The Hindu Business Line : Indian cos go in for large-sized global buys

Going global
The funding of M&A deals is increasingly being done through means beyond just internal accruals and hence the ability to fund larger deals.
Institutions are showing a readiness to fund large deals and this is a clear indication that that there is confidence in the Indian promoter.

New Delhi , July 9

India Inc is not only scaling up the size of its overseas acquisitions but there have been several instances of Indian firms buying out companies abroad that are larger in size compared to them.

Tata Coffee's buyout of the third largest coffee chain in the US, Eight O'Clock (EOC), at an estimated $220 million (Rs 1,019.4 crore) is a case in point. In calendar 2005, EOC's net sales of $109 million (Rs 504.8 crore) was more than two folds higher than Tata Coffee's revenues of Rs 190 crore for fiscal 2006. Oil drilling major Aban Loyd, which had a turnover of Rs 505.42 crore in 2005-06, acquired a 33.76 per cent stake in Norwegian drilling company Sinvest ASA for $446 million (around Rs 2,050 crore).

Engineering major Punj Lloyd Ltd, which had a consolidated income of Rs 1,717 crore last fiscal, acquired Singapore-based engineering firm SembCorp — valued around Rs 2,933 crore (Singapore $1 billion). Subex Systems Ltd, in April this year, acquired UK-based Azure Solutions Ltd, the world's largest revenue-assurance company, in a stock-plus-cash deal exceeding $140 million (Rs 629 crore). Subex's revenue for the year ended March 31, 2006 stood at Rs 181.22 crore (US $40.28 million).

Commenting on the trend, KPMG's Chief Operating Officer, Mr Richard Rekhy, said: "This is not a one off thing, even for deals within India the size has gone up... this is definitely a trend." On the sustainability of the trend whereby firms are buying out players bigger than them, Mr Rekhy said that ultimately, it is the acquirer that brings in the management skills and technology. "They are basically paying a premium for acquiring the market share of the target firm," he added.

For instance, Tata Coffee, though its acquisition of EOC gets access to a hundred-year-old American brand and one of the major coffee retailing firms of the US. Punj Lloyd's acquisition of SembCorp provides it single point engineering, procurement and construction solutions for all business segments in which the group is present and also provides offshoring opportunities from SembCorp as it shifts its high cost activities to India. Aban Loyd's 33.76 per cent stake in Sinvest made it the largest shareholder in the company, with control over 26 drilling assets, catapulting it up as Asia's largest drilling company and the ninth biggest in the world.

Other major deals include GHCL's takeover of UK's largest home textiles retail chain Rosebys for $40 million, paper major BILT's acquisition of a 77.8 per cent stake in Malaysia-based Sabah Forest Industries for $261 million and Aditya Birla Nuvo's $125 million open offer for Canada-based BPO firm Minacs Worldwide.

Mr Rekhy said the funding of M&A deals is increasingly being done through means beyond just internal accruals and hence the ability to fund larger deals. "Institutions are showing a readiness to fund large deals and this is a clear indication that that there is confidence in the Indian promoter," he said.

The value of overseas buyouts by Indian companies, which increased 164 per cent from $1.7 billion in 2004 to $4.5 billion in 2005, has clocked close to $5 billion through the 75-odd deals that have already taken place between January and June 2006. Also, there is a clear preference for European firms, with nearly 50 per cent of the total M&A activity involving Indian firms happening in EU in the first half of this year.

More Stories on : Overseas Investments | Mergers & Acquisitions

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