?Everybody should try and start a business once. Then you realise all other things that you have to get right. It?s very easy to be an employee of somebody else and just ignore all the stuff that you don?t have to do.? Caroline Firstbrook, managing director-strategy (Europe, the Middle East, Africa and Latin America), for consulting major Accenture, did that when she spent five years as an entrepreneur, setting up and later selling Easychem, an Internet retailer of crop inputs to farmers. An expert on M&A strategy and target evaluation, merger negotiation, and new market entry strategies, Firstbrook tells Sarika Malhotra, ?Even as spending is going to stay depressed as people feel poor and projections of a double dip will gain ground, we won?t see a confidence crisis that we saw in West after the Lehman Brothers collapse.? Excerpts:
The M&A space is abuzz at the moment; do you think companies are in a bit of a hurry?
It?s a very interesting time. There are real opportunities for consolidation in a number of industries, with economic advantages of scale that companies are recognising and buying. As we come out of the downturn, there is an awareness of the two-speed recovery. We will see a lot of interest in companies also entering India. So in a way if you buy now, you will get a better price than what you will get in a couple of years. The trend though will vary from industry to industry. Companies in the West have realised that growth is going to be very difficult in the West in the next couple of years, as consumption levels will stay depressed and that will affect industries. At the same time, these companies will look at India, China, Brazil and eastern Europe, which have a much faster growth and will have to think about being there now and participate in the growth story.
How do you rate the entry of Indian companies are venturing into newer markets like Brazil and Africa?
Indian companies have an experience that is very relevant to what is happening in the markets of Brazil and Africa. They understand the bottom-of-the-pyramid requirements; they understand the dynamics of a rapidly growing middle class?the kind of products and services those people are prepared to pay for. They are more qualified than the Western countries to compete in these markets which come with a different mentality. On the current market, E-to-E (emerging -to-emerging) acquisitions may turn out to be more successful.
What are your views about the broadening scope of M&As with financial acquisitions coming in the purview?
We will see acquisitions for several reasons. There will be genuine economies of scale that argue for companies to merge together. For example, it makes sense to merge mobile companies because you can share networks. In markets where you have many players you will continue to see telecom companies merge. We will see a lot of activity in the mining industry, as there is good economic logic for convergence there. Pharmaceutical is another one. If you have five companies sending a sales representative to the same doctor, it doesn?t take a genius to say that we better not be doing that. The second driver will be where we see rapid evolution of technology, where companies are really trying to get hold of newer technologies; we will continue to see small, niche tech players being bought up. And the third will be when there is an arbitrage opportunity that involves acquiring a proposition that is undervalued. And there will also be global expansion opportunities, where you will want get hold of an asset because you want to see how you can add technology, knowledge, expertise and grow that asset.
How do you see the PE acquisition market poised?
What PE firms want to do is buy low and sell high. They look for markets where they see the value appreciating and also at markets where they can increase value by certain interventions or by consolidation of different companies. They will buy because they see that there is an asset for them down the road where they will make their money. And, this is not a temporary phenomenon; this is an enduring reality that we have huge markets of consumers in India, Brazil and China and these are the markets where future demand lies.
There are reports of a massive credit bubble knocking at the doors of the emerging markets. Do you think it?s for real?
We will see over-inflated valuations in some industries, there is no question about it. When you have very fast growth, the market is not 100% accurate about the value and also because people tend to move in waves and it drives things up well beyond the value. So when you look at the M&A market in 2007, you saw many acquisitions being made at prices that you now think how could they ever have been justified. But people bought because everybody else was doing it and people got into a panic mode to buy before the prices go up again. These scenarios always drive bubbles. I think bubbles are always driven by human behaviour. I don?t know whether it will be a housing bubble or a bubble of valuations in M&As. I don?t have specifics to predict, but know when you have rapid growth, you always end up having overshooting genuine value in terms of prices people are going to pay.