India Business: A Few Updates

1. Indian Acquisitions in the United States

One of our regular readers, Mohit Gogia, who is a lawyer currently based in New York, brings to our attention a report titled “US-Bound Acquisitions by Indian Companies” that has been prepared by Virtus Global Partners.

This report contains a snapshot of Indian acquisitions of US companies, both quantitatively and qualitatively. The gist of their findings is that Indian acquisitions in the US are growing despite the economic slowdown. The deals in the last few years have been on a steep growth trajectory as can been seen below from the numbers reported:

Year: No. of Deals

2005: 23
2006: 48
2007: 83
2008 (first 2 months): 10

The reports states that the cumulative deal size for the transactions in 2007 aggregate US$ 10 billion. Unsurprisingly, the industry that takes the cake is IT, which bagged 51% of the deals by volume.

The report sets out various factors fueling US-bound acquisitions and also key considerations for cross-border acquisitions in the US.

From a corporate lawyer’s standpoint, it seems to me that the principal aspects in such transactions would involve navigating through the local requirements that govern the target company (e.g. due diligence), the structuring of the acquisition (particularly from a taxation standpoint), and the financing of the transactions by the acquirer. Since the guidelines prescribed by the Reserve Bank of India as to overseas acquisitions have now become quite liberal, such transactions usually tend not to face too many impediments at the Indian end.

This is especially because (as the Virtus Global Report observes), most of the transactions are acquisitions for cash. Deals tend to become more complex if they are stock transactions, as the Indian acquirer company would then have to issue shares or other instruments (such as ADRs or GDRs) as consideration to the shareholders of the US target company, and these could involve compliance with various requirement of SEBI and Ministry of Finance that would require careful structuring. As transactions become larger in size and leverage may become difficult to obtain (due to declining market conditions), it might well be the case that stock transactions will become more common.

2. The World in 2050: Beyond the BRICs

A report by PriceWaterhouse Coopers that looks at emerging market growth prospects provides a bullish outlook for India and China. It notes: “China is expected to overtake the US as the largest economy in around 2025 in these updated projections, while India is now assessed as having the potential to nearly to catch up with the US by 2050.” This report is an update of PWC’s earlier report in March 2006.

What comes as a surprise in this report is that India tops the growth league tables among all emerging economies, even ahead of China. The factors that emerge from an India-China comparison are as follows:

“- significantly slower labour force growth in China due in particular to the effects of its one child policy; this will lead to a rapid ageinig of the Chinese population over the next 45 years and a projected decline in its working age population, while India’s working age population is projected by the UN to continue to growth at a healthy rate …

– the fact that average productivity and education levels across the population are currently lower in India than in China, giving the former greater scope to catch up with the OECD countries in the long run, provided that India can maintain the right kind of institutional policy framework to support economic growth (and also gradually overcome cultural barriers to female education in rural areas of India in particular); and

– China’s growth to date has been driven by very high savings and capital investment rates, but experience with Japan and other earlier ‘Asian tigers’ suggest that such investment driven growth eventually runs into diminishing returns once income levels approach OECD levels; as China ages, it is also likely that its saving rate will drop as assets are ‘cashed in’ to pay for the retirement of its ageing population, though we still assume its saving and investment rates remain somewhat above the OECD average in the long run.”

The outlook for Indian economic growth is indeed optimistic, judging by this report.

Hat tip: US-India Friendship

3. India: Growing @ the Speed of Thought

… is the theme for this year’s India Business Conference that is organised annually by the Columbia Business School. This year’s conference will be held on April 19, 2008 at the Columbia University, New York, NY.

The conference may be of particular interest for lawyers and other business professionals based in the US who are interested in Indian business and economic matters. I attended this conference last year and found it to be useful.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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