India's acquisition appetite intact despite credit crunch
Bullish Indian companies are continuing to lead the charge for acquisitions within developed economies despite the current turmoil in global financial markets, international accounting and consulting firm KPMG's latest emerging markets review reveals.
The combination of greater business opportunities and better availability of capital has brought about a mindset change that is giving Indian companies more courage to enter overseas markets via mergers and acquisitions, KPMG says in the report released by the prestigious Cambridge Network.
KPMG's Emerging Markets International Acquisition Tracker (EMIAT) has analysed deal flows between 10 selected emerging economies and 11 key developed markets, using data sourced from Zephyr.
The research analyzed deal flows between 11 selected "mature" economies - the US, Britain, Canada, Spain, France, Germany, Holland, Italy, South Africa, Australia and Japan - and 10 selected "emerging" economies, comprising India, China, Russia, Brazil, South Korea, Vietnam, Macau, Hong Kong, Qatar and the UAE.
With reference to India, it has studied 35 deals between India and the developed economies in the second half of 2007, following on from 34 in the first half.
In all, 62 deals were reported with emerging market companies buying into the developed markets, while 105 deals were reported going in the opposite direction. In the first half of 2007, those numbers were 78 and 148, meaning that the post-credit crunch decline has been less marked in the developing markets. It also means that the emerging-into-developed deals now equate to 59 percent of the developed-into-emerging total; the closest the two totals have ever been.
Ian Gomes, chairman of KPMG's new and emerging markets practice in Britain, said: "The ability of the emerging economies' trade buyers, especially those in India, to remain resilient in the face of the post-credit crunch fall-out is commendable."
The report points out that of all the Indian deals abroad, only the Tata's acquisition of Ford's Jaguar and Landrover brands is a high-end one, with the rest at the smaller end of the value. However, there is a silver lining.
"The important point here is that the upward trend in deal volumes is continuing. In the first half of 2005, emerging-to-developed deals accounted for just under a quarter of the developed-to-emerging deals so that percentage has more than doubled in just two and a half years," the report said.
Till six months ago, there was criticism that Indian deals were highly leveraged and this could be dangerous if market conditions turned, but the KPMG report says Indian businesses have proved the soothsayers wrong.
"Debt finance now typically accounts for 30-40 percent of the purchase price being offered and, bearing in mind that most deals are in the $50-80 million bracket, this does not represent a prohibitively high amount of debt," it said.
The report commended Indian corporates for "acting sensibly" since the credit crunch commenced, taking advantage of the retraction of financial buyers and the depreciation of the US dollar to push their growth agenda.
"They are financing acquisitions though a combination of local currency denominated debt (secured on the Indian business) and foreign currency debt (mostly on the target company) which, for the size of the deals being pursued, is accepted in the current financing environment," it said.
The report noted that Indian companies continue to be bullish even though the credit crunch is at its worst.
"Already this year there has been news of plans by the Bank of India to increase its presence in the overseas market through acquisitions and the Indian corporate affairs minister has announced plans to streamline procedures for mergers and acquisitions by firms through changes in company laws."