M&A activity in India Inc growing at a fast pace

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M&A activity in India Inc growing at a fast pace

M&A activity in India Inc growing at a fast pace

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India has come a long way since the pre-liberalization regime where the country was characterized by stringent regulations, restrictive labour laws, inefficiencies in the judicial system and protection to domestic industry. Today the Indian industry is steadily moving towards building globally competitive enterprises. A steep and encouraging increase in both inbound and outbound M&A is indicative of this trend. This spurt in the cross border M&A activity is backed by healthy performance at home, strong management capabilities and access to competitive financing.

"Indian companies are spreading their wings beyond borders and acquiring foreign assets to serve global markets. The total value of M&A deals in India has been growing at a compounded annual growth rate of around 28% between 2002 and 2006" says Dr. Sarita Nagpal, Head Manufacturing Services Division, Confederation of Indian Industry. Most of this growth has come over the last 2 years, with the value of M&A deals increasing from US$ 7.5 billion in 2004 to US$ 21.4 in 2006.

A recent report by Grant Thornton has revealed that the number of cross-border deals from India in 2006 grew much faster than domestic deals. Last year the M&A deals in India stood at 480 with a total value of about $20.3 billion. Of these, more than half, or 266, were cross-border deals (value $15.3 billion). Of the 480 M&A deals, only 40 had a deal value of over US$100 million. According to the report, the domestic, inbound and outbound deals increased in the range from 36%-42%. The share of domestic, inbound and outbound deals were more or less stable, with domestic deals having a share of 44%, inbound deals 16% and outbound deals 40%.

Tata Steel 's acquisition of the Anglo Dutch steel maker Corus at a price of US$12.1 billion has already set the trend for this year. Hindalco's announcement of the acquisition of Novelis for $6 billion has further fuelled this trend. Vodafone's deal of US$11.1-billion for Hutchison's stake in telecom operator Hutchison-Essar spells the trend for inbound investments.

A recent Paper, released at the CII National Conclave on Expansions and Consolidations states that from 1995 to August 2006, the largest proportion of outbound acquisitions has been in North America, accounting for 32% of total outbound deal. This was followed by Europe that accounted for 29% of total deal. Europe is now emerging as the prime destination for Indian companies making acquisitions abroad.  

Outbound deals from India have had a sectoral trend with Pharma companies being particularly aggressive in scouting for opportunities abroad, going to the top of M&A league with total deal of a little over $2.2 billion. The other sector that has taken the lead is the IT Sector. In the energy sector, ONGC's acquisition of equity stakes in a couple of oil blocks in Columbia and Brazil as also Suzlon Energy's acquisition of Hansen led the M&A deals. 

"However what has really changed in India Inc is the small and medium companies also acquiring the inorganic route to growth. For instance, last April Subex acquired UK based Azure Solutions in a stock deal exceeding $140 million. Six months later, Syndesis approached Menon and in December Subex acquired Syndesis for $164.5 million in the largest overseas acquisition by an Indian IT company; BPO firm TransWorks acquired Minacs Worldwide in June last for $125 million", said Mr. Ravi Poddar, Chairman, CII SME Forum and Chairman Ravi Auto Ltd.  There are many more examples of Indian SMEs acquiring companies globally. This augurs very well for the Indian manufacturing sector, he added.

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