In recent years, the Indian business process outsourcing provider Hinduja Global Solutions (HGS) has conducted a series of cross-border acquisitions in North America, Europe and Asia. So familiar has the process become that Partha Desarkar, CEO of the company, describes M&A as a "core competency" of the firm.
According to Mr Desarkar, a key reason for the success of the company's transactions has been that it does not have a standalone deal team. "The people who run the business get to do the deals," he explains. "They can't walk away and go onto the next deal – their credibility rests on the fact that the deal was worth every penny they said should be paid for it."
HGS uses a standard checklist to evaluate the risks of an acquisition and tries to structure the deal in a way that mitigates those risks. When it acquired the Canadian company OLS in 2011, it deferred some of the payment on the basis that the target would need to retain its client and ensure continuity. "A part of the acquisition proceeds will only go to the sellers after 18 months if the target continues to grow," says Mr Desarkar. "This reduces the risk of any client leaving because of this acquisition."
Mr Desarkar acknowledges that there is extra work to be done in a cross-border acquisition. With the OLS deal, human resources due diligence has been particularly thorough because employment law varies between states in Canada, and the company has had to make sure that it is familiar with the nuances.
Valuation can also be harder in a cross-border deal, but Mr Desarkar argues that, if the price gets too high, it is important to be able to walk away from a deal. "Acquiring companies often lose their financial prudence and discipline just to do a deal, and try to rationalise it by saying that the synergies of this acquisition justify the huge price they are paying," he explains. "The synergies turn out to be more theoretical than real, and then you're straddled with a company that is eating value."
Mr Desarkar agrees that cultural differences can be a challenging part of the integration process, but believes that they can be addressed partly by retaining key employees in the target firm and recognising that they have the business expertise and client knowledge to do the job well. For example, OLS employees who have been in client-servicing roles will stay after the acquisition. "We have retained the CEO and the core executive team," he says. "So as far as clients are concerned, they see no risk of an Indian company acquiring a Canadian asset and then stripping it for profit, putting in Indian management and risking client relationships."
