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Overseas acquisitions by emerging market-based firms, from countries such as India, are gaining an increasingly prominent share of the global cross-border mergers and acquisition (M&A) deals.[1] However, achieving success in such deals is a mixed bag and is often a combination of excellent management combined with lucky breaks, such as a favorable external environment.
Tata Motors, an Indian automobile manufacturer, acquired the iconic Jaguar and Land Rover (JLR) businesses from Ford Motor Co. at a price of US$2.3bn in the year 2007.[2] After struggling initially, these two globally recognized marquee brands have now started doing exceedingly well under Tata ownership. JLR's revenues improved from GBP 4.9 bn in 2008-2009 to GBP 21.8 bn in 2014-2015. Similarly, profit before tax has improved from a loss of GBP 376 m in 2008-2009 to a profit of GBP 2.6 bn in 2014-2015.[3]
As a result, we have traced the evolution of the acquisition over the years to understand the reasons for its success.
Rationale for the acquisition
Tata Motors wanted to enter the luxury cars and premium sports utility vehicles (SUV) segments to complete its product portfolio, which hitherto was limited to commercial vehicles, low-end passenger cars and relatively inexpensive utility vehicles. Also, in the automobile sector, the Tata brand was largely limited to the Indian market. Acquisition of JLR gave it an overnight global recognition. Tata Motors also hoped to benefit from JLR's strong product pipeline, manufacturing expertise, design capabilities, and an extremely loyal global dealership network.[4]
Short-term outcomes
At first, the deal seemed like it was a mistake. The global financial crisis had affected sales of luxury vehicles worldwide, and JLR was hemorrhaging cash. Tata Motors, with the help of leading external consultants, focused on cost control and improving profitability and liquidity. Reduction in number of employees and tighter operational control helped improve things somewhat. In parallel, throughout the initial couple of rough years, the parent company kept investing cash in the loss-making JLR to keep its product development initiatives running.[5]
Learnings from the eight-year...