It was the largest acquisition by an Indian company in the technology space. But that was not all that set apart HCL Technologies’ takeover of Axon in September. HCL Tech had countered Infosys Technologies’ bid of 600 pence a share for the UK-based SAP implementation firm, with an aggressive offer of 650 pence a share. Just when it seemed like the two bidders might engage each other in an endless game of bids and counterbids, Infosys withdrew and Axon became the fourth company to fall into HCL Tech’s M&A kitty last year. The other three, though smaller, were US-based Control Point Solutions and CapitalStream and British Liberata Financial Services. BW’s Binu Kwatra spoke to HCL Technologies’ CEO Vineet Nayar on how he makes mergers and acquisitions work in times of a global economic crisis.
What should be avoided after acquisitions such as Axon, for instance?
Impose on them the HCL brand. Call them an HCL SAP division. Give them an HCL e-mail id. Put HCL hoardings in their offices. Number two, they are used to using tools and technology and conducting business in a certain way, which works for them because they are five times more successful than I am. So, eat your ego and kill your own ways of doing business and adopt their ways. The third is what I call trust. You acquire a company because they are good; then you don’t trust them and you put somebody from your side on top of them. For God’s sake, why are you doing that? So, leave them alone. The last — the value is between that company and its customer. The value is not in the interface between HCL and that company. So, focus on how you can enable that, so that the company can create a higher value for its customer.
How crucial is this ‘enabling’?
The critical question that your reader should ask himself is — what were the fundamentals under which you wanted to do the mergers and acquisitions? New capability acquisitions, access to new geographies and making your non-performing business performing? In the slowdown, has any of the three factors changed? If they have not, then M&A is not a three-letter word. It should be pursued vigorously. If anything, it has become easier.
So, the Axon management stays and your SAP head reports to it?
Yes… and all the 2,500 people.
Global business environment has changed considerably since the Axon takeover. To what extent have you lowered revenue expectations from your acquisitions?
I think the global economic slowdown has given us the ability to absorb these acquisitions. Because we are growing at a lower growth rate, there is a better management banquet, there is more time to absorb, there is more time to do re-orientation. So, the pause button that has been pushed in the global market is the most wonderful thing that could happen to you from the acquisition point of view.
How long will it take for these acquisitions to contribute to HCL Tech’s growth?
Starting this quarter, I think. Why should they not contribute to growth? Now would you see the growth in the business that we acquired? Maybe not.
In terms of profit as well…
Yeah, why not? I don’t see any reason why you would not see growth. But the way the street looks at growth is wrong. If you have acquired X, (they ask) and has X become 2X. (This is) Wrong. It is like camphor the catalyst — you acquired X because you wanted to convert the milk into cheese, because cheese is more expensive. Now you are asking me what has happened to that catalyst. It does not matter. But has HCL transformed, has HCL’s image transformed and hence has the business grown? Yes.
Are you facing greater challenges integrating these companies into HCL Tech because of the recession?
Most companies, when they try and do that, they fail, predominantly because they do it at a pace that is not required or they are so obsessed with their own so-called goodness that they ignore the culture and the structure and everything that is good about the acquired company. So, I would say that integration is the least important thing in any acquisition, predominantly because if you are acquiring a successful company, then you should surround them and enable them. So, I change the word integrate to enable. So what we did was, from day one, we reverse-merged our teams into Axon. So actually Axon, which is a high-performance team, bought HCL’s SAP practice, which became HCL Axon.
So, there were no re-designations, no re-orientation of salaries and no restructuring?
No.
Will they never be merged?
Will they be merged if we don’t change our business? Never. Will they be merged if we change business? Yes, because we have acquired Axon, not for its SAP practice alone. We have acquired Axon for two capabilities — consulting capabilities and SAP capabilities. Its SAP capabilities need no merger. As far as consulting is concerned, the bigger question is, where it fits into HCL’s scheme of things. Once we answer that question, then obviously Axon will have to play a deep role in that.
How have you handled the technological, marketing and distribution challenges after the acquisitions?
From a relative point of view — between growing organically and acquisition — acquisition. the way we have constructed it is the least challenging option. However, if you grow using only HCL people, then there are significant challenges regarding cultural integration, ways of working, alignment of objectives… all those issues. But I think options, and I think of the least challenging option.
Technologically, did the two organisations come together? Were they using different sets of technologies?
All business-facing solutions and technologies of HCL have been scrapped and Axon’s have been used. So, the front is only Axon. The back office system is one standard system, which is HCL’s.
(Businessworld Issue Dated 27 April-04 May 2009 - http://www.businessworld.in/index.php/Corporate/When-you-buy-a-good-company.html)
What should be avoided after acquisitions such as Axon, for instance?
Impose on them the HCL brand. Call them an HCL SAP division. Give them an HCL e-mail id. Put HCL hoardings in their offices. Number two, they are used to using tools and technology and conducting business in a certain way, which works for them because they are five times more successful than I am. So, eat your ego and kill your own ways of doing business and adopt their ways. The third is what I call trust. You acquire a company because they are good; then you don’t trust them and you put somebody from your side on top of them. For God’s sake, why are you doing that? So, leave them alone. The last — the value is between that company and its customer. The value is not in the interface between HCL and that company. So, focus on how you can enable that, so that the company can create a higher value for its customer.
How crucial is this ‘enabling’?
The critical question that your reader should ask himself is — what were the fundamentals under which you wanted to do the mergers and acquisitions? New capability acquisitions, access to new geographies and making your non-performing business performing? In the slowdown, has any of the three factors changed? If they have not, then M&A is not a three-letter word. It should be pursued vigorously. If anything, it has become easier.
So, the Axon management stays and your SAP head reports to it?
Yes… and all the 2,500 people.
Global business environment has changed considerably since the Axon takeover. To what extent have you lowered revenue expectations from your acquisitions?
I think the global economic slowdown has given us the ability to absorb these acquisitions. Because we are growing at a lower growth rate, there is a better management banquet, there is more time to absorb, there is more time to do re-orientation. So, the pause button that has been pushed in the global market is the most wonderful thing that could happen to you from the acquisition point of view.
How long will it take for these acquisitions to contribute to HCL Tech’s growth?
Starting this quarter, I think. Why should they not contribute to growth? Now would you see the growth in the business that we acquired? Maybe not.
Yeah, why not? I don’t see any reason why you would not see growth. But the way the street looks at growth is wrong. If you have acquired X, (they ask) and has X become 2X. (This is) Wrong. It is like camphor the catalyst — you acquired X because you wanted to convert the milk into cheese, because cheese is more expensive. Now you are asking me what has happened to that catalyst. It does not matter. But has HCL transformed, has HCL’s image transformed and hence has the business grown? Yes.
Are you facing greater challenges integrating these companies into HCL Tech because of the recession?
Most companies, when they try and do that, they fail, predominantly because they do it at a pace that is not required or they are so obsessed with their own so-called goodness that they ignore the culture and the structure and everything that is good about the acquired company. So, I would say that integration is the least important thing in any acquisition, predominantly because if you are acquiring a successful company, then you should surround them and enable them. So, I change the word integrate to enable. So what we did was, from day one, we reverse-merged our teams into Axon. So actually Axon, which is a high-performance team, bought HCL’s SAP practice, which became HCL Axon.
So, there were no re-designations, no re-orientation of salaries and no restructuring?
No.
Will they never be merged?
Will they be merged if we don’t change our business? Never. Will they be merged if we change business? Yes, because we have acquired Axon, not for its SAP practice alone. We have acquired Axon for two capabilities — consulting capabilities and SAP capabilities. Its SAP capabilities need no merger. As far as consulting is concerned, the bigger question is, where it fits into HCL’s scheme of things. Once we answer that question, then obviously Axon will have to play a deep role in that.
How have you handled the technological, marketing and distribution challenges after the acquisitions?
From a relative point of view — between growing organically and acquisition — acquisition. the way we have constructed it is the least challenging option. However, if you grow using only HCL people, then there are significant challenges regarding cultural integration, ways of working, alignment of objectives… all those issues. But I think options, and I think of the least challenging option.
Technologically, did the two organisations come together? Were they using different sets of technologies?
All business-facing solutions and technologies of HCL have been scrapped and Axon’s have been used. So, the front is only Axon. The back office system is one standard system, which is HCL’s.
(Businessworld Issue Dated 27 April-04 May 2009 - http://www.businessworld.in/index.php/Corporate/When-you-buy-a-good-company.html)
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