Mergers News: 28/05/09

 

ACQUISITIONS PROMOTE INDIA BRAND IN THE WEST
Sanjeev Krishan and Mohit Chopra
Mint

“India Shining” may not have won the hearts of our electorate, but “Brand India” continued to glitter on the global podium over the last few years. While the worldwide economic meltdown currently takes centre stage in most corporate boardrooms, a common view echoed in every conversation is how emerging markets such as India and China will play an important role in the recovery process.

Cost arbitrage offered by these economies and the large domestic markets continue to attract overseas investors. A reasonably stable political environment has helped too, but what has really been a pivotal factor in getting global recognition are Indian companies’ outbound acquisitions over the last three-four years.

The numbers speak for themselves. Between 2007 and May 2009, Indian companies invested in at least 300 outbound merger and acquisition (M&A) deals, involving deal values in excess of $40 billion (Rs1.9 trillion). A notable trend has been our appetite for acquisitions in North America and Western Europe, driven by our interest in brands, backward-forward integration and new market access.

Reduced valuations in recent times have made outbound M&As more attractive. In the last two-and-a-half years, Indian companies invested at least $14 billion in North America and $10 billion in Western Europe (at least $20 billion if you take into account the Tata-Corus deal which closed in early 2007).

This journey has, however, not been a smooth one. To begin with, Western vendors were apprehensive about buyers from emerging markets for a variety of reasons, including cultural differences, stereotypical mindsets and their relative inexperience in doing international transactions. Over the years, perceptions have been changing as Indian buyers continue to demonstrate that they are well positioned to address most concerns of Western vendors.

Marquee deals such as United Breweries Group’s acquisition of Whyte and Mackay Ltd, HCL Technologies Ltd’s acquisition of Axon Group Plc. and Tata Motors Ltd’s acquisition of Corus Group Plc. have exhibited that Indian buyers can articulate a compelling investment story, underpinned by strategic benefits for both the buyer and the vendor. Similar compelling examples were the proposed integration planning measures outlined by Indian acquirers for distressed assets.

While all the above factors have improved the visibility of Indian buyers abroad, there is still some way to go before we finally arrive. These include providing more comfort to Western vendors to enable their understanding of Indian financial reporting norms, to be prepared for a reverse due diligence in some cases, and to articulate the strategic rationale for the deal, as opposed to an impression of stripping value. Having said that, in these times, buyers, too, need to remain cautious and not get swayed by the process-driven divestiture mechanisms adopted by Western vendors—some Indian buyers already believe they may have overpaid for international assets in their exuberance, but that is another story.