The Financial Express
Ambitious Indian firms set sights abroad REUTERS Posted online: Tuesday, October 31, 2006 at 2029 hours IST
LONDON, OCTOBER 31: Tata Steel's daring move to buy Anglo-Dutch steelmaker Corus, a company with four times its sales, highlights growing ambition as cash-rich Indian firms begin to look beyond their home turf.
Consultants highlight companies in India's automotive, engineering, pharmaceuticals and software services sectors as potential acquirers as global markets buzz with mergers and acquisitions.
"One by one, slowly the sizes are increasing and confidence in making these kinds of acquisitions has increased across all sectors of the Indian corporate world," said Harish H.V., a corporate finance partner at Grant Thornton in India.
Corus's approval for Tata Steel's $8 billion takeover bid came after it had spent a year talking to potential partners in Brazil and Russia -- which underscores increasing acquisitiveness from emerging markets in general.
The Corus deal is India's largest foreign takeover and means the total value of Indian acquisitions abroad this year has outpaced purchases of Indian firms by overseas companies.
The driver of Indian firms' new acquisitiveness is a combination of technology and access to wider markets, said James Winterbotham, a co-founder of consultancy firm India Advisory Partners.
"There is still a lot of technology which is sitting within international companies. Historically, you would joint-venture into India, now Indian companies are of the scale where they can go and buy that technology," said Winterbotham.
The Corus deal highlights India's gradual shift from a capital importer. Asia's fourth largest economy, India launched market reforms more than a decade ago to woo foreign investment.
Also supporting takeovers are a booming economy -- which has grown at an average of 8.0 percent in the past three years -- and stock markets at record highs, up nearly 40 per cent so far.
M&A BOOST
Including the Tata deal, Indian companies have announced overseas acquisitions worth $19.5 billion so far this year, up from $4.5 billion in 2005, data from research firm Dealogic shows.
In contrast, acquisitions in India by overseas firms add up to $9.06 billion so far this year.
The average size of overseas deals by Indian companies has increased to about $50 million from about $10 million three years ago, said Grant Thornton's Harish.
"The mega deals, if at all, are going to happen in the commodity sectors whether it is steel, paper or some of the mining kind of transactions," he said, but also highlighted fast-growing media firms as likely acquirers.
India ranks fifth among the countries making the most acquisitions of British companies by deal value so far this year after Spain, the United States, Germany and Australia.
Some of the biggest overseas takeovers by Indian firms this year include Tata Tea's planned purchase of 30 per cent of Energy Brands for $677 million; Dr Reddy's Laboratories' acquisition of German generic drug maker Betapharm for $572 million; and wind-turbine maker Suzlon Energy's $520 million buy of Belgium's Hansen Transmissions.
MORE SOFTWARE ACQUISITIONS?
Firms in India's showpiece software services sector -- which includes US listed Infosys Technologies and Wipro -- have made some smaller niche acquisitions, but some corporate advisers expect mid-sized firms to step up takeovers.
Software product makers including 3i Infotech and Subex Systems have snapped up overseas companies.
"What might be interesting is that some of the tier two companies -- $300 to $500 million in market capitalisation -- are getting more aggressive," said Bundeep Singh Rangar, chairman of India-focussed IndusView, a corporate advisory company.
"Some of the smaller guys might be more aggressive because they just simply have to keep up with the bigger guys who are growing like monsters."
Infosys, which has roughly doubled its revenue over the past two business years, has a market capitalisation of $26 billion -- greater than that of rivals Accenture, CapGemini and Electronic Data Services.
But beyond tech, analysts say it will take time for Indian companies to grow acquisitive.
Indian companies are well-placed to do deals with large information technology divisions of big European manufacturing companies, analysts say. But big-ticket acquisitions in other sectors might be slow to emerge.
"India will be a relatively small player on the international M&A market place for some time," said Winterbotham of India Advisory Partners.
"There are probably at the moment still only a relatively small number of companies of the size and management depth to actually make those acquisitions and have that international culture."