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).
Illustration: Jayachandran / Mint
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.
A good example is their successful participation in tightly run distressed asset sales, such as Motherson Sumi Systems Ltd’s acquisition of Visiocorp Group and Apollo Tyres Ltd’s acquisition of Vredestein Banden BV. In these situations, Indian buyers exhibited their ability to move fast, to think on their feet and to meet accelerated timelines set by vendors/administrators.
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.
Deals such as Jubilant Organosys Ltd’s acquisition of Hollister-Stier Laboratories Llc. and then of Draxis Specialty Pharmaceuticals Inc. (both pharmaceutical companies) and Religare Capital Markets Ltd’s acquisition of Hichens Harrison and Co. Plc. (a UK-listed stock broker), have demonstrated our ability to clearly understand and comply with complex regulatory and legal requirements.
Acquisition financing is a challenge for all buyers, regardless of whether they are from emerging markets or otherwise. Most Indian companies have convinced Western vendors of their ability to finance deals by a combination of internal accruals, external loans and private equity (PE) infusion. The potential Bharti Airtel Ltd-MTN Group Ltd deal indicates that Indian companies are not averse to innovative financing measures such as use of stock as currency for acquisitions.
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.
Sanjeev Krishan is executive director and Mohit Chopra, associate director, at PricewaterhouseCoopers.
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