The Hindu Business Line : Sizzling days for M&A closer home too

These are sizzling days for mergers and acquisitions (M&A), not only worldwide but also closer home. India has seen a 175 per cent volume change, to rank third in the global tally of growth rates, as per a recent analysis by Bloomberg.

What is driving M&A ascent in India? "Aspiration of Indian business to go global and the fact that opportunities exist overseas for turnaround of businesses," says Mr V. Ranganathan, Partner, Global Tax Advisory Services of Ernst & Young. The first half of 2006 saw India deals, both inbound and outbound, worth more than $25 billion.

Outbound deals up

There was a sharp increase in outbound, that is, Indian companies acquiring businesses abroad. "The largest proportion of outbound acquisition targets by volume continued to be in Europe which accounted for over half the deals, while South America took the lead in value terms," reports the mid-year issue of Asia-Pacific M&A Bulletin from PricewaterhouseCoopers.

"Outbound on IT (information technology) side must be to acquire products and customers," Mr Ranganathan suggests. In the case of manufacturing companies, the focus, he says, can be on customer base, IPR (intellectual property rights, as with the pharmaceutical industry), brands (for consumer goods), or turnaround of sick units.

A tricky issue can be if this is the right time for Indian companies that are planning to realign their priorities. In short, should they think of exiting unproductive operations? "Yes, wherever synergies are absent and exit valuation is right," says Mr Ranganathan.

Tax laws

How far do tax laws and other laws encourage or constrict M&A, inbound and outbound? "Tax laws on outbound are very non-conducive," frets Mr Ranganathan. Thankfully, however, on the inbound side, a `lot of planning is possible,' he says, drawing attention to the existence of a `good tax treaty network'.

Is public domain information of listed companies adequate for a prospective acquirer? "I don't think there is any dearth of information," he opines. "The advisors typically know who is who. Most of the deals originate in some context or the other."

What are his metrics of a successful M&A? "M&A metrics are all about right valuation," Mr Ranganathan says. But what is right? "Where a buyer thinks something is left on the table for him, and the seller feels he can earn no better than what is offered," he explains.

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