1. Cleaning Up a German Company, India Style
Auto component-maker Sona Koyo’s chairman recollects how he cleaned up and rescued
his German acquisition
Surinder Kapur
AGE: 68
DESIGNATION: Chairman, Sona Group
THE CHALLENGE: Kapur acquired BLW, a German precision forgings company in
February 2008. Three months later, the company was on the verge of insolvency. To save
it from going under, he needed cash. But he didn’t have any money.
HOW HE DID IT: Kapur started by firing the management, taking charge himself,
cleaning up the stockyards of all inventory, working closely with his customers and
successfully negotiating wage cuts with his workers.
About 50 years ago, BLW, a forgings company in Munich, made a major breakthrough in
technology, which would not cut the gears but forge them directly. Before I started Sona
Koyo Steering Systems, I ran a company called Bharat Gears. One of the products made
was differential gears. In 1984, I went to BLW and asked for a licence. I was refused.
In 1992, when I started Sona, I went to Mitsubishi Materials, which was a licensee of
BLW, and I got the licence from them. That’s how I started Sona Okegawa, Sona’s
forgings division. In 2005, I approached BLW again. By then, the company had been sold
to the ThyssenKrupp group and was called ThyssenKrupp Precision Schwede. I
approached them and said, ‘Let’s try to merge. Or maybe you can buy me or I can buy
you.’ But they said, ‘No, we are not selling.’
However, in 2007, I got a mail from their chairman’s office, asking if I was still
interested in the company, because they were selling it. We met in July 2007 in Stuttgart
and I signed a non-disclosure agreement. I came back to India, met the chairman of ICICI
Bank to ask for acquisition funding. They agreed in principle.
Now remember, this was in 2007, during the economic boom. Everybody was acquiring
everything. At that time we were a Rs 200-crore company (Sona Okegawa), and
ThyssenKrupp Precision Schwede was worth Rs 2,000 crore. So, this was a huge
acquisition for me. I knew it was a huge risk.
I decided to go ahead. On February 1, 2008, we became the owners of the company. I
paid 75 million euros for it. In my mind it was really about buying a company that had
come up with the first breakthrough in precision gears. Munich gives the technology to
Japan, Japan gives it to India and then I go out and buy the original company. Of course,
by then this company was no longer just in Munich. It had two other plants in Germany
and one in the USA. So, from my perspective, this one jump gave me the opportunity of
getting the who’s who of the world as customers and becoming a global player.
But I soon realised that the management had not been transparent with me. Even when

2. we were buying it in 2007, the company was beginning to have problems. Because the
market was looking up, the management was buying material indiscriminately. They had
undercapacity, which meant demand was so high they were outsourcing a lot of their
work and losing money. They didn’t disclose that to us. By June 2008, we ended up in a
real cash bind. So, I had bought the company in February and on June 18, 2008, the
managing director wrote to me saying, ‘Please bring 20 million euros more otherwise we
will have to take the company into insolvency.’ I was aghast!
The Clean-up Plan
The first thing I did was to hold an emergency supervisory board meeting, fire the
commercial managing director and get on the management board myself. I changed the
management board totally. Some people left, but some were asked to leave, which was a
costly affair. Then I saw that our inventory was at 58 million euros, compared to what it
should have been [28 million euros]. That’s where our money was. So, I contacted my
customers and told them I was in a cash bind, and requested them to start paying on
delivery rather than wait for 45 days. I was very upfront in saying that, otherwise I would
have to declare insolvency.
Second, I got R Bala, one of my finance guys here in Gurgaon, and put him in charge.
We reduced the inventory to 30 million euros in about three months. We decided that no
purchases of these items would take place and just cleaned up the shop.
A drop in sales
Then, I had another problem. I didn’t have any money to invest because of the financial
crisis that started in October 2008, and our sales dropped from 29 million euros a month
in February 2008 to 12 million euros in December.
I spoke to a lot of consultants and everybody said, ‘Why don’t you hire a re-structuring
officer?’ I looked around and asked, ‘Where do I find one?’ You know, it is horrible
being in a foreign country without knowing the real industry and without having a partner
to operate. But finally I hired a guy, who came in and said we need to fire about 500
people. I said, ‘How will you fire them?’ They will all claim [severance pay]. He said,
‘Yeah, yeah… So, bring in some money.’ And he asked me to bring in 15-20 million
euros. And I said, ‘Listen, if I had to do that, I would have paid those guys.’ So, within a
few months I fired this guy.
What I found terrible in my situation was that I had inherited a company from a large
corporation, so it was very bureaucratic while ours was a mid-sized business. The
company had become a mid-sized company, but its people were functioning as if they
were still in a large company. For instance, my plant manager told me, ‘I am meeting my
cost objectives. Profitability is not my headache.’ There was nobody in charge of
profitability, nobody in charge of cash flows. Because it had been part of a big company,
if they were ever short of cash, they would get it. The management was not flexible. It
just sat around waiting for somebody to tell them what to do.
Frankly, what was required in the company was a 30 percent cut in salaries across the

3. board. The management I inherited was focussed on, ‘How do we get rid of people?’ You
can’t get rid of people in Germany without paying them. More than 50 percent of the
people had been in the company for 30-odd years. That was a lot of money. I couldn’t
come back to ICICI and ask them for another 20 million euros! They would have asked
for personal guarantee, more collateral, which I didn’t have.
Understanding the workers
Then I sat down with the unions myself. I had detailed discussions with them.
I began to understand that in Germany the people who are most affected by a plant’s
closure are the workers, not the managers. The managers get up and leave and find
another job. Workers don’t want to leave a company. So, eventually I did an agreement
with the union where they gave up 10 percent of their wages for a year. I said to them,
‘Look, we have had a similar situation in India (slowdown). If we lower wages, then we
don’t have to fire anybody. Because tomorrow I will require these skills and I will have
to retrain people, which will be another additional cost.’
I have three plants, each of which has a works council. Each of the leaders of the works
council worked with me and the union to form a new tariff agreement where everybody
gave up certain rights. They gave up their Christmas bonus, they agreed to work for two
hours extra every week and not take any salary increments for a year. All of this gave me
the feeling that I was now able to collect the employees of the company towards a
common goal, which is to create a profitable company.
I have given time to this company, going to Germany every month, staying in a 300 sq
feet apartment. All of this was unplanned. At times I have spent three weeks a month
there. I did not buy the management’s argument that workers are tough. By going there
every month, I have sent a signal that I am committed to this company.
Three years ago, we had a -9 million euros EBITDA; this year we have come to a +25
million euros.