A strategy mistake you MUST avoid

Mergers and acquisitions have helped Nicholas Piramal India Ltd grow by around 35 per cent year-on-year. Clearly, the strategy that has brought us to the top five position in the pharmaceutical industry in India has been M&As.

However, that's not to say it has been a smooth ride all along.

One of the biggest mistakes that the company made was when we acquired the Hyderabad-based pharma company, Sumitra Drugs and Pharmaceutical Company Ltd, in 1998.

The key mistake we made with the acquisition was that our due diligence was not strong enough. As a result, we believed all that the promoters told us and took their word for granted. This acquisition proved to be a blunder and bled us in terms of time, money, energy and resources.

There were many legal aspects that we had not looked into. After a thorough understanding of the liabilities the company had, we realised that the company was not worth even half the money of Rs 75 crore (Rs 750 million) that we had bought it over for!

The only silver lining to the entire goof-up was that we took it as a challenge. We modernised the company and made it state-of-the-art.

Instead of a generic drugs company, we repositioned it into an innovation-led one that started to deal in custom-built drugs. Today, this is one of our biggest strengths and the company contributes to 10 per cent of our turnover.

Then, in 1999, we went in for a Rs 100-crore (Rs 1 billion) collaboration with Laporte PLC in Hyderabad, to manufacture fine chemicals. It was a big investment eight years ago. But we messed up with the fine-print that legally put our partners in stronger position, instead of creating a win-win situation at par.

The lesson we learnt from this was that if you do not look carefully at the fine print, the acquisition and resultant merger will not benefit you as much even - if it looks like a win-win situation for both parties.

Organisationally, we have a culture that is built on trust. Some of our early acquisitions like Roche Products had been smooth and there were no problems.

But after the two blunders we made with the above acquisitions, we realised that we needed to be a lot more careful than we thought we were. What should you keep in mind?

One needs to remember that mistakes happen all the time - it is a part of the learning curve. At the same time, we maintain that no one should be allowed to make the same mistake twice. We pull up a person if he is found to have repeated a mistake.

What are the best practices of M&As that we have learnt from our mistakes? Today, after fierce brain-storming sessions before an M&A, we even look at the full stops and the commas before we finalise the deal.

We have also learnt that once a mistake is done, very often it is too late to undo the process and there is no time to regret the action. At such a time, the only thing left for you to do is to see how you can make the most of the situation.

Harinder S Sikka is Senior President, Corporate Affairs, Nicholas Piramal India Ltd.

As told to Prerna Raturi