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Consultant on the Coke-Huiyuan deal and global M&A

(chinadaily.com.cn)
Updated: 2008-09-16 17:11

Q: What will happen to managers if the acquired company would like to shift some business strategies?

A: It's a common concern for employees – whether they will lose their positions. But I think most of the companies we work with buy a company because there is value in it, often because of the people who work there.

So in most instances, in the companies doing acquisitions, I don't think they want to lose any valuable employees. In my experience, when companies make acquisitions, they are often more concerned about how to keep the people (rather than) about letting them go.

Particularly when a company makes an acquisition to enter a new market or a new technology they don't know well, they need those employees. Employees are the value they buy.

In the Coca-Cola acquisition, this juice company is very well known and very well run, so you wouldn't anticipate that a successful company like that will have many changes. I am not working with Coke and don't know the details, but I think often times employees don't know how important they really are to the business.

Hewitt is a human capital firm and we have a strong belief that the value of the companies is in the employees who work for them -- their contributions, their knowledge of how to make products and how to service customers.... Often it's the people who make the difference in whether the company will be successful or not.

Q: How about Chinese companies making global acquisitions?

A: Chinesee companies are probably better positioned now than ever in the recent past to make acquisitions, because they have more resources and they are building up capital. They have the financial ability to make acquisitions.

In other parts of the world, some of the companies don't have resources to make acquisitions even if they want to. I think a number of Chinese companies are very well positioned because they have ... a very favorable foreign exchange, so it makes foreign companies more affordable than in the past.

In terms of challenges, yes, they have some challenges: They didn't make a lot of acquisitions overseas and they don't have experience in drawing up contracts. So one of the challenges is to learn the process of acquisitions.

There are a number of ways to (accomplish this). I mentioned that Hewitt does M&A training programs for companies. These programs are geared towards making clients understand how to do a better job in acquisitions in terms of due diligence, how to assess a target company and whether it's a good acquisition or not, how to understand what the risks are, what kind of criteria they use and what kind of data is important to make those decisions.

That's not necessarily an easy thing, particularly if you haven't done that before. We also have round table discussions where we get M&A experts of different companies together to share their experiences and lessons in the M&A market.

Q: What's your view on some of the acquisitions that failed, i.e., BenQ on Siemens and TCL on AlCart?

A: Due diligence is a very challenging task. When you think about acquiring a company, there is a lot to learn about that company in terms of their financial status. How do they operate? How successful are they with their customers and employees. There are many things to look at in due diligence.

But half of a successful due diligence is knowing what kinds of things you should look at. For due diligence, there will be 20 binders of documents. You really need to know where to look (for information). Sometimes you only gain that by experience.

If you haven't had that experience, we suggest you work with partners who have, (so that you can) understand issues (involving) pontential risk, which can vary from country to country. It's important to have good local market knowledge.

Work with partners who understand the particular challenges you will face in the UK, US, Brazil, or Germany, because the challenges are very different. There are pension issues that exist in the UK but don't exist in the US. In the US, it's relatively easy to restructure your workforce, but in some countries in Europe, it's very difficult.

You need to understand the legal system and regulatory requirement, the union considerations, the labor considerations. So we work with companies in due diligence to help them understand, not only compensation and benefits programs, but cultural differences.

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