Decision making and analysis perspective for mergers and acquisitions in Indian information technology (IT-ITES) industry

Abstract

The frequency, number and size of acquisitions have increased in Indian IT Industry. There are a number of schools of thoughts that offer insights into the Merger and Acquisitions activities. These schools of thoughts are the - Capital market school, Strategy School, Organization Behavior School and the Process School. While the Capital market school, Strategy School and Organization Behavior School addresses different questions with different methodologies and different objectives; they do not aid Managers' in their daily decision making about acquisitions. The process perspective recognizes that the acquisition process itself is a potential important determination of outcome (Jemison and Sitkin, 1986a). This perspective retains the important role of issues of strategic fit and organization fit, but it adds the considerations of how aspects of the acquisition decision making and integration processes can affect the final outcome. For a period of 9 months from August 2004 to April 2005, there were 39 announcements of Merger and Acquisitions in Indian IT Industry. The genesis of project was the analysis of these Merger and Acquisitions based on publicly available data. The number of acquisitions activities, seems to be on increased pace with respect to past (to be validated in terms of actual data). The acceleration in the M and A activities is due to International IT Industry Structure, Outsourcing trends to Indian IT Industry, Indian IT Industry Structure and the interplays between these factors. The research project is a small-sample, theory-building research extending the research of Hasepeslagh (1991) to the acquisitions in Indian IT Industry. The analysis follows the Process School of Thought on Acquisitions. The research project is designed to address the following broad question areas: A) What are the drivers for Mergers and Acquisitions in Indian IT Industry? Why acquisitions route is preferred to its alternatives (internal investments, partners and alliances, joint ventures etc)? B) What factors determine success and failure of individual acquisitions in Indian IT Industry? What is the measure of success and failure?C) What are the elements of a sound acquisition justification? D) How did the individual acquisitions result in capability transfer, corporate renew a land business strategy?. E) How are acquisitions initiated, evaluated and committed to? What are the key problems in the acquisition decision making process? How do they affect the acquisition outcomes?. F) What are the inter linkages between the decision making process and integration process? What is the impact of these inter linkages on the outcome of acquisition? G) How are the firms organized for Mergers and Acquisitions? Do the firms learn from multiple acquisitions? What is the learning process and how it is transferred to new acquisitions? What is corporate level acquisition strategy? The project research covers Two (2) companies and over Eleven (11) acquisitions in last2 years. The Two companies comprises of a Tier 1 company (WIPRO Technologies) with diversified verticals and service lines; and a Tier 2 company (Mphasis BFL) with focused verticals and service lines. WIPRO Technologies and its acquisitions meet the selection criterion as the research site Experienced Acquirer - Five (5) acquisitions in last 3 years In the IT-ITES (Information Technology and IT Enabled Services) Industry addressing several business vertical domains The acquisitions have taken place more than 2 years back Corresponds to Corporate Strategy of - Domain Strengthening, Domain Extension or Domain Exploration A Clearly Successful and A Clearly Unsuccessful Acquisition within above Three of the acquisitions are success and two of acquisitions are failure Within Domain Extension or Exploration; includes sample sequences of Platform Acquisitions and Position Acquisitions Since detailed data and information was not forthcoming, were from Mphasis BFL, the research project was focused on WIPRO Technologies and its acquisitions. The respondents from WIPRO Technologies were administered the Thirty Four (34) Questions based on broad Seven (7) Research Questions area. The interview transcriptions are available in the appendices. Wipro Technologies has made five (5) three acquisitions so far: Spectra mind, a leading Indian business process outsourcing (BPO) player; the global practice of American Management Systems (which represents acquisition of an American business); Swedish telecom equipment maker Ericsson's R and D labs in India; Nervewire, a consulting firm inBFSI space; and GEMS IT Private Limited, a Healthcare solution provider. The analysis of these acquisitions success and failure confirms the Haspeslagh and Jemision (1991) process based framework that - Consistency with Strategy - Ensuring that acquisitions support the firm's overall corporate renewal strategy Quality of Decision Making - Developing a pre-acquisition decision making process that will allow consideration of the "right" acquisitions and that will develop for any particular acquisition a meaningful justification, given limited information and the need for speed and secrecy Capability to Integrate - Managing the post-acquisition integration process to create the value hoped for when the acquisition was conceived Capacity for Learning Fostering both acquisition-specific and broader organizational learning from the exposure to the acquisition.