The multi-billion Tata-Corus and Birla-Novelis deals are only the starters as India’s business houses are developing a hunger for more mergers and acquisitions (M&A) overseas.
Investment bankers say on conservative estimates, the M&A industry in India including outbound and inbound transactions is expected to touch $100 billion in 2007 as against some $50 billion in 2006 and half of that in 2005. In other words, the industry has doubled in size ever year for the past couple of years, and so have investment banking fees.
"The world is beginning to appreciate that Indian companies are world-class. These companies are not only growing aggressively with the domestic economy, but are also creating a footprint across the globe as they reshape their respective industries through innovation and sophisticated management,” said Nehal Chopra of New York-based Ramius Capital, a $7.5 billion fund with a substantial exposure in Hindalco's buyout of aluminium products firm Novelis. “It is only a matter of time before Infosys and Tata will be just as recognisable as GE or Microsoft,” she told the Hindustan Times.
In the first six weeks of 2007, India witnessed total deals worth $40 billion including outbound deals such as Tata Steel's acquisition of Anglo-Dutch steel maker Corus ($13.6 billion), Hindalco's buyout of Novelis ($6 billion) and Suzlon's bid for REpower ($1.3 billion), besides Vodafone's acquisition of a majority in Hutchison Essar Ltd ($18.8 billion).
On the supply side, there is an increasing tendency in which multinationals are hiving off low margin businesses and putting them on the block. For instance, General Electric has decided to divest its plastics division, in which Reliance Industries has shown a keen interest. The deal is expected to be in the vicinity of around $10 billion. In a comparable deal, Ranbaxy is expected to throw its hat along with private equity firms to acquire the generics business of German pharmaceuticals major Merck. “Indian companies have built scale of global size in certain sectors like manufacturing, auto components, generic drugs and information technology services. Besides acquiring the production facilities, these deals help Indian companies in accessing front-end markets in the developed world,” said Uday Kotak, managing director of Kotak Mahindra Bank.
"Investment bankers, who were earlier primarily advising their clients, are now providing a comprehensive solution including structuring and financing of deals," said Frank Hankock, managing director, corporate finance, at ABN Amro's Indian unit, which has conceptualised mergers and taken multi-billon dollar exposures in financing these deals.
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