Crompton Greaves’ Mergers and Acquisitions: Evidence from Indian Manufacturing Company
Incorporated in the year 1937, Crompton Greaves is engaged in designing, manufacturing and marketing high technology, electrical products and services related to power generation, transmission, distribution and execution of turnkey projects. Crompton Greaves focus on three business groups, namely, Power Systems, Industrial Systems and Consumer Products. The company manufactures a wide range of products such as power & industrial transformers, HT circuit breakers, LT & HT motors, DC motors, traction motors, alternators/generators, railway signaling equipment, lighting products, fans, pumps and public switching, transmission and access products. In addition, the company also undertakes turnkey projects from concept to commissioning. With manufacturing plants across Gujarat, Maharashtra, Goa, Madhya Pradesh and Karnataka, Crompton Greaves and a strong presence in the domestic market it has also spread its business in the Southeast Asian and Latin American markets. It has joint ventures and technological tie-ups with W. Lucy & Co. of the UK and the Danish company Brook Hansen. It comes under the ownership of Avantha Group whose focus is on strategic acquisitions and financial structuring. Currently, Mr. Gautam Thapar is the Chairman of the company.
Crompton Greaves’ Mergers & Acquisitions (M&As)
Crompton Greaves made several M&As since 1990 till date. Crompton Greaves carried out seven merger deals and eleven acquisition deals. It adopted an inorganic growth strategy for survival and success. Exhibit I shows the various M&As done by Crompton Greaves....................
Motives behind M&A Strategy of Crompton Greaves
The motives for going for any inorganic growth strategy by Crompton Greaves have changed over the years. The company started a series of M&A activities when the company it faced losses in 2000 and 2001. At that time, it focused on cost cutting and exiting unrelated businesses. The next phase of acquisition strategy was to gain a global presence by acquiring companies that had strong business expertise but were cash-starved. Up to 2007-2008, the motives for M&A deals were to improve operational efficiencies, reduce unit costs across all the businesses, seek greater global opportunities, grow its various businesses, and increase capacities. Before 2011, Crompton Greaves had managed to acquire scale and product offering through acquisitions..............
M&A Decision Making
The decision making process in M&A involves lots of activities which are discussed in this section. Crompton Greaves goes for M&A to improve the core competency of business in its power system business that includes transmission and distribution (T&D) systems, transformers and reactors, switchgear components and products, services for power systems, instrument transformers, power quality solutions, various engineering solutions, protection, control & automation, and low voltage switches & panel products............
Pre-and Post-M&A Performance
As emphasised in this study, M&A are inevitable part of the growth strategy for any company. However, the companies are expected to show better performance after M&A. In this section, the financial results are presented for Crompton Greaves to know about the impact of M&A. Exhibit III shows EVA and rate of EVA of Crompton Greaves and rate of EVA of control group over the period from 2000-01 to 2010-11...............
Factors affecting the Success and Failure of M&A of Crompton Greaves
Based on the previous discussion, it can be said that the Crompton Greaves has been successful in M&A both in terms of operational and financial performance. The company on its own defines the success and failure of M&A in terms of M&A execution, technology absorption, increase in market share and new customers, synergy benefits in terms of additional revenue as well as cost reduction and increase in share price............
M&A Challenges
The major challenges faced by a company during various stages of M&A process are non-availability of strategically attractive target firms, target’s valuation being too high and limited information available for due diligence. Many players in an auction process for acquisition also lower probability of success. Lack of tax incentives, difficulty in our restructuring, integration and cultural issues between two organizations create challenges for the acquirer. Review procedure in the post M&A transaction, financing of deal at competitive cost, aspects related to accounting treatment are also some factors encountered during M&A.............
Assignment Questions
Q46. Apart from M&A strategy adopted by Crompton Greaves, what are the other strategies used to improve company performance? So that the company would perform better than its competitors.
Q47. Do you think that this study is important to an organisation like Crompton Greaves? Why? Any other comment or contribution to the subject matter relevant for the study? Anything that is not discussed above
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Exhibits
Exhibit I: M&As of Crompton Greaves
Exhibit II: Crompton Greaves’ Motives behind the M&A Deals
Exhibit III: Post-M&A Performance of Crompton Greaves using EVA and Rate of EVA
Exhibit IV: Post-M&A Performance of Crompton Greaves using Liquidity, Efficiency, Profitability, Solvency Ratios
Exhibit V: Factors Leading to Failure of M&A
Exhibit VI: Composition of Board of Directors (in %)
Exhibit VII: Personnel and their Qualification
Exhibit VIII: Extent of Integration of Activities with Target Firm
Annexures
Annexure I: Survey on Mergers and Acquisitions by Crompton Greaves: Part I
Annexure II: Survey on Mergers and Acquisitions by Crompton Greaves: Part II