Big ticket acquisitions that started with a big bang when Tata Steel acquired Corus for $12 billion in early 2007, is set to gain momentum in 2008 with many Indian corporate houses eying for big acquisition. As private equity (PE) funds find it increasingly difficult to leverage buyouts due to US sub-prime crisis, the field for global M&A will be wide open for Indian corporates, who are sitting on a pile of reserve and acquisition currency — equity.
India’s largest corporate house, Mukesh Ambani’s Reliance Industries, which has not done any major deals in 2007, is expected to do a big-ticket deal, said investment bankers. The management of Reliance Industries is in discussion with some targets in the petroleum, as well as retail sector. “The company is not only sitting on a huge pile of reserve and generating more than around $5 billion cash every year, but also has the ambition target,” he added.
As the acceptability of the Indian management increases in the developed market compared with other countries and private equity funds expected to be on the back seat in coming years (due to sub-prime crisis), we will see many stretched assets from the European market acquired by India Inc, said a leading investment banker who was involved in some of the mega deals.
The case in point is the iconic Jaguar and Land Rover deal, which hardly has any private equity players in the race. India’s Mahindra & Mahindra and Tata Motors were the only ones in the race. Finally Tata Motors has emerged the front-runner.
India is expected to emerge as a major player in the foreign investment market, with domestic companies wanting to access new technology, become competitive and build strong global positions.
A study by international consultants Grant Thornton estimated that the total value of private equity and mergers and acquisition deals in India during 2007 was $68.32 billion. However, this figure also includes the inbound acquisition of Hutch Essar by global telecom giant Vodofone for $14.9 billion.
The average merger and acquisition deal size was close to $77 million and that for private equity was $44 million in 2007. The total number of mergers and acquisitions alone stood at 661 in 2007, with a total value of $51.17 billion, against 480 deals with a value of $20.30 billion last year.
The sharp appreciation in the stock market, which registered a growth of 46 per cent per annum, is one of the key factors that made Indian corporate look beyond physical geography. Indian corporate who were till now being seen as vulnerable to fall against the global competition are fast becoming the hunters, said another banker.
In fact, flow of money for corporate sector was at a record high at $8.3 billion, through 95 initial public offerings in 2007. Even inflows from foreign institutional investors (FIIs) in the Indian equities markets touched a record level of $16.995 billion in 2007, as against $7.993 billion last year.