Life moves on!

By Geetanjali Kedia

Last week business news featured some prominent big-ticket acquisition buzz in Corporate India. Be it M&M’s likely buy of strategic stake in Pipavav Defence for Rs. 3,000 crore or Sun Pharma founder Dilip Sanghvi’s Rs. 4,000 crore investment in wind energy leader Suzlon Energy.   

Pipavav Defence promoters Nikhil and Bhavesh Gandhi have a track record of incubating unique and large infra projects, nurturing them upto a considerable size and then selling significant stakes, keeping back on minority interest for self. The latest likely stake sale in Pipavav Defence to M&M was preceded by sale of Navi Mumbai’s SEZ project to RIL’s Mukesh Ambani and sale of Gujarat Pipavav Port to AP Moller Maersk Group few years ago.

In case of the deal between Suzlon Energy’s Tulsi Tanti and Sun Pharma’s Dilip Sanghvi, the future potential of renewable energy and thrust which the Government has been giving on clean power could have been an attraction; discounted valuation being the deal-clincher!

M&A buzz is back, and how! Taking a step back, we scratched our heads to know the possible broad reasons for any acquisitions, or rather the cause behind sale; as they cannot be a buy unless there is a seller, willing or unwilling.

Some businesses which have been started from scratch and nurtured like a child have either been sold off by their founders or founders maintain a distance from the day-to-day operations. A classic example of the latter is none of the 7 Infosys founders are on the company’s board anymore. While Nandan Nilekani has headed the UIDAI way, T V Mohandas Pai is now playing a more ‘active’ role as the Chairman of Manipal Group. Even Narayan Murthy has taken up mentoring role in addition to his family office Catamaran Investments.   

Few reasons attributed to promoters exiting a business which they have nurtured so dearly are jotted below:

1. Distress Sale: Financial indiscipline leads to mounting debt. Hence, to get out of the debt trap, sale of either a project, a vertical or the entire business becomes mandatory. Infra names such as GMR Infra, Jaypee Group, Lanco Infra fit into this category, when either of the projects / divisions has to be sold, since one cannot bite off more than one can chew.
2. Slight modification of the above is sale of non-core activities or one of the businesses to support the other business, making the latter lean and fit for survival: Wockhardt Hospitals was sold to save the pharma business by the Khorakiwalas in 2009.
3. No family successor interested in taking the business forward: Promoters of Cera Sanitaryware and Shalimar Paints are looking to willingly sell out, as they do not have off-springs who are inclined to carry the business forward. This was also the case with Seksarias of Ambuja Cements, when they sold off stakes in Ambuja Cements and ACC to Holcim of Switzerland.
4. Right price: In such a case, promoters do not let the emotional chord take over, when made an extremely attractive offer is made. Instead of thinking from their hearts, the head takes a call, as was the case with Singh brothers’ momentous exit from Raxbaxy (literally a company which was built by not just their father, but grandfather too) in favour of Japan’s Daiichi Sankyo in 2008. Ajay Piramal has also shifted gears from pharma industry to financials and real estate, among others since 2010. 
5. No Fire in the belly/ muted ambition: Hexaware Technologies’ Atul Nishar or Patni Brother of Patni Computers chose to sell their businesses when their ambitions were muted or there was no more fire remaining in their belly. Inclination to ‘enjoy’ life, without day-to-day operational challenges can be one of the reasons here. A minority stake may be held.

Such headline-making exits have been here for long and will continue in the future too, as this is also part of business. Parting with family silver or crown jewel is not considered unusual. Whatever be the reason for the exit, life only moves on, both for the company and its promoters!