INDIA INC LOOKS WITHIN FOR MERGER & ACQUISITIONS
Dhriti Ranjana Ray & Rakesh Pathak/New Delhi
Business Standard Financial Chronicle The Indian Express
The global economic slowdown forced corporate India to look largely within the country for merger and acquisitions in 2009, accounting for about 60 percent of the $10-billion worth of deals.
Besides, some foreign MNCs -- possibly enticed by the world's second fastest growing economy -- sought to enter India by acquiring into local companies, mostly in telecom, steel and pharma sectors.
The cross-border deals, worth about $four billion, could have been lot larger had the estimated $12-billion takeover of global petrochemicals major LyondellBasell by Mukesh Ambani-led RIL happened this year, and Sunil Mittal-led Bharti Airtel's $23-billion worth deal with South Africa's MTN not failed - for the second time.
Some experts also said that the theme of M&A space changed in 2009 from 'aggression and optimism' to 'distress sale and desperation' -- thus leading to less intense deal activity.
But, it was Ruias-led Essar group that bucked the trend and constantly went hunting overseas in sectors like oil, telecom and technology and kept the Indian flag flying on deal tables in one of the most difficult times for global economy.
Good news also came from Tatas who appeared to have overcome the impact of global meltdown on their overseas acquisitions of iconic British carmaker Jaguar-Land Rover and steel behemoth Corus in Europe.
"Deals in 2009 were extremely difficult to consummate due to lack of availability of credit, driven by global turmoil as well increased concentration of companies to consolidate their current operations and adopting a wait and watch attitude," PwC's executive director Sanjeev Krishan said.
Consultancy major Grant Thornton said that total 267 M&A deals were announced during 2009, for a total value of $10.03 billion, as against 454 deals worth $30.95 billion in 2008 and 676 deals totalling $51.11 billion in 2007.
The deal sphere was dominated by domestic deals as there were 142 domestic deals (wherein both acquirer and target company were Indian) with an announced value of $5.80 billion, while there were 125 cross-border deals with an announced value of $4.23 billion.
The major deals of the year included merger of Reliance Industries with Reliance Petroleum, Russia's $676 million investment in Sistema Shyam Telecom, Tech Mahindra's 31 percent stake buy in tainted IT firm Mahindra Satyam.
Other major M&As of the year include Sanofi Pasteur (the vaccines division of Sanofi-Aventis) 80 percent stake buy in Shantha Biotechnics for $664.89 million and Quippo Telecom's $533.33 million investment in Tata Tele Services' telecom tower and infrastructure arm.
But, India Inc's shopping spree witnessed a significant decline in 2009 amid economic uncertainties, although experts believe the economy is on the right track to recovery and deal activity next year may rebound significantly provided the pace of recovery in 2010 stays bullish.
The year 2010, however, holds promise, as corporates would take advantage of the new opportunities, slowly improving liquidity situation worldwide and the fact that the United States and Europe may witness further consolidation next year.
Going forward, PwC's Krishan said: "The FMCG, aerospace and defence and oil and gas sectors also look ripe for significant global consolidation. Another factor would be re-emergence of the strategic buyers, who had been overshadowed by financial buyers until last year."
KEY THEMES FOR M&A IN 2010
D. Murali
The Hindu Business Line
Sanjeev Krishan, Executive Director, PWC, Gurgaon.
Will 2010 see M&A (mergers and acquisitions) activity of the 2007-08 level? “With the economy on the right track to recovery, one may be tempted to say ‘yes,' but we are still in recovery mode, so the pace of recovery in the first half of 2010 would really determine the answer to that question,” observes Sanjeev Krishan, Executive Director-Partner, Transactions Group, PricewaterhouseCoopers P Ltd, Gurgaon.
A recovery in the credit markets would help the process; in India, smaller deals may dominate in 2010, as acquirers, especially PE (private equity) buyers, find those easier to afford, he adds, during the course of a recent email interaction with Business Line.
Excerpts from the interview:
What have been the M&A trends over the past year and how do you perceive M&A to progress in 2010?
Year 2009 has been quite a mixed bag — it started off with most of the corporate world adopting a “wait and watch” stance considering the global financial turmoil and the credit crunch.
However, economic recovery, both globally and more importantly in India, seems set to create greater M&A opportunities as the year closes. Deals in North America were valued at $115.6 billion in November, the most since September 2008, with deal volumes being five times what they were in February.
In India, too, we have begun to see foreign strategic investors return to the markets; the relatively healthier macroeconomic indicators in India and other emerging markets are anticipated to create greater inbound M&A traffic in 2010 — telecom, oil and gas and banking sectors appear to be the key sectors, with healthcare, education and mid-market IT service segments also maintaining decent deal interest.
Your take on what the key themes will be for outbound and inbound M&A in 2010.
Significant themes to Indian outbound M&A in 2010 are likely to include acquisition of distressed assets and niche technology/design centres, hunting strategic energy sources and acquisitions in newer emerging economies.
Going forward, the key inbound interest is expected in pharmaceuticals, healthcare, financial and engineering services and the consumer sectors. The prime reason for this is the anticipated growth rate of over 7 percent in the Indian economy.
