Kai Taraporevala
James Winterbotham

DEAL activity in the first half of 2005 broke out of the flat trend seen since mid-2002. INDATA recorded 277 deals valued at Rs 261.5 billion ($6 billion) between January and June 2004. H1-04 was a good period for corporate finance, and the total deal value was more than twice (235 per cent) that in the first half of 2004 (Rs 111.2 billion, $2.5 billion) and well ahead of the full year total for 2004 (Rs 234.1 billion, $5.2 billion).

Average deal value was higher by 42 per cent at Rs 944 million ($21.7 million) compared to Rs 663 million ($14.7 million) in 2004. Strategic investors dominated the deal flow in H1 2005. M&A deals made up 88 per cent by the value of all deals and private equity deals only 12 per cent, compared to 67 per cent and 33 per cent in the whole of 2004. However, private equity majors such as Blackstone and Carlyle have established offices in India and announced substantial investment plans.

New trend: Block deals

While issues of warrants and foreign currency convertible bonds (FCCBs) remain popular, a new trend has emerged of block deals effected through the stock market (Chart 1). While block deals are not part of INDATA, it is difficult to ignore 12 large block deals on India's two main stock exchanges BSE and NSE, which totalled Rs 68.5 billion ($1.6 billion million). In the largest of these deals, Warburg Pincus made a profitable exit by selling a 9.3 per cent stake in telecom major, Bharti Televentures, for Rs 38 billion ($872.8 million) in two block deals to a consortium of investors including Capital International, Fidelity, the Government of Singapore and others.

Sectors, players, key deals

The finance sector replaced IT as the largest contributor to INDATA in H1 2005, with a total of 36 deals totalling Rs 50.8 billion ($1.2 billion) made up 20 per cent of total deal value. IT still remained the largest contributor in terms of number of deals with a total of 43 deals, but made up only 5 per cent of the total deal value.

In contrast to previous years, deal activity in H1 2005 was spread across a wide range of sectors, with telecom (16 per cent), foods and FMCG (13 per cent), cement and building materials (10 per cent), metals (9 per cent), oil and gas (5 per cent), automotive (5 per cent) and pharma and healthcare (5 per cent) displaying healthy levels of activity (Chart 2).


(36 deals totalling Rs 50.8 billion, $1.2 billion)

The finance sector was the biggest contributor to INDATA in H1 2005. While activity was spread across sub-sectors, 50 per cent of the deal volume in the finance sector was contributed by Mr Anil Ambani's acquisition (through holding company AAA Enterprises) of a 52.03 per cent stake in asset management company Reliance Capital for Rs 25.6 billion ($587.8 million). The deal will be completed by way of a preferential allotment of shares and a subsequent tender offer to existing shareholders, as per takeover regulations in India. Reliance Capital manages the sixth largest mutual fund in India, and had assets under management worth Rs 99.1 billion ($2.3 billion) at end-June 2005.

This acquisition was announced almost immediately after the announcement of the resolution of the Reliance Group ownership dispute between the brothers Mukesh Ambani and Anil Ambani by way of a division of group companies. Reliance Capital is one of the former Reliance Group companies that will now form part of the Anil Dhirubhai Ambani Group.

Another notable deal was the merger of the large government-owned financial institution, Industrial Development Bank of India (IDBI), with its subsidiary, IDBI Bank, in a deal worth Rs 7.6 billion ($174.6 million). This deal is part of IDBI's strategy of converting itself into a universal banking institution. Following the merger, the combined entity is known as IDBI and now undertakes activities ranging from project finance to retail banking and, shortly, expects to enter insurance as well.

A major last minute entry into INDATA was another large bank merger that of Centurion Bank with Bank of Punjab. Centurion Bank is majority owned by a consortium led by Rana Talwar's Sabre Capital, while Bank of Punjab has been promoted by the Singh family. Following the Rs 3.6 billion ($82.1 million) merger, the combined entity will be known as Centurion Bank of Punjab and will have a network of 235 branches across India.


(4 deals totalling Rs 41.4 billion, $951 million)

The telecom sector also emerged as a major contributor to INDATA in H1 2005, although with fewer deals.

The largest deal in INDATA in H1 2005 related to the telecom businesses of the Hong Kong-based Hutchison Telecommunications in India. Hutchison had so far operated in separate joint ventures in the various telecom circles where it provided mobile telephony services in India. Hutchison's joint venture partners the Essar Group, the Kotak Mahindra Group and the IndusInd Group sold their stakes in three Hutch mobile telecom service operating companies Hutchison Essar Telecom, Hutchison Telecom East and Fascel, for Rs 30.1 billion ($691 million). This was effected by a fresh issue of shares to these three Groups in Hutchison Max Telecom.

SingTel increased its stake in Bharti Telecom from 26.96 per cent to 32.8 per cent for a total of Rs 10.9 billion ($252 million). Bharti Telecom is the holding company in the telecom major Bharti Televentures and, hence, SingTel now effectively owns 15.22 per cent of Bharti Televentures.

The Rs 17.5-billion ($390 million) acquisition of a 48 per cent stake in Idea Cellular, announced in 2004 by Singapore Technologies Telemedia and Telekom Malaysia, of which 33 per cent was via a sale AT&T and the rest via a preferential allotment, had to be called off due to regulatory approvals not being granted.

Foods & FMCG

(27 deals totalling Rs 34.2 billion, $786 million)

The deal activity in the sector was dominated by the spirits sub-sector, mainly due to exit sales by the Jumbo Group to the UB Group and SAB Miller, deals that the market has been expecting for the last 10 years.

Vijay Mallya's United Breweries Group (through Group entities Mc Dowell & Co, Phipson Distillery, United Spirits and United Breweries Holdings) acquired a controlling stake in the Jumbo Group's Shaw Wallace & Company for a total deal value of Rs 16.2 billion ($371.6 million). The deal is made up of an acquisition of a 50 per cent stake from the promoters (including a non-compete premium) a tender offer for an additional 25 per cent from other shareholders, and the acquisition of two distribution subsidiaries.

The other Jumbo Group company to be sold was Shaw Wallace Breweries. SAB Miller increased its stake by 50 percentage points to 99 per cent in the company through its Indian subsidiary, Mysore Breweries. The stake was held by Shaw Wallace & Company and, hence, had SAB Miller not undertaken this acquisition, Shaw Wallace Breweries would effectively have been an joint venture between two rivals UB and SAB Miller.

McLeod Russell India (part of the B. M. Khaitan Group) acquired a 90 per cent stake in Williamson Tea Assam for Rs 2.1 billion ($48.2 million). Of this, a 70 per cent stake came through the acquisition of holding company Borelli Tea Holdings from Williamson Tea of UK, while the rest is to be acquired by a tender offer to other shareholders.


One of the major deals of H1 2005 was undertaken by the Swiss cement major, Holcim, which acquired a 67 per cent stake in Ambuja Cement India Ltd (ACIL) for Rs 27.3 billion ($634.9 million). Of this, a 40 per cent stake was acquired from AIG and the General Insurance Corporation of India for Rs 9 billion ($208.5 million), while the rest was via a preferential allotment for Rs 18.4 billion ($426.5 million). The investment has been used to increase ACIL's stake in cement company ACC from 13.82 per cent to 34.71 per cent for Rs 13.8 billion ($320.9 million), and in Ambuja Cement Eastern from 94.08 per cent to 100 per cent for Rs 797.6 million ($18.6 million) via tenders offers to the shareholders of the respective companies.

Private equity

The first half of 2005 saw 81 private equity deals contributing Rs 31.8 billion ($733.1 million), compared to 30 deals worth Rs 24.5 billion ($544.4 million) in H1 2004. While the overall deal value increased by a healthy 30 per cent, the average deal size of Rs 393.7 million ($9.1 million) was half that in H1 2004 (Rs 816.6 million; $18.1 million). The smaller deal values are mainly due to the absence of blockbuster deals like the $500 million acquisition of a 60 per cent stake in GE Capital International Services (GECIS) by General Atlantic Partners and Oak Hill Capital Partners.

A large number of PE deals in India continue to be PIPE (private investments in public equity) deals, suggesting that attractive investment opportunities are still available among listed Indian mid-cap companies (Chart 3).

The largest PE transaction in the first half was the purchase of a 4.74 per cent stake in automobile company Mahindra & Mahindra for Rs 2.6 billion ($60.5 million) by Singapore's Temasek. India Development Fund, HDFC and IL&FS together acquired a 18 per cent stake in Hotel Leelaventure, the holding Company for all Leela Group hotels in India, for Rs 1.6 billion ($36.3 million). Warburg Pincus had one major investment this year it acquired a 23 per cent stake in the Max Healthcare Institute from for Rs 1.4 billion ($32.2 million).

In addition to obvious choices such as pharmaceuticals, textiles, IT and auto components, private equity majors also ventured into other sectors. Standard Chartered Private Equity and Merlion India Fund acquired a 23 per cent stake for Rs 1.1 billion ($25 million) in ABG Shipyard. Gary Wendt's GW Capital spent Rs 1 billion ($23 million) to acquire a 75 per cent stake in Music Broadcast, which operates the Radio City chain of FM radio stations.

Indian acquirers asserted themselves in H1-05, and were responsible for 48 per cent of the total deal value (Table 1). In terms of number of deals, Indian acquirers announced 166 out of a total of 277 deals (60 per cent).

Overseas deals

While the INDATA survey is restricted to corporate finance activity involving Indian targets, the volume of overseas acquisitions by Indian companies can no longer be ignored. sIndian companies continued to acquire abroad continued in H1 2005. There were 43 overseas acquisitions by Indian acquirers in H1 2005 compared to 60 in the whole of 2004 (Table 2).

The largest overseas deal was the Videocon Group's acquisition of Thomson's colour picture tube business in China, Poland, Mexico, and Italy for a total of $290 million. The deal was paid for by an issue of shares in two Videocon companies Videocon International (consumer durables) and Videocon Industries (oil and gas exploration).

The other large overseas deal was by pharmaceuticals Matrix Laboratories, which acquired 100 per cent of the Belgian pharma company, Docpharma for $263 million). UBS acted as the advisor to Thomson and Matrix respectively. IT companies were active acquirers with 13 deals worth $89 million.

(The authors run India Advisory Partners, a corporate finance firm focused on cross-border M&A deals into and out of India.)

(This article was published in the Business Line print edition dated August 12, 2005)
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