Case Analysis: To Buy or Not To Buy
Elwoods’s team is happily fantasising about how to handle the brand Rani after the buy, writes Vivek Sharma
Photo Credit : Tribhuwan Sharma
To buy or not to buy. That is not the question that the team Elwoods is contemplating seriously, rather they have assumed that Global Appliance Head Dave Wilkins has given his assent for the acquisition of Rani. So for now, the Indian Elwoods’s team is happily fantasising about how to handle the brand Rani after the buy. Is this the right approach? What else should Karan Walia, Head, Product Management, be thinking and doing before committing lots of Elwoods’ money to buy Rani?
This situation brings forth two critical aspects. First, in organisation behaviour terms and second, the way in which pro and cons of an acquisition should be analyzed. Let us discuss both in detail here. In organisational behavior terms, it is a typical MNC scenario wherein global category heads have to display good understanding of key high growth markets like India, China, LATAM and deliver a product portfolio from global R&D, and provide other marketing support to drive high growth; local marketing heads of these high growth markets are supposed to provide key market insights to get the right products developed from global R&D and drive growth leveraging local channels of distribution and marketing knowledge.
In this interplay, global heads like Dave appear to be open to suggestions to win a market like India but, in reality, are often defensive about protecting their position; they try to offer choices from the global portfolio or adapted / engineered versions of the global model to countries. The option of acquisition of a local brand often encounters passive resistance as it may reflect poorly upon the global head. Here, Karan passionately displays the right market understanding and is right when he emphasises a missed opportunity, if Elwoods were to wait 2-3 years for global R&D to develop the right model for India. However, while Karan seem to overwhelm Dave with his local consumer understanding, he has not so far (in the three parts of this case study) displayed the thoroughness in preparing his case for buying the local brand Rani; (maybe a Part 4 is called for, for it will be interesting to know how he parried Dave’s new moves as seen in his exchanges with Erina Beridze) internally Karan seems to restrict the discussion around Rani to Sales and Marketing only. And, even in evaluating brand Elsa versus Rani for South; Karan does not display the rigor in evaluating the relative brand equity and strengths of two brands in specific regions.
What this interplay will eventually lead to depends upon two factors. First, what is desired ambition from India — aggressive growth of revenue to acquire a position in the market or reasonable but profitable growth or just maintain a position in the market to be leveraged later when resources are available. Second, in organisational behaviour terms, whose key result area (KRA) is it to deliver the first or second growth objective, Dave’s (global category head) or Karan (local marketing head) or both? It is indeed a complex interplay of organisational ambition for India and individual KRAs and the eventual outcome will be a result of both. Here, it appears that Karan is coming from the pressures of target sales, per cent market share whereas Dave is coming from a point of view of global brand and synergies. Naturally, one is a micro view and the other a macro. Natural, but needs tuning.
Now, let us come to the second aspect of how Karan could have prepared and presented his case in more rigorous and comprehensive manner to Dave. He needs to think through not only the reasons for acquiring Rani but also the post-merger implementation scenarios. Karan cannot decide how to ride the tiger after mounting it! Anticipating post-acquisition dynamics have to be considered pre-acquisition, in my opinion. This can be done in three parts. Let us examine these one by one.
1. Articulate the key reasons for acquiring the brand:
Karan needs to align with Dave on the right reasons to acquire Rani the brand, taking into account global ambitions of Elwoods, role of Elwoods India in achieving these ambitions, market share versus profit play, buying channel loyalty or building one and portfolio strategy of global and Indian models. Only when these are clear, one will be able to pinpoint the set of reasons for acquiring the brand and thus, quantify the value that can be accrued from the acquisition.
For example, if it is just a desire to get market share and volume play, then measuring sustainable consumer brand preference and loyalty will be the key; however, if the objective is reasonable but profitable growth, then a complete portfolio analysis with profit architecture is key to the decision.
2. Post-merger synergies, beyond brand: Beyond brand, post-merger synergies primarily can be of five types: expertise/technology, new markets, low cost production, channel and talent/culture. Elwoods India needs to demonstrate to global where and how much synergies are in each of these areas and quantify each.
To begin with, if brand is a major advantage of merger, then the relative brand strengths, equities and preferences of Elsa and Rani must be measured and quantified so as to clearly determine their role in the overall brand architecture. Here the advice from the market research head, Radha Reddy has not been heeded well. Only when the relative brand equity, positioning, strength are measured, the future projections of sustainable brand loyalty, market share gains and profitability robustness can be assessed. Then, only the value to be paid for acquiring the brand can be correctly determined. And Karan should have done this first and drawn up the business plan for Rani demonstrating incremental shareholder value justifying the purchase price of Rani, before suggesting to Dave, to cement his strategy.
Further on, Elwoods India must think business and not just brand while drawing up a case for acquiring Rani. They must consider whether they are buying technical expertise from Rani that helps them produce robust high quality but lower priced products or there are production synergies available from Rani in terms of low-cost production centres or low-cost procurement. What are the channel synergies in South and how are they going to be leveraged? There is no point in having duplicate sales and distribution structures in states where both Rani and Elsa are present. Are there some portfolio synergies possible between Elsa and Rani in a real manner that can resonate with the cooking needs of consumers in South as well as North, West India — beyond just taking the lowest cost model from the global portfolio and branding them with local brand Rani.
Karan should have taken the conversation of Rani beyond sales and marketing into other functions like manufacturing, operations, procurement and R&D to incorporate their views and develop a comprehensive mapping of the synergies. Eventually, the value of a brand comes not just from consumer, market angle but the entire ecosystem that makes it a lasting success. This is what Elwoods India missed doing, though Amarinder made feeble attempts at nudging the conversation in this direction.
3. Post-merger implementation plan
One must draw up a post-merger implementation plan beforehand to plot how the synergies will be driven taking into account some important factors like marketing investments required to drive acquired brand, possibly in new geographies, talent available to drive the acquired business in the planned direction, technical aspects of deriving value out of acquired technology, patents, production expertise, etc. Only when one does this beforehand, the real incremental value
possible from an acquisition can be ascertained. This is a critical step that gets overlooked in the energetic excitement to acquire a brand / business.
On the other hand, Dave, the global business head, must acknowledge the unique needs of Indian consumers and not try to foist lowest cost models from Eastern Europe and pass them off as solutions for the Indian market. If Elwoods Global desires a strong foothold in the Indian appliance market, then it must allow Elwoods India to seek solutions through local models that are aimed at local needs — either developed quickly via global R&D or via acquired brand Rani. How quickly can Dave turnaround the local models from global R&D for India depends upon the desire that Elwoods Global has to drive growth from India.
Here, both global and local are hurried and defensive. Karan is in hurry to acquire Rani and Dave is defensive. Karan should do his homework thoroughly before mounting the tiger, that is, acquiring Rani, or he risks riding the tail of the tiger, which is not pleasant.
A question both Dave and Karan must ponder with detailed analysis is — Should they or should they not buy Rani?
The writer is Chief Marketing Officer, Pidilite Industries. The views expressed are his own