Earlier this week in Mumbai, I met an old friend in the investment banking business. He looked happier than he has looked in the past 18 months (I last met him in late 2009). His firm, he told me, had several mandates going for cross-border deals.
“From large companies, right?” I asked, because I knew that many large Indian firms were looking to expand or establish their global presence.
Graphic: Jayachandran / Mint
“No, you’d be surprised,” he said. “Some of them are from mid-sized companies you wouldn’t have heard of.” Now, I have heard of many companies in my 17 years in business journalism, so I was offended by this statement, but no amount of pushing could get him to reveal the names. So, we drank a toast to his success and went our separate ways.
Even before I met the gentleman in question I knew that deals were back in the Indian business landscape. June and July are usually silly season for business newspapers (barring coverage of the first quarter financial results of companies). The budget is usually a dim distant memory, most corporate executives are out on holiday, and few managers at HQs of multinationals are rash enough to venture to India during these months (Delhi and Chennai are hot and Mumbai is usually flooded). This year has been different: there have been several acquisitions—both local and cross-border—to write about. Hardly a day has gone by without an announcement about a deal or a possible deal.
Still, I hadn’t realised that the deal-frenzy is back. It turns out that it is. According to a quarterly report by audit and consulting firm Ernst and Young that was reported in Friday’s Mint, the value of deals involving Indian firms in the April-June quarter was $16.9 billion (around Rs79,000 crore), up from $3.5 billion in the same quarter last year. And Mint reported on 24 June that bankers and analysts expect to see more M&A deals.
It isn’t just the big companies that have acquired firms or are in the process of doing so. Even small ones have started playing the game. And I am not really convinced that this behaviour—last exhibited by Indian firms in 2006 and 2007—is a good thing. Even large companies have it tough when it comes to integrating firms they have acquired. The chairman of a large diversified company that had traditionally grown through acquisitions once told me that three out of every 10 acquisitions are very successful, another three, just about successful, and the rest, complete failures.
Large companies can live with the 30-60% hit rate; and they usually have the financial and managerial strength to move on if something isn’t working out. Small companies usually don’t have this luxury. This may seem unfair, especially because both large and small companies can make whimsical and foolish purchases motivated by hubris and not business sense, but it is the way of the world.
This is why Mint doesn’t celebrate acquisitions (anyway, there are others who have a rosier view of life than we do). It’s always good to watch the M&A story play out before our eyes, but, like all story-junkies, we always want to know what happens next.
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