HomeBusinessAccess to technology key to M&A strategies of Indian firms: survey

Access to technology key to M&A strategies of Indian firms: survey


MUMBAI :

The merger and acquisition decisions of Indian companies for 2022 will be driven by their need to access key technologies to achieve strong and sustainable growth, according to the EY CEO Outlook 2022.

Considering that technology is at the core of value creation for most industries currently, India Inc. is increasingly recognizing the need to own technology instead of outsourcing critical functions to third-party vendors. This realization is driving the M&A strategies for Indian companies, it added.

Around 22% of Indian CEOs said acquisition of technology, new production capabilities and innovative startups will be their primary M&A activity, compared with just 14% for global CEOs. “We have seen a huge transition in Indian companies to start becoming technology owners. There is a realization that if you want to have a profitable, sustainable and growing business, then technology is a core requirement. Renting technology doesn’t really give you that sustainable growth,” said Neeraj Mohan, head, EY Parthenon India.

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“The best way to do that, if you cannot develop your own technology fast enough, is to acquire it because that’s where the real business value is coming from. You see, as a result of that many companies, even in the IT sector, are becoming serial acquirers. People are investing in artificial intelligence and machine learning , capabilities or automation systems or robotics. Likewise, in electric vehicles, you are seeing many investments, because this is the future,” said Mohan.

India’s vibrant startup ecosystem has matured and has a proven track record of creating innovative products and services to disrupt many businesses. “After the US and China, India is the third largest startup ecosystem today and a lot of innovative work is happening here. Many companies are doing cutting-edge work, they have access to capital and they are disrupting business models. Compared to a decade ago, the availability of technology and talent in the domestic market has changed drastically and that contributed to the importance of technology as a driver for M&A,” he added.

The pandemic-led supply chain disruptions are also creating strong drivers for M&A with customers demanding that their suppliers set up shop close to them.

“Companies today want to get closer to their customers. Many buyers are saying that earlier when you did not have such supply issues it was okay for them to buy from somebody sitting in a country far away. Today, their customers are saying that you need to be closer to me. This need is only accelerating the need for M&A,” said Mohan.

While there are many emerging factors that are making inorganic growth important for businesses, the survey noted that companies, today, are more focused when it comes to M&A, a trend driven largely by professionalisation of management and ownership.

“If we were to look at the 70s and 80s, the literature has time and again shown that most M&A didn’t work. The synergies that were expected did not materialise. But with the professionalisation of management and ownership with PE investors specifically, it has actually brought financial performance indicators into very sharp focus. And when they are looking at an acquisition, they are asking many sharp and focused questions – what does it do for the business? How does it impact potential performance? How does it affect your risk appetite and risk management frameworks? So, you are seeing a lot more focus on something that truly matters to the core of the business,” said Mohan. The survey showed that compared to 6% of global CEOs who said their planned M&A activity involves acquisitions on adjacent sectors, none of the Indian CEOs showed such inclination.



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