Siddhartha Pai, of Siana Capital has a very interesting article in today's Mint newspaper, also carried in the online version livemint regarding the impending merger between Larsen & Toubro Infotech and -Mindtree Ltd where he uses the colourful metaphor of the python eating a deer its own size, failing to digest it, regurgitating the contents of incomplete digestion, and possibly dying a premature death itself - to focus attention on the supposed 'Merger of Equals', that the 'suitor' is pursuing 'solely for scale' in this case.
In such a case, he argues, clients of the pursued company are quite likely to adopt a 'Wait and See' attitude to understand how the merger will play out, especially whether the 'pursued company' in the merged entity will have the same strengths that it did previously. Talented employees more in demand elsewhere will not wait and see - they will leave, if only to extinguish the uncertainty in their own professional lives. This is always the case even when the merger is 'friendly' because mergers make sense only when the merged entity, by virtue of larger scale, 'de-duplicates' some functions in the new company and brings about at least some cost savings. Why, one may indeed wonder, do companies look for scale anyway? Because, especially in an intelligently organized company, larger scale can enable the realization of economies - both of scale and also of scope.
However, it is the 'human capital intensity' of the software industry and the very high mobility-quotient of critical human resources in it that makes the possibility of losing such talent during a prolonged merger-transition particularly deleterious. Traditional HR management techniques in 'traditional' industries or companies are built around the idea that no single person can be seen as indispensable. In the software industry, for many critical domains, this is just not true.
But there are other issues too - if a merger is 'confrontational' then it takes much longer to close than a friendly one would. This then exacerbates the risk of the 'Wait and See' approach of clients and potential clients. Worst of all, rather than focus on new possibilities that the merger makes available, dealing with such internal issues ('friendly fire') tends to distract management in both companies impending merger, and then beyond, in the merged entity. Often this is serious enough to question the logic of the merger itself and often drastically reduces any 'value added by the merger' calculations.
Dr KK Natarajan, CEO of Mindtree Ltd, speaking with Shradha Sharma of Yourstory.com:
In such a case, he argues, clients of the pursued company are quite likely to adopt a 'Wait and See' attitude to understand how the merger will play out, especially whether the 'pursued company' in the merged entity will have the same strengths that it did previously. Talented employees more in demand elsewhere will not wait and see - they will leave, if only to extinguish the uncertainty in their own professional lives. This is always the case even when the merger is 'friendly' because mergers make sense only when the merged entity, by virtue of larger scale, 'de-duplicates' some functions in the new company and brings about at least some cost savings. Why, one may indeed wonder, do companies look for scale anyway? Because, especially in an intelligently organized company, larger scale can enable the realization of economies - both of scale and also of scope.
However, it is the 'human capital intensity' of the software industry and the very high mobility-quotient of critical human resources in it that makes the possibility of losing such talent during a prolonged merger-transition particularly deleterious. Traditional HR management techniques in 'traditional' industries or companies are built around the idea that no single person can be seen as indispensable. In the software industry, for many critical domains, this is just not true.
But there are other issues too - if a merger is 'confrontational' then it takes much longer to close than a friendly one would. This then exacerbates the risk of the 'Wait and See' approach of clients and potential clients. Worst of all, rather than focus on new possibilities that the merger makes available, dealing with such internal issues ('friendly fire') tends to distract management in both companies impending merger, and then beyond, in the merged entity. Often this is serious enough to question the logic of the merger itself and often drastically reduces any 'value added by the merger' calculations.
Dr KK Natarajan, CEO of Mindtree Ltd, speaking with Shradha Sharma of Yourstory.com:
