"Size is incidental and not necessarily the driver"

It’s not about the size but the strategic fit: Buyers tend to seek large, undervalued businesses, but size is no guarantee for success given the global failure rate of M&As is 70-90%. Havells was scouting for branded and distribution oriented global electrical firms. Sylvania, a brand with a 100-year-old legacy, was then a unique opportunity.

Never overpay: Valuation is tough yet rewarding in a buyout. When a deal is hot, it’s essential to brainstorm  on the right price; paying is not the end game, running the business is. Leave enough reserves to manage the new firm and generate value for investors. 

Leverage can be tricky: Debt is a double-edged sword and a conservative investor should not depend only upon financial engineering to drive value. The focus should be on operational improvement and less about leverage.

Promote cultural integration: Disparities in organisational culture can impede amalgamation. The focus should be on ensuring successful team integration. A value-driven management will ensure that ‘takeover’ anxiety doesn’t turn into paranoia.

It’s all about return: M&As that fail to deliver value can affect investor confidence and take the acquiring firm’s credibility down. Post-Sylvania, Havells’ consolidated return ratios fell to 14% in FY10 as the business faced challenges, but in three years it was back to 48%. Profitability cannot be sacrificed in the pursuit of growth.