(In the following post, Rajvendra Sarswat, an Indian lawyer, examines the current trends in acquisition activity in India, with particular reference to overseas acquisitions by Indian companies)
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 India and the developed economies in the second half of 2007, following on from 34 in the first half.
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 India, many Indian companies in the public sector are investing heavily in oil fields and natural resources driven industries abroad. The outsourcing phenomenon, especially in IT Industry has helped Indian companies in a lot of direct and indirect ways.
The most significant of the deals that took place recently would be the acquisition of ONGC Videsh’s of UK listed Imperial Energy for US $ 2.6 billion. Another significant acquisition is Tata Motors acquiring Jaguar and Land Rover worth US $ 2.3 billion. The GMR Infrastructure’s US $1.1 billion purchase of a 50% stake in InterGen was the largest acquisition of a global energy utility by an Indian company to date. The acquisition of Canada based Novelis by Hindalco involved transaction of US $5,982 million. Tata Steel acquired Corus Group plc. and the acquisition deal amounted to $12,900 million. In the pharma sector, Dr. Reddy’s Labs’ acquisition of Betapharm through a deal worth of $597 million and Ranbaxy Labs’ acquisition of Terapia SA through a deal amounting to US $324 million were significant. Suzlon Energy acquired Hansen Group through a deal of $565 million. The acquisition of Daewoo Electronics Corp. by Videocon involved transaction of $729 million. HPCL acquired Kenya Petroleum Refinery Ltd. The deal amounted to $500 million. VSNL acquired Teleglobe through a deal of $239 million.
When it comes to mergers and acquisitions deals in India, the total number was 287 from the month of January to May in 2007. It has involved transactions worth US $47.37 billion. Out of these 287 mergers and acquisition deals, there have been 102 cross-country deals with a total valuation of US $28.19 billion. Indian mergers and acquisition activity totaled around US $ 19.8 billion in financial years 2008 as compared to US $ 33.1 billion in financial years 2007. The reason of such decline was in line with the global slowdown. The average size of deals in 2008 was US $ 23.4 million, far lower than that of the US $ 70.5 million in 2007. Cross border acquisitions totaled to US $ 8.2 billion in 2008 after declining of 56.3% from the previous year, where the same was US$ 18.7 billion.
– Rajvendra Sarswat