Much depends on the profile of acquisitions, but let me make some things clear :
(1) Aggressive inorganic route is only preferred when organically a company is not able to grow comfortably or you have some serious gaps in your offerings vis-a-vis competition. Relative to inorganic route, organic route is always better as such high inorganic quantum, ~70-80 % of existing scale, always brings with itself integration and other issues which if not handled properly can backfire severely on you.
(2) Since you have asked me, if I was in the management, I will definitely be concerned of lack of organic growth and it has to start somewhere for my company to sustain in the long run (unless I want to build the company in medium term and then sell it off). Also, I would not be atall hesitant to admit in front of investors/analysts, who are much more knowledgeable today and have varied data points in their hands to track, that company is falling behind vis-a-vis competition (reasonable indian peers) and these are the problems and we are taking these steps to resolve the problems.
(3) I would not have raised 150 cr. funds for inorganic expansion without concrete proposals in hand unless I was worried of my own companies’ shares valuations by thinking that when concrete proposals do materialise I might not get the same valuation I am getting today.
(4) Its not easy to find everytime a company like Macmillan at the valuation at which it was acquired. Remember, even before the acquisition by Mr. Arora, MPS (under Macmillan) was a great company operating at ~45-50 % margins ; it was loss-making acquisitions and serious overheads at senior level that led to the debacle. This is not to take away the credit from Mr. Arora for the way he quickly made the turnaround possible — if it was some other guy than him this could have been a daunting task — But, when we look for inorganic route, we need to be practical as in this dynamic world, time lost is opportunity lost.
(5) Although many here might not agree with me, but, I still feel that no rationale management will face another AGM by raising before one and a half years, 150 cr. for acquisitions and not making any use of that funds. If beforehand at the time of raising funds, proper timeline was given asto within two years we will acquire then it was ok but post raising funds everytime management has said “we want to seal the deal soon and negotiations are going on”. I feel that we are very near to some sort of announcement on this front and sincerely hope that its not a token decision.
(6) With so much delay already made post raising of funds, I would prefer acquisition for expansion of platform business rather than in plain outsourcing space. However, management is on record stating that they will prefer the acquisitions that are blessed by their clients but such blessings might not be possible in platform space.
(7) In whichever space the acquisition is, it should not be heavy loss making acquisition (as Macmillan did), as it will be foolish to think that everytime a Macmillan like turnaround is possible even from the same guy. As I said before, Macmillan was a unique case where its inherent strength were exceptional ; such cases are rare and not many.
(8) In plain outsourcing play, low margin low debt acquisition will be best but that might not come cheap. As management I need to understand my company’s strength and that is robust cash generation in the absence of aggressive macro (industry) growth. I will give this factor utmost priority while making any acquisition.
Sreekanth….let’s keep our fingers crossed and hope for the best.
Rgds.
Discl. – Invested in MPS . No trading in last 30 days.
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