Rupee appreciation boon for overseas M&As by India Inc

Rupee appreciation boon for overseas M&As by India Inc

New Delhi: Over 10% appreciation in the domestic currency against dollar has thrown a new M&A opportunity for India Inc which wants to reach out to the world by acquiring going concerns on a global scale, according to an Eco Pulse (AEP) study.

Assocham tracked a total of 125 deals for the first half of the current fiscal across a wide range of sectors including IT and ITes, hospitality, steel, communications, infrastructure, textile, telecom and financial services. The study was based on announcements made by the companies. Out of the total 125 deals in first half, 70 were cracked by Indian firms in offshore markets around 24 deals were completed in U.S and 28 in Europe.

Inorganic expansion activity cooled down on domestic front with absence of blue chips from M&A market which led to decline of 40% in valuations even as the number of deals struck remained almost same in both the quarters. Lack of corporate enthusiasm for buy-outs may turn out to be an adverse signal for economic growth of India.

70 deals done overseas in the first six months of the current fiscal, in which Indian firms undertook buyouts worth $14 billion, has revealed that Indian companies would have saved 6500 crore just because of increase in rupee value.

While home grown IT companies are struggling to cope with the rupee pressure, the currency appreciation has given them an advantage in terms of prospects for inorganic growth worldwide.

Key Findings

* The IT sector which dominated the overseas M&A activity of the domestic firms in the second quarter with deal valuation worth $1.56 billion, saw total savings at Rs795 crore in Q1 of 2007

* With continuous decline in dollar value, U.S remained the most favourite hunting ground for Indian companies in Q1 and Q2. Even as overall overseas buyouts of India Inc declined by 64 in Q2, deal valuations announced with U.S-based companies remained the same at $2.9 billion for both quarters

*Europe where the currency depreciation of Euro against rupee was around 4% since March this year, buyout activity of Indian companies witnessed a severe decline of 88% in Q2 as compared to Q1. Valuation declined from $2.89 billion in Q1 to $326 million in Q2

* While absence of big ticket overseas acquisitions and global slowdown can be held responsible for sharp decline in M&A activities by domestic firms in international market, rupee appreciation played an important role in keeping buyout activity of India Inc intact in U.S

* As compared to $2.63 billion worth deals cracked in the domestic M&A market in first three months, the amount squeezed to $1.55 billion in following three months of Q2 of FY2007-08.

* Foreign firms remained upbeat on India growth story, as they splurged their acquisition valuations by 25% from $153 million in Q1 to $193 million in Q2

*Total deal values across Indian and foreign companies registered a decline of 58% from $13 billion in Q1 of current fiscal to $5.4 billion in Q2

* While ‘steel’ ruled the roost owing to Tata-Corus deal in the Q1, IT and ITes dominated M&As for Q2 valued at $1.56 billion. M&A valuation of $5.4 billion between in April and June (steel) and dropped to $940 million between July and September

* Biggest acquisition announcement was made by JSW Steel (Jindal United Steel Corporation, Saw Pipes and Jindal Enterprises LLC) based in U.S for $940 million. India Hotel Company was the second biggest acquirer with the deal value worth $850 million. The other major acquirers in the second quarter were Wipro Technologies ($ 600 million), Firstsource Solutions ($330 million) and Reliance Communication ($300 million)