Acquisitions take 3-4years to deliver value

In an interaction with Business Line, Sanjay Sakhuja, CEO, Ambit Corporate Finance enumerates the sectors that currently attract acquisitions and also discusses about the time taken for deals to integrate well.

Excerpts from the interview:

Would you say that the macro economic scenario locally has affected inbound and outbound deals?

Yes, it has. Deal volumes have come down by about 30-35 per cent this year compared with last year.

Having said that, our interaction with global strategic investors suggests that they are quite keen about investing in India. This includes investors from Europe as well as from Japan. My view is that we should see some positive action from New Delhi in August/September. Such government action should go a long way in improving the market sentiments.

What positive policy action do you think is needed to improve the sentiment?

The softening of the tax stance (for foreign investors) by the Government is already visible. Simple signals such as raising the diesel price, opening up the retail sector, clearing the insurance bill will help investors look at India as an attractive destination. The reality today is that markets around the world are faltering. China is slowing down. There are few markets in the world that have a large intrinsic internal demand like India. If these simple policy measures are implemented, the mood can turn positive very quickly. There is no dearth of liquidity in the global markets.

Which sectors in India are global strategic investors currently interested in?

They are looking at diverse sectors. European companies and some US companies are actively looking at assets in the industrial, chemical and the FMCG space. A lot of Japanese investors are looking at the financial services space. There is also interest in logistics.

We did a deal in the electrical space for an MNC client and one in media. We are also working at deals in the industrials and media space. So the activity levels continue to be positive.

Does interest shown by Indian companies in acquiring foreign companies still high?

Interest for outbound deals continues in the mid-segment although mega deals are a little challenged right now. We have a lot of Indian FMCG clients looking at emerging markets like Turkey, South-east Asia and South America; I think that interest will continue to be high.

How successful have companies been in integrating the businesses/companies, post-deals?

I think integration has been fairly well handled. Some of the really marquee cross-border deals where Indian companies have acquired global assets are success stories of integration, which one can use as case studies. The Tata Motors-JLR, the Hindalco-Novelis, or the Tata-Corus deal are large and complex businesses acquired by Indian companies and well integrated into their global operations.

How long does one wait before concluding whether a deal is successful or not?

If you look at a valuation model for a business, most of the value comes in what we call as the perpetuity cash flow (cash flows beyond a five-year period). You certainly have to give three-four years for the integration and the business potential to play out. But the flip side is that when you are looking at the listed space; most of the investors in the listed space are institutional investors like mutual funds, who have their daily or monthly NAVs to look at. And that’s when the pressure comes.