(In the following post, Rajvendra Sarswat, an Indian lawyer, examines the current trends in acquisition activity in
The news of an Indian company making any global acquisition or financing any project might have been surprising few years back, but not anymore. In the year 2006, for example, Indian companies announced around 125 foreign acquisitions with a value of nearly $10 billion. That was roughly eight times that of the year 2000. However, the first 5 months of year 2007 witnessed a deal size of around $ 15 billion, with over $12 billion coming from the Tata-Corus deal alone and with further large acquisitions in the pipeline. There were reportedly 35 deals between
It is noticed that Indian corporates have continued to act prudently since the credit crunch commenced, taking advantage of the retraction of financial buyers and the depreciation of the dollar to push their growth agenda. Further, the trend is greater in manufacturing companies, followed by technology, IT support services and business process outsourcing. Infrastructure development was a sector that received enthusiastic attention from the early days of Indian liberalization. Overseas investment by Indian companies has increased in
If we talk about how the trend is shaping, we can see few factors, which are evident. Leaving apart the Satyam fiasco,
With the growth of the Indian economy at an average rate of 8.8 per cent every year, it may just prove to be an additional reason, which triggers the growth in overseas investments. Tax havens also feature significantly in the Indian acquisitions. In recent times, sustained growth in corporate earnings has boosted the profitability and strengthened the balance sheets of Indian companies. In the past few years, big and small Indian companies in every sector have been expanding their footprint beyond Indian shores, which is conferring global image and reputation on Indian companies. This has, in turn, strengthened their credit ratings and ability to raise funds overseas.
The liberalization of investment limits outside India and change in restructuring process that many companies underwent over last few years have given them more confidence to meet the global challenge. Further, keeping in view the increasing demand and the scarcity of natural resources in
The Indian market has been less affected by the global financial turbulence as compared to other western countries and still Indian economy is a promising and ideal investment destination and cost effective.
There are several dangers or impediments in acquisitions abroad funded fully by Indian interest. First, the global economy today is inter-related in such a way that instability of one economy has an effect on other country. Further, though acquisition by Indian corporates is increasing globally, it is identified that Indian entry in cross border acquisition is still not easy which results in higher acquisition costs. Tax, on the other hand, as an impediment determines how much return one would bring home at the end of the day. Being a new entrant in the global race of acquisition,
The most interesting deals can be found in sectors like telecommunication, infrastructure, pharma, retail etc. In telecommunication sector, cross border deals involve FDI issues, license agreements issues, regulatory issues and other commercial issues which make these deals very challenging and interesting. In pharma deals there are multiple issues relating to patent licensing, regulatory approval and several intricate issues that make them exigent.
The most significant of the deals that took place recently would be the acquisition of ONGC Videsh’s of
When it comes to mergers and acquisitions deals in
Hence, looking at the economic instability presently, though it appears that it might take a while for Indian market to gain its momentum back, once it stabilises, there are prospects for long term growth with positive impact.
– Rajvendra Sarswat