As Walmart picked up a 77% controlling stake in India’s biggest online retailer, Flipkart, for $16 billion, the world’s largest e-commerce deal and one of the biggest cross-border acquisitions in India consummated today. The deal, a product of 20 months of negotiations, certainly calls for compliments to the people and organisations who, directly or indirectly, made it happen.
However, there is a ‘flip’ side to this. The history of big-ticket acquisitions, particularly in the Indian context, is fraught with disquiet. Several such deals, unfortunately, have ended up in defaults on delivery of perceived value, leaving investors and shareholders disgruntled. Of course, the cross-border aspect of such deals further complicates issues, since extraneous factors that may affect the merged entity are relatively unknown, especially to the buyer. This, in turn, can potentially thwart the post-merger integration process, so essential to M&A deals nowadays.
Such integration issues need to be systematically handled up to the level of sub-issues, deconstructed to an infinitesimal, granular-level. Every detail, however minute, must be addressed with the aid of a well-laid-out methodology, including in respect of operational process, technology, people, management, balancing divergent interests and stakeholders, liaison with regulators, re-defining evaluation and governance frameworks, among others. Often, deals fail on account of ‘human’ issues – behavioural, cultural, ego-related, a resistance to change, closed-mindedness, inertia of past practices, or even buyers’ disposition to either impose or bend over backwards, both approaches being detrimental in the long-run. In the first 100 days post-closing, typically, a ‘Delivering Deal Value’ (DDV) team is introduced into the acclimatization environment, which, along with an appropriate Post-Merger Integration (PMI) team (affiliated to a consulting firm) may conduct change-management workshops, and town hall meetings geared towards open communication and quick announcements.
Nevertheless, such methods may be inadequate to achieve desired results, and accordingly, have their fair share of critics and sceptics, often hailing from the internal management. In addition, post-merger costs can exceed the initial budget, sometimes substantially so (going up as high as 10% of the deal value). Finally, deals may not be successful for other reasons, including on account of unsustainability or mismatch with projected outcome.
The Walmart deal has various inherent complexities embedded in it – such as disparate operating frameworks, an unexplored new market, technological issues, etc., apart from the obvious pressure of handling the impatience and expectations of investors/shareholders. Still, being a young organization staffed with energetic minds, Flipkart likely won’t have legacy issues to deal with, and may be uniquely well-equipped to respond to dynamics and quick changes. One hopes this will be a fresh start to a bright new future.