Inarticulate ramblings of a management consultant

the day to day experiences of a consultant operating in weird and wonderful client situations

Due diligence in an emerging market…identifying the right channels of information, sticking to the 80% rule and managing your parent!

I’ve written this blog from the perspective of the business which is being acquired…all of the examples below are from real situations but not from the same deal. I challenge you to picture yourself in this scenario:

Indonesia

You’re the first, professional, externally appointed CEO of a family owned manufacturing business in Indonesia. Your business has been built over 2 generations and occupies a prominent position in the sector you occupy, certainly top three as far as any market statistics suggest. With regard to that market data, the last survey was conducted about 4 years ago and some of the data was distinctly unclear but from that, and from a lot of anecdotal information from your customers, you’re confident about this position.

Your company is full of long term employees…the average length of tenure is well over 15 years and there are many who still remember the ‘old man’. There are several families who work here across two or three generations.

How do you operate? Through a mixture of some new thinking (based on your own background in a multinational and an international education), lots of experience throughout your workforce and a powerful internal network which tends to deal with things at the right level…way before it requires any intervention from you. New entrants have some induction (you introduced a few concepts around Health and Safety, and with introduction of some new technology, there’s the requirement to learn the systems) but much of the real training takes place on the job.

Your company responds to market opportunities quickly though. Last week you had a suggestion about a new but related product from one of your newer managers and you expect to launch the product in 2 weeks time. You’ll manage the risk carefully though…not too much exposure. A small pilot at two retailers. You know the managers there well, they’ve been customers for many years and they give you great feedback on customer reaction and response at your regular monthly lunch with them.

There’s not much documentation in your business. What’s the point? Most of your employees have been around for ever, they’re flexible and expert in their field – the last thing they need are workflows and job descriptions. For Finance and IT there is some. You’ve been gradually upgrading your systems to a point you’ve almost got an ERP in place. It’s not completed yet…you’re in dispute with a local systems integrator who promised the world and delivered very poorly so that whole areas are not completed yet. Luckily the largely paper based system was still being maintained so you’ve got a bit of a mix. As soon as you’ve resolved the dispute, it’ll be back on the agenda.

You’re trying to buy some new hardware too…the problem is that the long term supplier to the company is no longer very cheap and some of his ‘conditions’ are pretty unacceptable. Difficult to sort in the short term, given his connections to the family. So you’ve bought some new equipment but on a batch basis from various different suppliers. There’s an issue with the firewall but your internal IT guy (who does everything in return for keeping some pretty strange hours and a particular car which he wanted desperately – we bought it for him…frankly he’s worth every ruppiah) is sorting it out.

And then the world changes:

The family has been approached by a large multinational to sell up. It’s not a complete surprise, perhaps a reflection of why you were brought in, in the first place. It’s probably a bit early in the transformation that you’ve embarked upon…but what a great acquirer. You’re excited about it…lots to learn, lots of improve and with their technology, capability and breadth of knowledge, they could really make this business sing. Even better, this is their first entry into Indonesia and they’re already stated that they’re not looking for any cost reductions. The deal is moving pretty fast though; from what you’ve heard, they are doing 4 deals in Asia at the moment and they want this completed in the next 3-4 months.

Hence the accelerated diligence process. They’ve engaged some advisors, accountants, lawyers and a couple of investment bankers. Most of them are based in Singapore…some of them speak Bahasa Indonesia but it’s clear that they’ve been away for a while.

You’ve met them a few times and the last time they talked about a VDR? Sounds like a large on-line library where we’ve got to place a large amount of documentation and answer questions. They said something like 40 a week…but in reality it’s more like 80. Each question has about 5 sub questions as well!

You’ve put a couple of people from the team on it…but they’ve never done anything like this before and after the first month, it’s clear that they cannot cope. The problem is that there’s no one else in the centre who can do this.

Most of the information requests are for things you’ve no idea about and on top of that they want them in English:

  • Tax returns for the last 7 years. You’ve only been in place for 3 so you’ve got those but before that it was the son of the founder. There was a story about a fine but no-one seems to know what happened and getting the data is proving challenging.
  • Accounts: The big focus seems to be something called ‘Related Parties’. Apparently doing business with an organisation where some of the shares are held by the family / or where it’s owned by a family member is seen as slight suspicious…or at least that’s the impression you getting. From your experience, that’s the only way that business seems to get done in Indonesia…very strange.
  • Organisation Structure: What does that even mean? We have some hierarchy based on the owners and length of service but everyone knows what everyone else does and the only one who can sign a cheque is you.
  • Work / Process flows: In fairness, they did send someone down to help with this but they left after a few days and when you spoke with the ‘process owners’, they commented that the person didn’t seem to understand what they did. There was something done on this about 10 years ago by one of the family who spent some time in Japan…maybe we should submit that.
  • Policies: The request for policies is just off the scale: everything from Health and Safety, to Procurement, to Accounting, to Compensation and Benefits. The trouble is we don’t have many of these. They’re not relevant to how we run the business. And then there’s the ‘challenge’ of the internet connection…uploading anything large takes hours. The pressure is starting to tell. You tried to reach out to the EVP for Asia Pac by phone last week to explain why it’s taking so long. Apparently he’s travelling in India and China and won’t be back in the office for 2 weeks. You’ve left a message on his answerphone…

Next week, the management interviews.

DD Dilbert

Categories: C suite leadership, due diligence, emerging markets, Indonesia, post acquisition integration, Post merger integration

Tags: , , , , ,

5 replies

  1. I enjoyed this article Ben – I can relate and have actually seen a number of similar scenarios in the past!

    Like

Trackbacks

  1. Due diligence in an emerging market – the management interviews – lots of communication, perhaps less understanding! | Inarticulate ramblings of a management consultant
  2. An acquisition in an emerging market from the perspective of the acquired CEO – two steps forward? | Inarticulate ramblings of a management consultant
  3. Acquisition in an emerging market – integrating the ‘ways of working’ – an exercise in futility? | Inarticulate ramblings of a management consultant

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