Ajay Piramal reveals the mantra behind his string of M&A successes

Industrialist and entrepreneur Ajay Piramal

• Ajay Piramal's M&A success stemmed from strategic fit and analysis
• He sold pharma to Abbott at 9x revenue, citing unmatched value
• Cultural fit is key in M&As, as seen in Shriram Finance exit

Did our AI summary help?

In his over 40-years innings as an industrialist and entrepreneur, Ajay Piramal’s standout achievement was his string of successful mergers & Acquisitions (M&A) and deals. He exited everyone of his myriad buys for profit of 50 percent to 10x. His M&A mantra was thus the focus of our discussion when I interviewed him for my Moneycontrol series “Latha & the Leaders”

Before I go to the crux of his success formula, sample his big achievements :

-From 1988 to 2006 Piramal bought several distressed Indian units of MNC pharma companies (like Nicholas Labs, Roche Boehringer, Rhone Poulenc) at 1x their sales and sold them in 2010 to Abbott Ltd. at 9x their revenues

-In 2011 he acquired an 11% stake in Vodafone India at avg price of Rs 1,290/share & exited in 2014 at a price of Rs 1,960 per share, taking home a 51% gain

- from 2014 to 2016 he acquired shares in Shriram group companies at around Rs 4,500 crore and exited them from 2019 onwards at over 100% gain.

Piramal's M&A Mantra

"So what’s the mantra for your highly successful M&A run?" I asked him. Piramal began by first pointing out that M&As sound glamourous, but "data shows that 70-75 percent of the M&As don’t make money." So, then what are the golden rules that gave him such a fabulous success rate? “I believe first there should be a really strategic fit and a vision behind an M&A," said Piramal. "The second thing is that, we have to really go beyond the headlines.”

Piramal elaborated on his second rule, “looking beneath the headline” with his pharma takeovers. In the nineties, pharma was not the sector to be in: Most pharma companies were MNCs and they were stressed because their units in India were cost-heavy and faced headwinds like drug price controls and poor legal protection for their patents, he said. “Several MNCs wanted to simply sell out and leave but there weren’t enough buyers,” he explained. “That’s when we felt there was an opportunity that the market will grow and we can add value”.

MNC pharma companies in India were in a state of distress because of their high costs, but Indian pharma with their far lower costs, had a clear growth runway. Piramal bought Indian units of MNC companies like Nicholas Labs, Boehringer Mannheim, Roche and Rhone Poulenc at no more than 1x their revenues. By 2010 he had a solid pharma franchise which he sold to Abbott Laboratories at 9x the revenues and 30x the profit.

Why he sold to Abbott

So why sell out of pharma, was the obvious next question. And Piramal’s answer yielded yet another important lesson for entrepreneurs: “The reason why we exited is because, I like to take a dispassionate view. I look upon ourselves as really trustees - trustees for the benefit of shareholders of employees, customers and society." He explained that Abbott’s offered price of 3.2 billion dollars – 9x revenues and 30x profits- was the highest ever multiple paid by any company in the world for branded generics. “When we did all the calculations of what is the future value of our growth and how much is the NPV today, and we concluded we could not have generated so much value.” Hence the sale.

The daring DHFL offer

Continuing on the takeover theme, I asked him about what gave him the courage to bid for DHFL when the bankruptcy law itself was wobbly . Again he said “look beneath the headline”. He pointed out that while DHFL’s wholesale book was questionable because of related party transactions and such like, the retail book underneath these headlines was actually good. Buying it would save Piramal Finance the job of expanding nation wide. And the gamble paid off. The housing finance book he took over for Rs 37,000 cr has now, in just 3 years has grown to about Rs 80,000cr.

The M&A that didn't click

The final question to Ajay Piramal on his successful M&A spree was Shriram Finance. Piramal had bought 10-20% stakes in various Shriram group companies in 2013-14 and the expectation was the two groups would merge their finance companies. But by 2022-23 Piramal started exiting the companies. Of course Piramal doubled his money – buying the stakes at around Rs 4500 cr and exiting at nearly Rs9,000 cr. But the intended merger did not fructify. “Shriram has a unique, franchise, which is very difficult to replicate. And that is why, we didn’t go ahead," explained Piramal. The Shriram group was keen to merge and even made him Chairman, said Piramal, but after watching them from the inside, he realised their culture was very different.

“It’s a unique culture….but was not in alignment with the culture that we had. And it is difficult to change the culture which has 10,000 people and frankly, I don't think it would have been successful. So therefore we thought it's in the best interest for us to have it separated” said Piramal.

The one hour with Ajay Piramal offered us some golden rules for mergers:

1. It must be strategic fit.

2. Look beneath the headlines and check if the underlying story is robust

3. Sell if the price is too good. As lead shareowner, the promoter is a trustee and must allow stakeholders to benefit, without getting too attached.

4. For an M&A price and strategic fit won’t suffice. There must also be a cultural fit.

These lessons are too good to miss. Hope Mr Piramal considers teaching management graduates someday.

Watch the full interview here