After more than a decade of economic liberalisation, 2006 marked the emergence of India Inc as a worldwide financial player, as domestic companies cast their business vision abroad to acquire bigger and better foreign firms.
The hunted turned the hunter. Industrial and business houses that pleaded with the government for protection from foreign takeover soon after the 1991 economic reforms enhanced their competitiveness in the new environment and went scouting for their own global acquisitions.
There was a quantum jump in the value of outward mergers and acquisitions (M&As) in the year as companies put together nearly $20-billion to fund their deals, compared with $9,6-billion in 2005.
While the corporates clinched more than half of their over 320 overseas acquisitions in just the past two years, the average deal size grew five-fold to $150-million, said Neeraj Bhardwaj, of Apax Partners, a private equity firm.
The acquisitions during the year attested that Indian firms were no longer eyeing smaller markets such as Africa and Asia but mature and developed markets such as Europe and the United States.
The big-ticket deals included Videocon’s taking over French Thomson and South Korea’s Daewoo Electronics for a combined $1-billion, Tata Tea’s buying the US food and beverage firm Energy Brands for $677-million, Aban Loyd buying Norwegian oil major Sinvest for $425-million and Suzlon Energy’s acquisition of Belgium’s Hanson Transmission for $565-million.
Pharma companies were also in the front line, having accounted for several such deals, including Dr Reddys and Ranbaxy buying Germany’s Betapharm and Romania’s Terapia for $570-million and $324-million respectively.
Towards the end of the year, Tata Steel launched a bid to take-over Anglo-Dutch steelmaker Corus at $9,2-billion, which would be corporate India’s biggest overseas acquisition if it materialises.
The M&A deals that began with the domestic IT companies in 2000 now range from French wine companies to US hotels, though the focus is firmly on metal and steel, automotive, pharmaceuticals, oil and gas, consumer goods, and IT and business process outsourcing (BPO) industries.
”Suddenly, Indian buyers have become a force to reckon with in many industries such as pharma, auto-components and oil/gas,” said a study by investment bank MAPE.
Global profile
A number of Indian companies are looking at a global profile through the M&A route as it gives them access to established companies and brands, new geographic markets and technology and knowledge for leadership in their domain, said Anjan Roy, economic adviser to the Federation of Indian Chambers of Commerce and Industry.
”Never have we seen so many Indian firms aspiring for global footprints,” Roy said, adding, ”They are able to do so because of their buoyant balance sheets and increasing competitiveness, helped by the liberalisation of the outward investments policy regime and the country’s robust economic growth that averaged over 8% over the last three years.”
A close look at the M&As reveals that the Indian companies identified Europe as a base to expand. Nearly 45% of the more than 300 deals struck were in Europe — with Britain and The Netherlands accounting for a majority of these.
For example, Ranbaxy, which took over five European firms through late 2005, is still on the look-out. Currently 45 European and US companies are under the scrutiny of domestic firms, evidence that the shopping spree will be sustained over time.
”Europe is a favourite hunting ground because the high costs offer our firms an opportunity to get more of the same assets. Further a number of private equity players in Europe are selling holdings, and a number of companies, including family-run firms or sick companies, are available,” Roy said.
But even though entrepreneur-driven Indian firms are said to have an edge over state-run firms from China and are now acknowledged raiders, there are challenges in the post-acquisition period.
Business analysts say Indian companies, most of which are family-run, lack managerial depth, are lax in decision-making and less proactive.
For Indian firms, the ability to deal with cultural diversity as well as including uniform processes to assimilate the acquisition seems to be a crucial challenge.
”Business issues rarely cause an acquisition to fail. If there’s a failure in acquisition, it is because of social or cultural issues,” said Vijay Mallya, chairperson of United Breweries, whose company is negotiating a $750-million take-over for United Kingdom-based Scotch giant Whyte & Mackay. ”The acquisitions can be made to work only when you have mutual respect for culture and people.” — Sapa-dpa