Chris Ward, a partner in the London office of Deloitte & Touche LLP, returned from a trip to India last February and promptly sent an email to his fellow global partners. “One must not ignore India when investigating buyers,” his terse email read. He wrote that Indian companies must be consulted if a Deloitte client was interested in being acquired.
Despite the expansion buzz within India, some foreign markets have taken time to realize the criticality of India as a competitor and a growing presence within their own borders. “It is surprising as to the lack of awareness that people really have had,” said Janmejaya Sinha, managing director of Boston Consulting in India, which chose to hold its first international board meeting in India in November last year for this reason. “The whole understanding that there would be companies in these markets that would challenge... the (global) incumbents has not really been understood.”
Experts, including Sinha, said that while some observers started taking notice of India’s M&A activities from 2005, it is only recently that they have started to be proactive. “There has been a trend to increase investment (from India) in Europe and that has been noticed by UK businessmen,” said Harish H.V., partner at Grant Thornton India, who tracks India’s M&A activity.
The UK, in particular, has come to see India differently now that 46 Indian firms, since 2005, have acquired local companies, underscored dramatically by Tata Steel Ltd’s acquisition of Corus Group Plc for $12 billion. Indian companies spent $13.7 billion on UK acquisitions in the first two months of 2007, up from $500 million in 2006.
“India is now the second-largest investor in the UK,” noted Vicki Treadell, British deputy high commissioner here, in an email.
As a result, British investment bankers, lawyers, accountants and advisers have been camping out in India, looking to find business. “We are keen to strengthen legal relations with India,” said Geoffrey Vos, chairman of The General Council of the Bar of England and Wales, recently.
This year began with three UK cabinet ministers visiting India in January: chancellor of the exchequer Gordon Brown, secretary of state for trade Alastair Darling, and secretary of state for environment David Miliband. “A range of further visits and activities have already taken place or are expected throughout the rest of the year,” Treadell said.
India’s appetite to buy has not just grabbed the notice of companies interested in selling; accountants are now seeking to advise companies on how to save taxes, and consultants are trying to sell their services in helping Indian companies with merger integration issues. And, back home, many of their clients are also demanding these professionals know India’s legal and political systems and the ability to navigate them.
Meanwhile, attorneys of all hues want to advise on the range of issues that affect acquisitive companies, such as potential labour regulations in target countries, offshore incorporation and listing on the London Stock Exchange’s secondary market, the Alternative Investment Market (AIM).
The UK has particularly targeted India by pushing the AIM market as an ideal avenue for funding growth, while touting the benefits of not having to deal with more onerous regulations imposed by listing on, say, the New York Stock Exchange.
“Up to nine months ago, we did little Indian work. Now, we are involved in listings on AIM in London. We have done this for six or seven companies. We have also advised a number of Indian companies acquiring businesses around the world,” said Mike Edwards, director of Cains, an Isle of Man-based commercial law firm with a London office. Given all the business, he added: “We decided that India was a place that we needed to come to.”
In 2006, India-related companies and investment funds raised $2.7 billion (Rs11,340 crore) on AIM. Since the end of 2005, at least 14 Indian firms have listed on AIM, many from the real-estate sector. AIMs listings was one of the main reasons for John Ross, director of economic and business policy with the Mayor of London’s office, to come recently.
“The massive emergence of India on to the world scale is a relatively new phenomenon,” Ross said, and that is why the Mayor of London will be setting up offices in India and coming for his first visit later this year. “India is one of the most important places in the world from the point of view of expansion outwards,” Ross said. “London has very important advantages for Indian companies.”
Meanwhile, Sanjay Bhandarkar, managing director at investment bank N.M. Rothscild (India) Pvt Ltd, said the UK remained a good investment for India because it has always been an open market.
Think London, a not-for-profit organization that encourages foreign investment in London, has compiled data suggesting that greater London saw 53 of the 168 foreign direct investment projects that came from India into Europe between 2004 and 2006.
The organization’s data showed that India is the second-most important source of foreign direct investment into London after the US. Experts said India’s investment in the UK outweighs the UK’s investment in India for a variety of reasons besides regulatory issues.
Indian companies’ valuations are high compared with the other markets that UK companies are exploring—other parts of Asia and Eastern Europe—even though some expect returns to be higher in countries such as India.
Also, India continues attract investment from private equity players, given the general preference in growth capital rather than giving up control, more typical of acquisitions. Bhandarkar also points out most Indian companies on the top of buyer’s wishlists are simply not for sale.