Over the last 2-3 years we at Systech sector of the Mahindra Group have created the 5th largest global forgings company. During this period we have acquired four companies and maybe analysed scores of companies. I have often been asked as to what was the most important ingredient in the inorganic growth strategy we have pursued. My answer to the question is one word "trust", one needs to develop trust with all stakeholders of the M&A process - owners, management, customers, suppliers, consultants, other investors.

While reflecting upon the notion of trust with stakeholders, I came across an article written by two Harvard professors which lays down some insights on trust building - "Uncoventional Insights for Managing Stakeholder Trust" by Michael Pirson & Deepak Malhotra. As I went through the article, I realized that some of the things we have tried to do and sometimes failed were in line with what the article talked about. I am summarizing the same for everyone to think about along with some of our experiences. 

(1) Transparency is overrated - being transparent is not enough, the quality of what one discloses is paramount for all stakeholders. As part of the Mahindra group, this has been our greatest strength during M&As. All stakeholders during an M&A have believed that our actions will be guided by the traditions of the group which emphasizes ethics & honesty as its core values. We even invited the managements of the companies we acquired in Germany to our integration summit even before the acquisition process was complete. This really reinforced our emphasis on transparency.

(2) Integrity is not enough - one needs to be perceived to have empathy with the needs of the stakeholders. We were especially careful on this one, winning the trust of the existing management of the companies we wanted to acquire. We explained our vision to them and most of them were convinced enough to push our case with the existing managements. We can proudly say that because of this approach we were able to avoid auctions in all cases

(3) The right kind of competence matters - Companies are expected to have technical competence - the ability to manufacture high quality products and managerial competence - the competence to make these products profitably. We were very particular in ensuring that the competence of the management teams we had inherited stayed with us. We acquired most of the companies because they had strong managements and we retained them. In fact, we are using managers from the European operations we acquired to beef up our India operations. The COO of our Indian operations is a key member of the management team from the forging company in the UK.

(4) Building trust with one group can destroy trust with others - One of the companies we bought has been struggling for sometime. In order to turn it around, we have had to embark on a cost reduction exercise which involved reducing the no. of people. This was a sensitive issue given our Group's commitment to employee welfare. But the rationale was explained to all concerned and the initiative undertaken only after we had exhausted all other means to reduce costs. In this case, we had to choose between the interests of our employees and shareholders and proceed very carefully

(5) Value congruence matters - It is necessary to ensure that most stakeholders achieve congruence around an agreed goal. During our second integration meet, all our forging companies agreed to a goal of collectively reaching the global best EBITDA margins within 3 years. This goal has been adopted by all employees of the forgings business in the form of an oath that was then presented to our Group Vice Chairman & MD, Mr. Anand Mahindra, as proof of our collective commitment.

Our journey so far has been very eventful. We would like to continually grow even as we pursue our theme of building trust with all stakeholders.