M&A: Tata Group’s strategy to focus on Mergers & Acquisitions for growth

M&A: Tata Group’s strategy to focus on Mergers & Acquisitions for growth:

The Tata Group’s growth from $4 billion in 1991 to around $165 billion in revenues in 2024 is a significant success story in the Indian corporate landscape, largely driven by the Group’s strategic mergers and acquisitions (M&A) across various sectors and geographies under the leadership of late Shri Ratan Tata.

• Tata Group of the 80s:

In the 1980s, pre Indian liberalization, India was not open to foreign ownership of corporates, and hence available route open to foreign MNCs was to enter India through local Joint Ventures. Tata Group was India’s largest and most diversified group at that time and became an obvious choice for large MNCs to enter the Indian market through JVs. This also gave Tata’s edge over Indian competition and access to new products and technologies. However, post-liberalization of 1991, many of these foreign partners now could enter India on their own, which forced Tata to change its growth strategy.

• Inorganic Growth as a Strategy and Tata’s Approach:

Ratan Tata took the reign of the group at a time when the group required someone to lead the charge and break the passive image of the group. He argued that Tata has always been and should be a pioneer and at the forefront of technology. He was a visionary and decided that Tata should be into cutting-edge industries and should focus on technological disruptions.

Tata’s strategy focused on acquiring companies that would keep Tata Group in high-margin markets internationally. Tata Group’s approach to acquisitions was a “feather touch” approach, which meant that the existing management was largely kept untouched and large-scale changes that generally follow M&A deals were to be kept to a minimum. Tata would only provide financial support and sometimes directional support to the acquired company. This strategy also meant that Tata was against Hostile takeovers as they would always expect the existing management to lead. (Indian businessmen, as if following Tata’s footsteps, have still largely stayed away from Hostile takeovers to date). Lastly, Tata always saw acquisitions as a long-term strategic decision and entered only when the business aligned with Tata Group’s philosophy and where Tata could create long-term value. Acquisitions were never financial decisions for Tata Group and they were against acquiring, creating value, and exiting.

• Acquisition of Tetley (2000):

One of the earliest major global acquisitions by an Indian company, Tata Tea acquired the UK-based Tetley Tea, which positioned Tata in the international consumer goods market. The acquisition had synergies as Tetley purchased tea that was produced by tea plantations owned by the Tata Group. Also, the acquisition gave Tata access to an international branded market with high margins. Tetley turned out to be a success story and is today the second-largest Tea Company globally after Unilever.

• Acquisition of Corus (2007):

Tata Steel’s largest purchase was, Corus, a European steel giant, which it acquired for a price of over $12 Billion. Tata won the acquisition battle against

Brazilian company CSN and deal made Tata Steel one of the top 5 steel producers globally. The deal was struck at the time of the bullish steel industry. Cost synergies with Tata Steel due to advanced steel manufacturing technologies were also expected.

However, the Steel industry soon turned south with cheap Chinese steel hitting the market along with the global economic crisis which impacted demand. Tata’s approach of feather touch also didn’t help. Corus was a merger of a UK entity and a Dutch entity put together by a financial investor and the company required large-scale changes and a hands-on approach to be successful. The business was acquired by debt and started bleeding very soon. Corus was later absorbed by Tata Steel after multiple efforts to sell the British operations failed.

• Jaguar Land Rover Acquisition (2008):

In an iconic deal, Tata Motors acquired the luxury car brands Jaguar and Land Rover from Ford in 2008 for $2.3 Billion in an all-cash deal. JLR had just made a £400 million loss in 2008 in the wake of the financial crisis but Tata realized that the company had a rich set of designs in the pipeline. Tata’s feather touch approach meant that the Tata group kept the JLR management untouched and didn’t impose Tata’s management on it. Tata also supported JLR financially despite cash pressure on the group in the wake of multiple acquisitions and pumped over a billion pounds into JLR for research and other endeavors.

The approach worked perfectly and JLR became a rare example of a foreign turnaround story by an Indian corporate. JLR started posting profits from 2010 onwards and in 2024 has posted a profit of over £2.5 Billion. Apart from that, JLR technology and high-performance designs increased the success rate of Tata Motors launches considerably.

Interestingly, the JLR acquisition is also a story of sweet retribution. Earlier in 1998, Tata launched Indica, a diesel hatchback, and entered the consumer segment, but sales were dismal and Tata soon decided to sell off the business. Ford came up as a suitable acquirer and Tata flew to the US to meet the Ford chairman. Ford humiliated Tata and told them that Tata did not know anything about the passenger car division. Ratan Tata took the comment at heart and decided to focus even more. Fast forward to 2008, Ford was on the verge of bankruptcy in the wake of the financial crisis. Post all cash deals between Tata and Ford, the same Ford chairman thanked Tata publicly “You are doing us a big favor by buying JLR!”

• Other Acquisitions & divestments:

Tata made several other acquisitions directly or through group companies to rapidly grow the turnover and acquire technologies. Notable ones included truck maker Daewoo, the soda ash business of General Industries, Starbucks JV, multiple acquisitions by TCS, etc. Not the least, Air India was also welcomed back in the group in 2021 after a gap of 90 years. (https://vorafin.com/insights/ma-tata-group-to-acquire-100-stake-in-air-india/) 

At the same time, Tata Group also continuously rationalized businesses to free up capital and management bandwidth. Amongst the businesses to go were interests in cement, pharmaceutical, and paint businesses amongst others.

• Financial Management & Social Commitment: Tata made sure that the group was always financially well managed despite cash outflows and debt burdens due to a string of acquisitions. An acquisition like Corus was a drag on the balance sheet for years after the acquisition due to adverse market conditions.

The financial strain became visible in the group post-2008 Lehman crisis, however, Tata’s son’s financial support and well-managed financial planning made sure that the group never faced an existential crisis.

At the same time, even in the most adverse times, Tata Group never left its roots maintained its reputation for ethical business practices, and stayed committed to people and social causes. This trust also facilitated easier access to financing and made acquisitions smoother, as stakeholders were often more receptive to Tata as an acquirer. Today, Tata Group is India’s largest conglomerate with operations in over 100 countries and a market capitalization of over $400 Billion.