India’s corporate investments overseas for merger and acquisition (M&A) deals could shoot up to $35 billion in 2007, up from $15 billion last year and $4.3 billion in 2005, says a study focused on the nation’s investments in the United States.
The Federation of Indian Chambers of Commerce and Industry (FICCI) which carried out the study with accounting firm Ernst & Young, said on Sunday that increased profitability of Indian companies and the cost advantage of being based in India are factors driving M&A deals.
Apart from high profile deals such as the Tata group’s $170 million acquisition of the Ritz Carlton hotel in Boston and Tata Tea’s $677 million purchase of a stake in US-based enchanced water maker Energy Brands, since acquired by Coca-Cola Company, information technology (IT) and IT-enabled Services (ITeS) have emerged as the front-runners in outbound investment from India to the US, the study says.
They accounted for 48 per cent of the total of 48 deals worth over $ 2 billion involving the United States in 2006/07, according to the report. Looking ahead, it is probable that outbound deals by Indian companies will increase in number and change in nature, says the study.
The report highlights the fact that while large deals are reported in the media, there are many small and mid-sized deals in the $20-$60 million range that are happening routinely.
It is likely that greater activity will be witnessed in this band in the next few years.
“Indian investments in US will touch $10 billion by 2010 at the current rate of growth. In addition to big ones, small M&A activity too would become significant to get noticed,” FICCI’s secretary-general Amit Mitra said in a statement.
The study observes that easier Indian regulations such as Reserve Bank of India’s rules have also helped M&A deals by Indian companies overseas.