COVER STORY

CREATING LASTING SHAREHOLDER VALUE

The quality of any merger or acquisition must be evaluated on several parameters: the complexity of the deal, the tangible value created, and the quality of post-merger integration, to name a few. Clearly, CFOs can make unique contributions at every stage of the way – from target identification and due diligence to post-close execution – all while balancing financial analysis, corporate aspirations, and cultural issues. Effectively managing an acquisition and delivering the promised shareholder value requires well-rounded capabilities. A fine example of such an individual is Sanjay Puria, Group CFO of WNS Global Services, and winner of the ‘Excellence in Mergers and Acquisitions’ category in IMA’s 2018 CFO Awards.

In the span of just one year, Mr Puria executed three multi-geography – U.S., Turkey, Ireland, China and India – cross-border deals, all in parallel. His efforts are most commendable since WNS pursued the Value Edge and Denali transactions with an in-house M&A team (a cross-functional team of experts led by a Program Management Officer, and supported by external, global experts for tax, legal, advisory/diligence). WNS engaged an investment bank for the HealthHelp transaction for their industry-specific expertise and outreach. Rather than opportunistic gains, each deal was assessed for its strategic benefits. All three were in line with WNS’ acquisition philosophy, which is built around delivering capability addition to its clients, improving its speed-to-market (thereby accelerating its growth) and being financially accretive. The assets were diligently identified, assessed and sought by deploying the proven ‘CRAFT’ acquisition methodology.

Mr Puria led the process of asset identification, strategic-fit assessment, and – critically – the preexecution negotiations. In the first deal, he convinced the target’s PE investors to move forward, ensured funding through Masala bonds, and secured the full support of its subcontractor in the Philippines. In the second case, a competitive bid process was converted to an exclusive bid for WNS, while diligent follow-up helped secure the RBI Board’s approval. Close coordination with the target firm’s promoters – to convince them of the cultural fit and market alignment – was critical to converting a proven partnership into a successful acquisition. Mr Puria himself continues to play a driving role in the key area of post-merger integration. The third acquisition was built on a ‘partner first’ model. It was the result of a three-year association between two partners, who were strongly culturally aligned, and able to see great value in working more closely together.

A collaborative approach helped Mr Puria take on board key players in the acquired entities, including their extended vendor eco-systems. A mix of cash and debt at very competitive rates underlaid the process. Each acquisition had a strong rationale, diversified WNS’ geographic presence, and bolstered its niche position. The deals have created strong growth in market capitalisations, with the firm’s share price rising by 57.5%, compared to a low single-digit increase for the market at large. Revenue per employee has grown 21% in FY18; revenue growth was 28% in FY18.

Speaking with CFO Connect, Mr Puria lent insights on his role in strategising and executing complex M&A transactions to create lasting shareholder value.

The Big Picture

WNS remains well-positioned for success in the BPM industry, owing to our strong capabilities and ongoing investments in deep domain expertise, technology and automation, advanced analytics, and process knowledge.

What are WNS’ strategic goals for the next 3-5 years?

WNS remains well-positioned for success in the BPM industry, owing to our strong capabilities and ongoing investments in deep domain expertise, technology and automation, advanced analytics, and process knowledge. Our approach is resonating well with both existing and prospective clients, and our financial performance continues to validate our ability to execute. We will continue to target industry-leading performance and create long-term value for all our stakeholders. As digital-at-core becomes a reality, our key focus in the next 3-5 years will be on co-creating and offering digital-at-scale solutions to our clients by leveraging AI, robotics process automation (RPA) and analytics. We will also continue with our reskilling initiatives, helping employees to match the pace of disruptive technology. We aim to be the ‘employer of choice’ for future-ready talent.

Finance at WNS is at the forefront – playing the role of strategy enabler, business partner, and custodian of good business and financial practices.

Where would you position Finance in the achievement of these objectives? What role does finance play in enabling the business to manage change effectively?

Finance at WNS is at the forefront – playing the role of strategy enabler, business partner, and custodian of good business and financial practices. It drives growth and delivers value for all stakeholders, including the business, clients, employees, regulators, investors, and industry, in several ways:

Strategy enabler: Finance along with the business (CXOs and business unit leaders) shape and drive strategic objectives such as new capability acquisitions, geographic expansion, large deal support, including driving carve-outs, joint ventures and new delivery partnerships. The overarching goal of Finance is to deliver effective capital allocation with better ROI to fuel growth.

Business partner/ Chief Performance Officer: Finance partners with the business to drive operating rigor, excellence and value addition to clients through regular tracking, monitoring, review of operational metrics/KPIs, and business insights through analytics.

Custodian of good business and financial practices (including regulatory and legal compliance): WNS’ Finance function has embarked on a transformation journey through adoption of technology, automation, analytics, and re-skilling of talent to be a future-ready organisation, thereby delivering benefits through initiatives such as utilisation analytics, paperless treasury and productivity improvement through robotics, etc. These initiatives have reduced human intervention and enforced financial risk management through better governance and controls.

Ultimately, the Finance department plays the traditional, transactional and transformational roles in tandem to enable business manage change effectively.

Going forward, we foresee greater disruption and regulation playing a larger role which could affect growth and create opportunities.

WNS saw high revenue growth in FY18 despite multiple headwinds, such as GST, demonetisation, US rate hikes, etc. What enabled this? Are there any structural changes happening to the product or pricing mix? Going forward, what challenges do you foresee in maintaining this momentum?

Despite the headwinds, FY18 was a year of great progress for WNS – driven by our approach that is based on domain-led ‘co-creation’ and the large ecosystem that exists around it. Our differentiated approach (Domain + Technology + Analytics + Co-creation to Outperform) and diversification by design (i.e., accomplishing the appropriate market/geographic, industry, services, global delivery and client mix through effective strategy execution) have together resulted in sustainable high growth, as evident in WNS’ performance in FY18.

In the times ahead, we foresee disruption and regulation playing a larger role across industries, which could be seen as challenges affecting growth, but we believe they will bring enormous business opportunities, too.

Mergers and Acquisitions

WNS’ ‘CRAFT’ acquisition philosophy is to deliver strategic benefits such as capability addition, speed to market, and financial consolidation.

WNS undertook three complex, consecutive, multi-geography, cross-border acquisitions within a span of 12 months. What was the rationale behind these deals? How were the targets identified?

All three acquisitions – HealthHelp, Denali and Value Edge – are in line with WNS’ acquisition philosophy of delivering strategic benefits, such as capability addition to service clients, speed to market to accelerate growth, and being financially accretive. The assets were diligently sought, identified and assessed by deploying our proven acquisition methodology, ‘CRAFT’, which stands for:

Collaborate – internally and externally and with all relevant stakeholders Risk identification and mitigation for extreme value creation Assess – for strategic fit Fit – for cultural compatibility Track – monitor the desired results long after the deal is inked

HealthHelp brought in differentiated care management capability, decision support technology platform, and analytics, enhancing capabilities in healthcare, one of WNS’ core verticals.

Denali brought in technology and industry agnostic, differentiated, capability in source-to-contract (including strategic sourcing, category enablement/management, transactional procurement and contracting), complementing WNS’ procure-to-pay (P2P) capability, and enabling WNS-Denali to deliver end-to-end capability in source-to-pay.

Value Edge brought in domain and differentiated capability in competitive intelligence (CI), market research and dashboarding, along with a blue-chip client roster in the pharma industry.

The guiding principle for WNS while deciding the value of each company was organisational growth.

How did you value each acquisition? How were they financed? How did you optimise cash, debt and equity?

Several factors, including past track-record, market opportunity, profitability estimations, expectation, uncertainty, known and unknown risks, are required to be considered while valuing an acquisition. Therefore, it is not a simple exercise. The cumulative value of all three deals was over USD 150 million. Individually, Value Edge was acquired for USD 17.5 million in an all-cash transaction; Denali was acquired for USD 40 million and HealthHelp was purchased for USD 95 million largely through a long-term debt.

The guiding principle for WNS while deciding the value of each company was organisational growth. The acquisitions delivered value as envisaged, bringing in differentiated capability, establishing end-to-end capability, bolstering market positioning, increasing earnings per share, and creating value for stakeholders at large. The acquisitions were funded through a mix of cash and debt, given WNS’ strong cash position and capital market accessibility. WNS optimises cash deployment to maximise returns to our shareholders.

As long as the acquisition has a compelling value proposition, all challenges can be addressed, unless there is a red flag.

The acquisition of HealthHelp required convincing the target’s PE investors. What challenges did you face in this regard? What was the transaction structure of the deal?

In any acquisition, each day brings a new challenge; however, we have to overcome them through a solution-oriented approach, proven acquisition and integration frameworks, and a considerable amount of patience. As long as the acquisition has a compelling value proposition, all challenges can be addressed, unless there is a red flag, which cannot be addressed through a mitigation plan.

WNS also faced numerous challenges during the acquisition of HealthHelp as it was a PE-owned, cross-border transaction, but we effectively addressed each issue by deploying our proven acquisition methodology ‘CRAFT’, and the Blue Book of Integration (BBI). WNS deployed an innovative deal structure, though complex, complied with all applicable regulations, and accomplished a 100% equity purchase, which was funded through a mix of cash and debt.

Trust, cultural alignment and common vision were the key factors that convinced Value Edge about WNS being the right partner.

In the case of Value Edge, the competitive bidding process was converted into an exclusive bid for WNS. Could you share more details on how this was achieved and what other challenges were overcome to close this deal?

Bringing about trust, cultural alignment (through a partnership approach) and sharing the vision of there being greater value in the two organisations working together were the key factors that convinced Value Edge about WNS being the right partner – which was instrumental in converting the Value Edge transaction into an exclusive bid for WNS.

The collaboration was crucial to understand what the partner was looking for, and to align the organisations’ objectives. Value Edge brought in domain expertise and WNS brought in the market reach and ability to invest. The two organisations together made a compelling value proposition for growth. However, one of the other key challenges was the delay in regulatory approval required to close the deal. WNS was able to overcome the challenge through right focus, attention, perseverance and patience.

The purchase of Denali required meticulous planning, given that Denali had an entrepreneurial culture and the promoters did not have prior experience of M&A. How was a win-win created for both the companies?

The Denali transaction was built on a ‘Partner First’ model. WNS and Denali were already, jointly servicing a large manufacturing client and had established a high level of engagement, trust and appreciation for each other’s capabilities. The deal was a result of this successful three-year long association that brought in good cultural alignment. We are now able to envisage greater value in working together and pursuing a larger vision/accelerated growth.

WNS-Denali establishes end-to-end capability in source-to-pay, access to the global market, and an opportunity to upsell and cross-sell, thus accelerating growth, and creating a win-win for both organisations. The combined entity is now recognised as one of the Top 50 Providers to Know by Spend Matters; the leader in the HfS Blueprint Report (Procurement as a Service, 2017); and the leader in Nelson Hall’s NEAT for Sourcing and Procurement in 2018.

Investment banks play a very important role, especially in cross-border and PE-owned transactions where the company cannot establish direct contact with target company management and promoters.

The M&A deals were executed by the internal team, without having to use the services of investment bankers. What are the advantages and disadvantages of not hiring an investment banker?

WNS pursued the Value Edge and Denali transactions with an in-house M&A team (a cross-functional team of experts led by a Program Management Officer, and supported by external, global experts for tax, legal, advisory/diligence). We, however, engaged an investment bank for the HealthHelp transaction for their industry-specific expertise and outreach. There are merits to both the approaches. Investment banks play a very important role, especially in cross-border and PE-owned transactions where the company cannot establish direct contact with target company management and promoters. They provide the right perspective/the partner’s point of view, and help establish an appreciation of larger value, thus being a core catalyst in enabling a transaction.

How was the internal team formed? What was the reporting structure? Were there any competency gaps?

WNS’ M&A team constituted of cross-functional experts (identified especially for that particular transaction) from various function,s including Capability, Operations, Technology, HR, IT, Finance, Tax, Legal, Risk and Infosec. The teams were led by a Program Management Officer who worked under the guidance of the Group CFO.

Regular reviews were held with the core leadership (CXOs across functions) which continued right until completion of integration, including regular reviews with the steering committee that provided direction, guidance, and regular course correction. Competency gaps, which are usually around global functional expertise, were addressed by engaging advisors such as global financial/tax and legal firms.

Cultural fitment is one of the key factors for the success of any acquisition.

All three acquired companies had a very different work culture as compared to WNS. How did WNS align various stakeholders to achieve a common goal?

Effective, timely, and transparent communication was helpful in building trust and overcoming ambiguity and uncertainty related to the acquisition especially in the minds of various stakeholders, specifically clients and employees. This is crucial for any transaction. WNS thus ensured that it conveyed and convinced various stakeholders of the rationale of the transaction, and its vision for future growth of the combined organisation, while establishing a culture of collaboration and inclusion quite removed from a ‘My way or the highway’ approach.

Communication was held with employees via several channels, such as town halls, wherein the leadership was able to convey the message of inclusive growth, remove fear (of job security) and ambiguity (about future growth or ‘What is in it for me?’). Sharing the vision of the combined organisation, and the role each one of us played in accomplishing the vision, helped employees place themselves in the bigger picture, and appreciate the need for change. WNS understands that one approach is not fit for all, and therefore, customises communication to meet requirements across various stakeholders. While all aspects of the CRAFT were deployed, the ‘F’ (for ‘Fitment for culture’) was the most crucial to bridge any gap.

Was cultural fitment a factor in the original due-diligence and finalisation of targets?

Yes, cultural fitment is one of the key factors for the success of any acquisition. As part of the diligence process itself, WNS assessed the assets for cultural fitment across all transactions to identify potential risks, and prepared mitigation plans to ensure seamless integration. With our experience of geography-specific know how/cultural nuances and of delivering operations globally, across 12 countries, we were able to establish cultural compatibility, despite the transactions being complex or cross-border.

What was the roadmap adopted for smooth integration from the functional, cultural, capability and technology perspectives?

Integration to WNS is about building trust, partnership and coming together to achieve higher goals. WNS’ focus through the integration, apart from other aspects, is mainly on the ‘people’ aspect. The company works towards building trust and overcoming ambiguity and uncertainty related to the acquisition, in the minds of various stakeholders; promoting a conducive and inclusive work culture, often hand-holding and leading the path, as may be necessary. This is supported by deploying WNS’ day-0, day-1, 30-day, 90-day, 180-day and post 180-day integration roadmap using its time-tested Blue Book of Integration (BBI), which is a step-by-step guide to integration across all aspects (including functional, cultural, capability, and technology). The integration team regularly holds reviews with the core leadership (CXOs across functions) which are continued right until completion of integration, including regular reviews with the steering committee that provides direction, guidance, and regular course correction.

Some of the key management decisions taken in the first few days post-acquisition were around communication and re-alignment.

What were the key management decisions taken in the first few days post-merger? What challenges did you face with post-merger integration?

Some of the key management decisions taken in the first few days post-acquisition were around communication and re-alignment:

Keeping communication at the forefront: WNS carried out timely, transparent and effective communication with employees, clients and investors across both companies to convey the overall rationale and value of the acquisitions, while establishing trust among stakeholders and addressing any questions or concerns. The leadership played a key role in such communication, garnering a culture of inclusion.

Realignment: We understand that one size does not fit all, and therefore, our approach to accomplishing integration across various aspects is customised to the situation. For instance, for technology integration (in one of our acquisitions), our milestones were re-aligned to integrate some aspects of technology upfront while delaying certain aspects for later.

CFO plays a crucial role in driving integration of the acquired companies by providing guidance and course correction towards achieving the strategic intent of the acquisition.

What is the role of the CFO and Finance in driving integration of the acquired companies?

The role of the CFO is to provide overall steering and direction to the acquired organisation such that goals/milestones are achieved as envisaged; to take key decisions required to overcome any red flags or obstacles; to ensure completion of integration; and to provide guidance and course correction towards achieving the strategic intent of the acquisition.

All three acquisitions helped in double-digit revenue growth and appreciation of stock price.

What is the impact of these acquisitions on WNS’ topline, bottom-line and market cap/share price?

The three acquisitions – Value Edge, Denali and HealthHelp – have delivered the following benefits:

  • Top line: Double-digit net revenue (revenue less repair payments) growth of 28.1% in FY18
  • Bottom line: Adjusted Operating Margin of 19% for FY18
  • Market cap/ share price: Appreciation of 57.5%, while the market (NYSE) appreciated 8.35% between April 3, 2017, and March 29, 2018.

WNS’ integration framework are regularly updated to integrate learnings from each acquisiton.

What are the key learnings from the M&A, particularly in this complex and multi-jurisdictional initiative? Is there anything that you would have liked to do differently?

Each transaction is unique and brings with it new aspects of learning. WNS’ acquisition and integration frameworks are regularly updated to integrate such learnings. The M&A transactions also brought key learnings across parameters: technical expertise, an eye for known and unknown risks in a disruptive environment, retention of people/capability and transaction structuring.

In your experience, what are the top skills required of CFOs to successfully navigate M&A activities?

Strategic vision, solution-orientation, collaborative problem solving, quick decision-making to navigate through obstacles and patience (from the perspective of execution of envisaged objectives).

Rapid Fire

Being a CFO to you means

Going beyond the role of a traditional CFO towards being the ‘Chief Performance Officer’ (as a strategy enabler, business partner, and custodian of good business and financial practices) responsible for driving growth and delivering value across stakeholders (business, clients, employees, regulators, investors, and industry).

One important learning?

There are no shortcuts to real success, and to succeed, speed, agility and a learning attitude are of utmost importance.

What was the toughest decision you had to make in your role as a CFO?

There are often, tough decisions one has to make in this role. One such decision was to exit a client account that was no longer commercially viable, even though it led to a reduction in growth. I believe one should not shy away from saying ‘No’ when it does not make a business sense.

What comes to your mind when I say the following:

  • Communication and the CFOs: CFOs should be assertive and transparent. Additionally, the communication should be quick and effective, with analytics-driven business insights.
  • CFO & Strategy: A modern day CFO should be a value creator (far beyond the traditional role of being a number cruncher) – one who partners with the CEO /and CXOs in shaping the organisation’s strategy, driving strategic initiatives and enabling profitable growth.
  • CFO & Risk Management: Amid today’s dynamic and disruptive environment, CFOs need to play the role of Chief Risk Officers, helping organisations proactively identify and manage risks and create value.

Top three things on your bucket list:

  • Improving my culinary skills
  • Travelling and exploring new countries and their cultures
  • Spending quality time with family and my son (as both father and mentor)

Favourite book/movie:

My all-time favourite movie is ‘3 Idiots’. This movie is entertaining, touching, but most of all it gives an important message: ‘Be capable and success will follow you’.

Comfort food:

Rajasthani, Thai and Chinese.

What do you do to keep yourself operating at an optimum level?

A few mantras that keep me energetic are: enjoy what you do; surround yourself with smart people; take out time for a regular morning walk; effectively prioritise, and maintain good work-life balance; carry a positive attitude; celebrate success; and above all, give back to society, in whatever ways you can.