India shines in M

New Delhi, Apr 8: With the continued strength of its economy and stock markets, India is likely to play an important role in the global mergers and acquisitions (M&As) market clocking deals worth 50 billion dollars this year as compared to just 16.3 billion dollars in 2005.

A steep and encouraging increase in both inbound and outbound M&As backed by healthy performance at home, strong management capabilities and access to competitive financing is indicative of this trend, Confederation of Indian Industry (CII) said today.

''Indian companies are spreading their wings beyond borders and acquiring foreign assets to serve global markets. The total value of M&A deals in India has been growing at a compounded annual growth rate (CAGR) of around 28 per cent between 2002 and 2006,'' said Dr Sarita Nagpal, Head Manufacturing Services Division, CII.

India Inc is steadily moving towards building globally competitive enterprises with M&A deals reaching 21.4 billion dollars in 2006 from 7.5 billion dollars in 2004, she said.

A paper released at the CII National Conclave on Expansions and Consolidations stated that from 1995 to August 2006, the largest proportion of outbound acquisitions has been in North America, accounting for 32 per cent of total outbound deal.

This was followed by Europe with 29 per cent of the total deals. Europe is now emerging as the prime destination for Indian companies making acquisitions abroad.

Dr Nagpal said, ''Indian companies are likely to take larger steps globally, particularly in the US and Europe, while the scale of domestic Indian companies will continue to attract both strategic and private equity interests, the latter fuelled by the growing funds raised from Western investors seeking high returns.'' Growth through inorganic route has become an integral part of companies' strategy and there is a clear drive to gain in scale and size.

The last two years also saw the small and medium companies acquiring the inorganic route to growth. Last April, Subex acquired the UK-based Azure Solutions in a stock deal exceeding 140 million dollars. BPO firm TransWorks acquired Minacs Worldwide in June last for 125 million dollars. Followed by Subex buying out Syndesis for 164.5 million dollars in December, the largest overseas acquisition by an Indian IT company, said Mr Ravi Poddar, Chairman, CII SME Forum and Chairman Ravi Auto Ltd.

The number of cross-border deals from India in 2006 grew much faster than domestic deals, CII said quoting a recent report by Grant Thornton.

Last year, the M&A deals in India stood at 480 with a total value of about 20.3 billion dollars. Of these, more than half, or 266, were cross-border deals valuing 5.3 billion dollars. Of the 480 M&A deals, only 40 had a deal value of over 100 million dollars.

The domestic, inbound and outbound deals increased in the range from 36-42 per cent, the report said.

The share of domestic, inbound and outbound deals were more or less stable, with domestic deals having a share of 44 per cent, inbound deals 16 per cent and outbound deals 40 per cent.

''What has given a fillip to this M&A activity is the evolution of government policy on overseas investments. For instance, the upward revision of the ceiling on quantum of overseas investment and the introduction of FEMA in 2000, have changed the perspective of overseas investments,'' Dr Nagpal said.

With an increasing number of companies adopting outbound M&As as a key element of their growth strategy, it is imperative that the results of previous M&As and possible pitfalls are borne in mind.

Tata Steel's acquisition of the Anglo Dutch steel maker Corus at 12.1 billion dollars has already set the trend for this year.

Hindalco's announcement of the acquisition of Novelis for six billion dollars has further fuelled this trend.

Vodafone's deal of 11.1-billion dollars for Hutchison's stake in telecom operator Hutchison-Essar spells the trend for inbound investments, the chamber added.

Outbound deals from India have had a sectoral trend with pharma companies being particularly aggressive in scouting for opportunities abroad, going to the top of M&A league with total deal of a little over 2.2 billion dollars.

The other sector that took the lead is Information Technology.

In the energy sector, ONGC's acquisition of equity stakes in a couple of oil blocks in Columbia and Brazil as also Suzlon Energy's acquisition of Hansen led the M&A deals.

According to EIU's Global M&A Survey in 2006, only half the respondents said that their deals achieved expected revenue synergies, while even less than half believed that expected cost-saving synergies would be achieved.

UNI