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Tuesday, Jan 23, 2007
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Business Daily from THE HINDU group of publications Tuesday, Jan 23, 2007 ePaper |
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Mergers & Acquisitions Corporate - Insight M&A scene: Momentum seen continuing R. Ravikumar
"Also, private equity and venture capital investments in India are expected to rise even further with greater options of sectors available for investment, booming stock markets and growing domestic demand," he says. The year 2006 has been significant in mergers and acquisitions for India, both in terms of volume and value. The total value of 1,164 deals that India witnessed in 2006 has shot up to $ 35.6 billion against $ 21.6 billion from 1,011 deals in 2005. In fact, India ranks 4th in the entire Asia-Pacific region which is just after China as far as M&A activities are concerned.
Key drivers
According to Mr Krishan, the highpoint of M&A deals in 2006 was the bigger contribution coming from private equity players and the sharp rise in the size of overseas deals. Key drivers fuelling M&A activities during this year were entry by new players into markets, establishment of leadership positions by existing players, extension of domain knowledge by acquisition of know-how, much awaited focus on infrastructure and the potential to enter in the fast-liberalising Indian market. Continuing with the growing trend of cross-border transaction, 2006 has seen a significant increase in the number of outbound deals. Four years of sustained growth has boosted the profitability and strengthened the financial position of Indian companies. It is not just the blue chip companies that have chosen to diversify abroad, a number of middle-rung companies have also started making their forays overseas. A host of external factors, such as aligning of interest rates with global rates, lowering of import barriers, easy access to international funding, domestic funding through public issues in the domestic stock market, have also spurred the international foray by Indian companies. High growth sectors such as pharma, IT and auto ancillaries are poised at an inflection point and growing competitive pressure has been a driving force behind the overseas acquisition in these sectors. The pharma sector, in particular, has witnessed an unprecedented rise in cross-border deals, primarily in the generics space with European Union being a preferred market.
Acquiring global cos
Another trend one can see in respect of Indian companies is acquisition of global companies that are much larger than them in size. For instance, Tata Coffee's acquisition of the US-based Eight O'Clock, which is around 2.5 times the size of the former. Similarly, Subex Systems' recent acquisition of Azure Systems (UK), a company larger than itself (Azure has a turnover of $ 31million against Subex's revenues of $26 million). This reflects a big change in the mindset of Indian companies that has come about as a result of greater exposure and increased competitiveness. As companies have successfully faced the challenges of competing on foreign turf, they have matured and grown in self-confidence.
PE investments surge
With entry of players such as Blackstone, 3i, Temasek, private equity investments have been rising steadily in India. For private equity firms, IT and ITeS and telecom continue to be the most favoured industry followed by manufacturing industry. However, other sectors such as real estate, travel & tourism, hospitality and financial services are gradually gaining importance, Mr Krishan says. A trend that has been seen lately is to buy into companies planning maiden offers. Funds have been seen entering companies just before an IPO. With private equity players looking at opportunities to cash out swiftly, pre-IPO buy-ins represent a win-win situation for both the funds and the companies. PE firms, which have been seeing returns from investments in developed markets dwindle, are betting on emerging economies such as India for big returns. Mr Krishnan emphasises that in India, PE and VC players are now looking for promising companies in industries ranging from technology to textiles to retail and seek to give them a boost, doing everything from injecting more capital for expansion to holding the hand of management and providing strategic guidance.
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