Funding Fundas: Merge In Synchrony

Optimistic vision, strategic planning, a clear goal and complete trust-these
are the four tenets that led Silicon Comnet and Integrix India to synthesize
their business and create Silicon Integrix. And when two companies merge, their
independent financial issues have to be merged in the most amicable fashion as
well.

New Delhi's Silicon Comnet and Integrix India have always shared an
amicable relationship. Which is why, when the companies merged their business
operations, there was not much room for disagreements.

Atul Bansal

From experience, I can say that when two companies merge, many strategic
decisions are taken and one of the most critical areas that need legitimate
consideration is related to funds and finance. Mergers need to be to done in a
planned manner where the interests of both enterprises are given prime
importance.

Why fund management is important?

Fund management is an important aspect of any business and it assumes even
greater importance when that organization decides to either acquire or be
acquired by another company. At this time, it is pertinent that the promoters of
the business should be clear about the objective of the merging. Accordingly,
they can decide how the finance departments of both the companies should
function and how the available funds should be put to use to reach the decided
goal.

When we decided to merge our business operations, a lot of planning went into
utilization of the common fund in the most efficient manner. There are four
major elements that I consider very important for the formation of a unified
fund management. Firstly, the merger of two companies should lead to the merged
entity having greater leverage power with banks. It can help in getting large
amount of funds from banks that could not have been possible individually. Any
obstacle that could arise due to financial constraints can be handled well with
these resources.

Since the beginning, Silicon and Integrix were very clear as to where the
funds would be allocated. We decided that whichever sector was facing shortage
of finance and needed more attention would be allotted with more funds. This
would help in meeting the common objective.

At the same time, a lot of manpower issues crop up when two companies merge.
It is necessary that the promoters take the entire team into confidence and
outline the common goal. This will also give the ground level personnel a clear
idea on how the funds will be allocated and used in the right direction in the
most effective manner.

Also, while contemplating fund management, it is important that the promoters
plan for the future. There is a good chance that they might want to make the
company public at a later stage. In such a scenario they should create a reserve
fund, which will come in handy for brand building and marketing exercises when
the company does go public.

GUIDELINES TO SUCCESS IN MERGERS Outline the common objective and make sure it percolates to the grassroots workers too All financial decisions should be taken by the board of directors unanimously Financial dealings should be transparent Ensure that the interests of stakeholders, employees and customers are taken care of

Laying your hands on the moolah

When Silicon and Integrix merged, our only source of finance was banks with
which we had been sharing beneficial relationship. Our banks have full trust in
us and we never faced any hurdle in getting funds from them. But not everyone is
as lucky. Therefore they should consider alternate sources like public equity
fund, private equity fund, bonds or venture capital partners. They can even dip
into their internal resources, but this has to be done with great caution.

After two companies merge, the initial 30 or 60 days are very crucial as a
lot of important decisions take place and the right direction and operational
planning has to be considered. To enable smooth fund management, we created a
unified finance department to take care of expenditure and revenue to get a
clear idea of what fiscal loopholes needed to be plugged.

The management of fiscal resources also depends very much on the culture and
working style of the individual companies. One needs to focus entirely on pre
set objectives rather than personal interests. There are many aspects that go
along with fund management including profit making decisions, strategies for
improving brand reputation, revamping the employee salary structure and optimum
utilization of manpower.

In our case, we decided to invest into making a foray into certain business
verticals, which would boost our topline and bottomline, like the defense sector
and public services. We will also be undertaking large projects, for which it is
important that we have a good fiscal gameplan outlined for the next five years.

Harnessing hurdles

Not all mergers take-off smoothly. Some might run into rough weather. It is
important that even in this situation, the promoters keep their contrary
viewpoints aside and plan for the business to carry on with minimal hiccups. The
board of directors should take all decisions after their full acknowledgement.
All financial dealings should be kept transparent for people across various
levels, depending on a need to know basis.

The three most important assets of any company are its stakeholders,
employees and customers. The merger can run into problems if any three of them
are not fully convinced with the finalized strategies. So all of them have to be
taken into confidence before the merger.

In general, whenever two companies merge, neither of them should be
financially starved or have funds in surplus. If they are economically hollow,
it might result in zero profit by the end of the year, as they would not have
enough resources to execute their plans. Being financially fat is also not
healthy as in that case they can face difficulty in achieving their objectives
due to their financial independence. The two companies have to be clear that
their amalgamation is essential for removing their resource constraints.

I believe that operational integration between companies is very important
for merging and people at all levels need to understand the motive behind it.
Decisions need to be taken in a judicious way that reassures the path for growth
and multiply the funds of the company.

The author is MD of Silicon Integrix