Intangibles as wealth creators...

Last year, buyers paid 72% of the takeover consideration (on average) for the intangibles in businesses. You might recall that Procter and Gamble Co. paid almost half of the $57 billion (Rs2.72 trillion) for Gillette Co.’s brands alone. Whatever business you are in, your good name plays a significant role in your chances of success. Smart CEOs ensure that they own certain characteristics that are valuable to their customers. Read more at:

http://www.livemint.com/2008/12/16211954/Companies-will-soon-be-valued.html?h=B

What will happen to the small guy..

Ramesh Jude Thomas, President & CKO
EQUiTOR Management Consulting Pvt. Ltd.

A group of us were sitting at a friend’s backyard on the Palms last week pondering on how bad the current situation could get.
The lady of the house, herself a very senior HR executive with a kind heart asked me “But what do you think will be the human cost of all this. So many small people will lose their jobs and businesses”.
At one level she was absolutely right. In a downturn as severe as this, the first people to get affected are the marginal ones. The dispensable ones. The ones that live at the periphery of the economy. The converse is that the strength of an economy really is reflected in the well-being of its marginal members. And what riles me the most is that the thugs that created this situation have all landed safely in their Golden Parachutes, while the rest of the landscape gets annihilated by the bombs that they themselves dropped.
But what about the lady’s question?
I was yearning to say “Nothing dear. They will all survive and do well” But that would have sounded heartless even to her very successful CEO husband who heads a Wealth Fund. Besides sounding completely incredulous at a time like this.
But believe it or not, this is the truth. Let me explain:
In 1991 when India decided to finally relieve the economy from the yoke of Command and Control system, the Left and the Literatti voiced a number of fears. Amongst them was the collateral damage in terms of the hundreds of thousands of small businesses that would go belly up. And why would they die? Because without the protection and reservation that the government had been according them all these years, they would have to fend for themselves against the big boys and the multinational wolves, and the poor things wouldn’t stand a chance.
But guess what?
Earlier this year EQUiTOR was trying to make a case for a private bank to focus on the SME sector in India. During this effort we came across some startling insights on how these poor children of Liberalization had actually evolved. The SME is defined by the Ministry of Commerce as a business that has under USD 250,000 in Capex investments.
The Ministry’s 2007 report on the sector had this to report: Of the Foreign Direct Investment (FDI) going out of India in the current fiscal, 26% of the manufacturing sector’s contribution came from the SMEs . And this figure climbs to 41% for the services sector. A Ripley’s case??
So while the Corus’ and the JLRs make the headlines (and make us proud) it is a guy like Daawat Rice who makes the numbers. LT Overseas (the owners of the Daawat brand) is a family run rice exporter who did a leveraged buy out to acquire a USD 50 mn firm in the US. And here’s the kicker: the debt was partly securitized by the intangibles in the business. They did this to get a “US footprint for expanding their branded business”.
Clearly, the poor little guys we wrote off have now become the pillars of industry. There are a vast number of Daawats out there. They have built their businesses with confidence, backed by a strong fundamentals and resilient assets. Some of them have gone on to become Sensex blue chips (Bharti) and many are waiting in the wings.
I say don’t pity them. Just create an enabling environment and they will be the toast of the economy. What say, gentle hostess?