The Hindu Business Line : Indian cos' overseas acquisitions set to go up

THERE have been several announcements of Indian companies acquiring businesses abroad but this is just the tip of the iceberg, say investment bankers.

Considerable growth in the number of outbound acquisitions and the increasing complexity of these transactions are the significant trends emerging from Indian M&A activities over the last few years.

However, despite an increase in the number of closed and active transactions by Indian companies in the last couple of years, the total value of deals continues to be low in comparison to other countries.

Compare this: Indian M&A activity was valued at $6.2 billion last year. Globally, the valuation of closed transactions for the same period is a whopping $1,600 trillion, according to data from Bloomberg.

There are a large number of brownfield and greenfield projects that are now coming up. This, added with the fact that there would be at least 8-10 transactions in the $100-million range over the next 12-16 months, makes it an exciting time for M&A, according to Mr Rana Kapoor, Managing Director & CEO, Yes Bank.

Sectors such as cement, pharmaceuticals and IT would continue to be big on the M&A radar. "There is also expected to be aggregation play in the fertiliser sector," said Mr Kapoor.

The Indian M&A scenario is now globally acknowledged. "Overseas sellers are seeing Indian buyers as `serious'. We have now imbibed a global style of professionalism," said Mr Cyril Shroff, Amarchand & Mangaldas & Suresh A. Shroff & Co.

While there are cultural differences in business styles between Indian and western economies, with increased western orientation of Indian education system and general level of awareness, these hurdles are coming down.

"Indians usually find it difficult to say no. Sometimes, this becomes a problem when business heads agree to assorted conditions and the legal teams of both sides are later left to resolve this," Mr Rajiv Memani, CEO & Country Managing Partner, Ernst & Young, said.

Though the numbers and growth expectations are encouraging, there are still items that remain in the wish list of investment bankers and potential acquirers.

"The restriction on foreign direct investment needs to go. There is also a big gap in India in the availability of finance when it comes to acquisition. Further, inbound M&A is hampered by the lack of regulation on the `buy' side," said Mr S. Sriniwasan, Executive Director, Kotak Investment Banking.

Also, issues such as protecting minority shareholders' interest if the company decides to make very expensive acquisitions also need to be addressed, he added.

While teething problems continue in M&A areas, experts agree that the outlook is very positive for Indian corporates. "India has the second highest number of FDI approved plans. This is no small achievement," says Mr Kapoor.

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