The appetite of Indian companies to make overseas acquisitions is not only growing stronger, but showing signs of graduating from a trend to a flood, bankers and industry analysts say.
On conservative estimates, at any given time at least 40 to 50 companies in Europe and the United States are under due diligence scrutiny by Indian companies, confirming that the shopping bag is large and sustainable, they told Hindustan Times.
A few years ago, software companies began looking for boutique acquisitions mainly to gain specialised consulting knowledge or customers in Western markets, starting a trend that turned into a tide in the old-world manufacturing industries, in which the Tata Steel's $7.6 billion recent plan to acquire Anglo-Dutch steel maker Corus has confirmed that India's industry has evolved from niche-seeking buyouts to acquisitions for global consolidation.
Indian companies are looking out for purchases in everything from Scottish whisky to Welsh steel, but industry analysts say the main action would be in four sectors — automotives, generic pharmaceuticals, software and energy.
“It reflects the new attitude of Indian entrepreneurs. The world is a small place and you cannot afford to remain insulated from the ups and downs of the global market,” said Frank Hancock, regional managing director of ABN Amro's corporate finance business, which is advising the Tata Steel on the Corus transaction.
Europe is a favourite hunting ground because their high costs offer Indian buyers an opportunity to get more out of the same assets, while also throwing up opportunities to get hold of companies many of which are left without controlling heirs in an ageing continent.
"Besides consolidation, these acquisitions help Indian companies in establishing a front end for their operation in Europe and the US, helping them in marketing and distribution,” Hancock said.
Bankers say India, with an merger and acquisition deals worth $15 billion in 2006 commands 15 per cent of the total merger and acquisition market of Asia, up from 12 per cent in 2005 and only seven per cent the year before.
Raising cash in debt, equity or convertible bonds is a lot easier now for Indian entrepreneurs who are seen to be at a considerable advantage over their peers from other countries in terms of grasp of technologies, age profiles and industry expertise, said NK Minda, chairman of auto part firm Minda Industries, which is now eyeing European buyouts.
Increasingly, investment bankers not just advise and structure merger and acquisition deals. They often match-make, fund and ideate for Indian firms.
Indian companies were once criticized for large, often family-controlled stakes that kept assets on a leash, but the same structure is now driving smoother decisions without boardroom wrangles as buyouts are best done with speed and stealth, said Rajesh Srivastava, Rabo India Finance's managing director.
“The high percentage of ownership in the companies has proven as blessing in disguise.
“Because of the substantial holding in the companies, Indian entrepreneurs are in a position to take bigger risks at considerable pace, which is not the case for many of the other countries,” Srivastava said.
According to accounting giant Grant Thornton, the average deal size of Indian buyouts increased from $32 million in 2005 to $47 million in the first half of 2006.
There have been several deals such as Tata Steel’s proposed acquisition of Corus, Dr Reddy’s acquisition of Betapharm, Tata Coffee’s acquisition of Eight O’Clock and telecom software firm Subex’s acquisition of Azure Solutions, where the deal values were higher than the acquirer's revenues.
In fact, Corus is four times the size of Tata Steel in term of revenues and production capacity.
Companies like Reliance Industries Limited, once considered conservatives wedded to greenfield projects, are ready with shopping bags, because it has become clear that developed markets must be made a part of their playing ground.