CASE : DEEPAK ABRASIVES
The Diary of Ashutosh Mukherjee, CEO, Deepak Abrasives
March 15, 1997
Acquisition, Synergy. In the last two months, this has been the constant refrain in my mind. I have been thinking about making a bid for Zen Abrasives, a direct competitor. My-A-Team – which manages the Rs.72-crore Deepak Abrasives for me – is excited. Its member s suggest that we proceed without hesitation. Their reasoning sound familiar, we will reap the benefits of synergy. But I am not so sure. Of particular concern to me has been the absence of functional synergy within our company: between strategic planning, on the one hand, and financial planning, on the one hand, and financial planning, on the other.
Despite the fact that all my manages have been put through team-building exercises as part of the Total Quality management movement we launched 2 years ago, subtle undercurrents of turf and space persist, and they do not work in tandem. Financial perspectives ignore competitive and organisational consideration; strategic perspectives are devoid of the financial concepts that are essential to the understanding of an investment decisic. .
For instance, I am told, identifying synergies is a strategic issue – not a financial issue. Similarly, arriving at an acquisition premium, they tell me, is not a strategic issue, but a financial issue! It’s baffling.
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Questions :
1. Are Mukherjee apprehensions about the acquisition of Zen Abrasives justified? Is synergy a trap that he should be wary of in an acquisition? Is Mukherjee concern over the absence of functional strategy at Deepak real?
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2. Does the acquisition have an inbuilt element of value-destruction as far as the shareholders of Deepak Abrasives are concerned? How should Mukherjee assess Zen Abrasives` value? What should his M&A road-map be?
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