talent 76 21 3
Employee communication 76 18 6
Retention of key managers 74 26 0
Integration of corporate culture 49 49 2
Managing resistance 30 57 13
Labour relation 28 54 18
Alignment of compensation 27 61 12
Retraining workforce 26 58 16
Recruitment of new staff 18 61 21
Redeployment of workers 10 59 31
Downsizing 10 68 22
tool of learning for the management in the process of due
diligence and integration period.
The cultural assessment in the pre M&A period and the
alignment of cultures between the target company and the
acquirer is an important element in the post M&A integration
stage. There are instances where poor post-deal integrations
have dampened the acquisition. Experts agree that
mergers generally create value beyond the combined value
of both the targets and the acquirers. Experts also say that
success of M&A depends on adequate pre-deal due diligence
and post deal integration, with the help of findings of due
diligence report of M&A.