When Suzlon, a first generation Indian energy company, paid over half a billion dollars to acquire Hansen Transmissions of Belgium (HTB) early this year, its decision was driven by raw ambition rather than bottom-line logic.
The low profile Indian company was setting its sights on global leadership in the nascent green energy business. HTB is a global leader in new generation wind turbines/ gearboxes, and according to a FICCI study, the acquisition gives Suzlon a toehold into cutting edge R&D of this hi-tech sector.
Today, Suzlon’s global team in four continents is making electricity out of thin air in Minnesota and Jaisalmer. It is among the world’s top ten green power companies.
Another trendsetter, Tata Tea, was looking for nothing short of global domination in the tea market when it acquired UK’s Tetley, twice its size, in 2000. Ditto for Ranbaxy, which acquired RPG Aventis to join the top league of European generic drug makers or Wipro, which picked up Austrian semi-conductor design company, NewLogic, to enter the global design services market.
India Inc’s new confidence is overriding and its pockets deep. It has shopped far and wide for auto industries in Korea and Sweden, software companies in the US and UK, metal and mining units in Bulgaria and Singapore, and an array of oil fields from Sudan to Brazil.
In 2005, when the government lifted the $100 mn cap on Mergers and Acquisitions (M&As) abroad, corporate India acquired stakes in 104 companies for more than $3.5 bn, according to a 2006 study by Mape Advisory Group. In 2004, it had picked up 46 companies abroad for $2 bn. The new policy allows Indian companies to invest up to 200 per cent of their net worth abroad annually.
In the first half of 2006, India Inc has picked up 76 companies for $5.2 bn, clocking $1.5 bn in June, 06 alone. Total acquisition from January 2000 to July 2006 is $10 bn, according to the FICCI study. It is heartening to see that Indian companies have enough confidence to set up Greenfield power and steel projects in China, Bangladesh and Bolivia.
The new and growing confidence is reflected in the rising average size of acquisitions. From $32 mn in 2004 it rose to $47 mn in 2005 and is already at $68 mn in 2006 so far. Among the most aggressive buyers are leading public sector units, such as ONGC and GAIL. Even the SBI is shedding the old, slothful image to acquire stakes in banks and finance companies abroad.
It is well acknowledged that overseas acquisitions provide access to technology, knowledge and new markets when things go well. It boosts the buyers’ size and scale of operations and gives them ownership of well-known brands. It is a good way to access global natural resources such as oil, gas, metals and minerals.
But what happens when the going is not so good? Is India Inc prepared for the risks involved? The landscape of overseas risk-reward businesses is fraught with legal problems, cultural differences, financial mismatch, internal disturbances and even criminal threats.
But for now, India Inc looks happy taking measured risks to reap its rewards in the global playing field.