The Hindu Business Line : Overseas success

Defying trying conditions at home, India Inc. is busy in the global arena. The country’s second largest IT firm, Infosys made its first major large scale foray on Monday with a $753 million (Rs 3,283 crore) all-cash deal for the UK’s Axon Group Plc. The next day ONGC Videsh Ltd. (OVL) displayed its muscle with the announcement that it had agreed to acquire Imperial Energy for a staggering $2.58 million (Rs 11,400 crore). Both the target firms are listed on the London Stock Exchange and the bids seem of a piece with the recent trend of acquisitions in Britain and Europe. Even as the domestic economy is undergoing a spell of gloom, the global acquisition hunt is getting busier. Both, in its pace and geographical spread, Indian acquisitions reflect some strategic trends that could have long-term implications for the domestic economy.

Whether by coincidence or design, acquisitions have accelerated this year just as the Western economies, particularly Britain, began slipping rapidly. The six months to June witnessed 76 deals worth $5.2 billion, in contrast to 136 deals worth $4.7 billion three years ago. These six months have dramatically altered the acquisition profile, with 40 per cent in Europe and 36 per cent in the US and India becoming the third largest investor in the UK. In other words, the developed countries have become the target for acquisitions and by all accounts, the pace is bound to pick up as an increasing number of global-scale firms slide into recessionary mode. Acquisitions can only prove beneficial for the Indian firm, as Tata Steel has found with its Corus buy. Axon’s consulting business will add competitive value to Infosys. OVL must be counting on Imperial to access the West Siberian oil and gas producing region. The economy has already begun to benefit through inflows of dividends and royalties; from $295 million in 2006 they jumped to $337 million in the six months to December of the following year.

The spillover effects of foreign direct investment are more palpable in the case of outward investments and mergers in the form of superior technologies, management skills and best practices that rub off on the buyer and the supply chain. All these prepare Indian companies to breach markets traditionally the bailiwick of developed country corporations. As much as the build-up in foreign exchange reserves, a favourable policy environment has helped Indian firms on their way to global size. That should provide some comfort to New Delhi as it battles raging inflation and falling output.

Related Stories:
ONGC Videsh to acquire Imperial Energy for £1.4 b
Imperial bid: OVL gets a fair deal in valuation

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