Mergers and Acquisitions in India: A Different Story

Weekly Corporate Growth Report, Dec 10, 2007 by Dolbeck, Andrew

While the pace of merger and acquisitions has slowed in the United States in the wake of the recent credit crisis, some countries are still seeing considerable activity. Major companies in India, having money to spend and a desire to expand, are continuing to pursue M&A opportunities.

India is emerging as a global economic and political power. According to research from Boston Consulting Group, India has contributed the second-largest number of emerging market giants to BCG's 2008 top global challengers list. While China has added more companies to BCG's list, its international sale contribution is only 17 percent, in contrast to India's 45 percent. And although India is known for information technology services, it is also making a substantial contribution to the manufacturing sector and its manufacturing giants are generating greater shareholder returns than its major IT companies.

India is putting its growing economic resources to use. Indian companies have announced $22.3 billion worth of foreign acquisitions in 2007, according to data from Thomson Financial. The country's record year is 2006, which, bolstered by Tata Steel's $12.9 billion takeover of Corus, reached $24 billion.

And the buying doesn't appear to be slowing down. Indian copper and aluminum producer Hindalco Industries paid $6 billion this year to acquire Novelis Inc., a Canadian manufacturer of semi-finished aluminum products. Hindalco has recently expressed interest in acquiring foreign copper mines. Indian automakers Tata Motors Ltd. and Mahindra & Mahindra are competing against each other and private equity firm One Equity Partners to buy British car brands Jaguar and Land Rover from Ford Motor Company. The car brands are expected to sell for around $1.5 billion. Other Indian companies that have expressed interest in acquisitions include petrochemical producer Reliance Industries and pharmaceuticals company Biocon Ltd.

It is worth noting that a significant portion of the Indian M&A activity is driven by the corporate sector, rather than by private equity investors. The global credit crunch continues to limit deals from highly-leveraged private equity firms, reducing competition for acquisition targets. The lack of competition from equity players means that target companies can often be acquired for less. The value of the Indian rupee is on the rise as well, up more than ten percent against the US dollar this year. With reduced competition and increased buying power, India's corporate sector is seeing a good opportunity to pursue acquisitions.

Supported by strong balance sheets and willing local lenders, Indian companies are well positioned to pursue consolidation and expansion. The Indian airline industry has been growing at more than 40 percent over the last two years, an increase attributed to the sector's consolidation efforts. The country's financial sector, which has seen a wave of M&A deals and initial public offerings, may expand further as anticipated banking reforms open the sector up to greater foreign participation.

Although the recent economic changes have had a global impact on the M&A market, it is worth noting that not all countries will be positioned to respond in the same way. For the moment, it appears that some of our loss may be India's gain.

Sources: Economic Times, Fibre2Fasion, The Guardian, Hoovers, Reuters

By Andrew Dolbeck

Editor