Presented by:

Nupur Bhardwaj

Inorganic Growth : Is It The Right Strategic

Move For Indian Businesses

Introduction

• Today, the business environment is rapidly changing

with respect to:

– Competition

– Products

– People

– Process of manufacture

– Markets

– Customers

– Technology.

• Companies are expected to beat competitors and

innovate in order to continuously maximize

shareholder value.

• Since 1991 Indian industries have been increasingly

exposed to both domestic and international

competition.

• Indian corporate sector has been forced to

restructure, reengineer to be competitive and deliver

value to stakeholders.

• Indian companies have adopted organic and

inorganic strategies to enhance value for their

shareholders.

Inorganic Growth

• A growth in the operations of a business that arises

from mergers or takeovers, rather than an increase in

the company’s own business activity.

• Helps companies to enter:

– New markets

– Expand customer base

– Cut competition

– Consolidate and grow in size quickly

– Employ new technology with respect to products

people and processes.

Difference

Organic Growth Inorganic Growth

•When a company with

help of its efficient

management enhances its

growth rate it is referred as

organic growth.

• Through increase in sales

revenues

• This is an internal growth.

•Inorganic growth refers to

a company growing through

acquiring or it’s merger

with other companies

• Through takeover or

acquiring another similar

company in current industry

• This is referred to as

external growth.

Inorganic Growth Strategy

• The strategy of inorganic growth takes place by:

– Takeover

– Merger and Acquisitions

– Spinoffs

– Joint Venture

– Integration.

Takeover

• A takeover is the purchase of one company by the

another company. The term refers to the acquisition

of a public company whose shares are listed on a

stock exchange.

• Types of Takeover:

– Friendly Takeover

– Hostile Takeover

– Reverse Takeover

Merger and Acquisition

• Mergers and acquisitions is an aspect of corporate

strategy that is dealing with the buying, selling,

dividing and combining of different companies and

similar entities without creating a subsidiary

• Types of Mergers and Acquisition:

– Horizontal

– Vertical

– Co-generic

– Conglomerate

Spin-Off

• It is a corporate action where a company “splits off”

sections of itself as a separate business. The new

company takes assets, intellectual property,

technology, and/or existing products from the parent

organization.

Integration

• Integration generally means combining parts of a

company so that they work together or form a whole.

Joint Venture

• A joint venture takes place when two parties come

together to take on one project. In this type of project,

both parties are equally invested in the project in

terms of money, time, and effort to build on the

original concept.

Advantages of Inorganic Growth

• Can occur more quickly than organic growth

• Firms can benefit from a greater pool of skills and

experience

• Customers, sales, assets and market position are

acquired immediately

• Reduces competition

Disadvantages of Inorganic Growth

• More expensive than organic growth

• Difficult to combine different organisational cultures

and management styles

• Possibility of diseconomies of scale

• Greater risk

• Difficult to control

Wipro

• In 2005, Wipro acquired the consumer products and

lighting business of Yardley and Unza Holdings.

• In 2006, Wipro acquired cMango Inc., a US based

Technology Infrastructure Consulting firm.

• Wipro struck a deal with Saraware Oy, a leading

provider of design and engineering services to

telecoms companies, for Euro 25

• In 2007, Wipro entered into a agreement to acquire

Oki Techno Centre Singapore Pte Ltd (OTCS).

Tata Group

• February 2000 - Tetley Tea Company, $407 million

• March 2004 - Daewoo Commercial Vehicles, $102

million

• August 2004 - NatSteel's Steel business, $292 million

• July 2005 - Teleglobe International Holdings,

$239 million

• November 2006 - Ritz Carlton Boston, $170 million

• January 2007 - Corus Group, $12 billion

• April 2007- Campton Place Hotel, San Francisco,

$60 million

• March 2008 - Jaguar Cars and Land Rover, $2.3 billion

ICICI Bank

• 1998 - Anagram Finance

• 2001- Bank of Madura

• 2002 - The Darjeeling and Simla branches of Grindlays

Bank

• 2005 - Investitsionno-Kreditny Bank (IKB), a Russian

bank

• 2007 - Sangli Bank

• 2010 - Bank of Rajasthan

Reliance - BP Deal

• The much talked about Reliance – BP deal finally came

through in July 2011 after a 5 month wait.

• Reliance Industries signed a 7.2 billion dollar deal with

UK energy giant BP, with 30 percent stake in 21 oil

and gas blocks operated in India.

• Although the Indian government’s approval on two oil

blocks still remains pending, this still makes it one of

the biggest FDI deals to come through in India Inc in

2011-12-31.

Fortis Healthcare Merger

• In September 2011, Fortis Healthcare (India)

Ltd, merged with Fortis Healthcare International Pte

Ltd.

• This made Fortis Asia’s top healthcare provider with

the approximate total revenue pegged at Rs. 4,800

crore.

• Fortis India also bought the entire stake of the

Singapore based Fortis International.

Essar-Vodafone

• In March 2011, the Vodafone Group announced that

it would buy 33 percent stake in its Indian joint

venture

• This was for about 5 billion dollars after the Essar

Group sold its holding and exited Vodafone.

• Healthcare giant Piramal Group too, bought about 5.5

percent in the Indian arm of Vodafone for about 640

million dollars.

iGate – Patni Computers

• In May 2011, IT firm iGate completed its

acquisition of its midsized rival Patni Computers for

an estimated 1.2 billion dollars.

• For iGate, the main aim of this acquisition was to

increase its revenue, vertical capability and customer

base.

• iGate now holds an approximate stake of 82.5 percent

in Patni computers, now called iGate Patni.

Aditya Birla Group

• In June 2011, the Aditya Birla Group announced its

completion of acquiring US based Columbian

Chemicals.

• Columbian Chemicals is a 100 year old carbon black

maker company for an estimated 875 million dollars.

• This will make the Aditya Birla Group one of the

largest carbon black maker companies in the world,

doubling its production capacity instantly.

Mahindra & Mahindra

• In March 2011, Mahindra acquired a 70 percent

stake in ailing South Korean auto maker Ssangyong

Motor Company Limited (SYMC)

• This deal was for a total of 463 million dollars.

• This acquisition will see the Korean company’s

flagship SUV models, the Rexton II and the Korando

C foray into the Indian market.

Is it the right strategic move

for Indian businesses?

• Yes, inorganic growth is the right strategic move for

Indian businesses.

• Inorganic growth strategies are regarded as important

engines that help companies to enter new markets,

expand customer base, cut competition, consolidate

and grow in size quickly, employ new technology

with respect to products, people and processes.

• Thus the inorganic strategies are regarded by

companies as fast track strategies for growth and

unlocking of value to shareholders.

Thank You