Corporate India rides new wave of consolidation

April 1st, 2008 - 2:53 am ICT by admin  

A file-photo of Manmohan Singh
By Arvind Padmanabhan
Powering an enviable nine percent plus growth for the Indian economy, India Inc. has begun to show an unprecedented appetite for business consolidation, sparking a wave of big-ticket global mergers and acquisitions valued at an impressive $70 billion last year. And with the country’s farm economy - which had long been a major drag on India’s overall economic performance - starting to look up, policy-makers led by Prime Minister Manmohan Singh feel the nation has entered into a phase where it can even step up its already-robust growth.

“It is possible that with correct set of policies and dedicated effort by both the central and state governments, we will not only maintain this momentum of high growth but may be able to raise it to 10 percent,” Manmohan Singh said.

“Our economy has demonstrated resilience in meeting the challenges posed by globalisation. In the last two decades, our industry, both large and small, has also restructured and become globally competitive,” he said recently.

The prime minister’s reference was to India emerging as a net exporter of capital, led by the $29-billion Tata group, India’s largest business house, which paid $11.1 billion to acquire Anglo-Dutch steel maker Corus, even though the country itself sought large doses of overseas investments.

In fact, a study by international consultants Grant Thornton estimated that the total value of private equity and mergers and acquisition deals in India during 2007 was $68.32 billion, up by 143 percent over last year’s $28.16 billion.

The average merger and acquisition deal size was close to $77 million and that for private equity was $44 million in 2007, the consultancy said in its annual Deal Tracker report that studies the global merger and acquisition market.

The total number of mergers and acquisitions alone stood at 661 in 2007, with a total value of $51.17 billion, against 480 deals with a value of $20.30 billion last year.

“Steel and telecom sectors were the clear leaders as far as sectoral values were concerned,” said C.G. Srividya, a partner at the India arm of Grant Thornton, reflecting on which areas attracted the maximum merger deals.

“The two (steel and telecom) garnered $14.9 billion and $11.3 billion worth of deals, respectively. Together they accounted for as much as 50 percent of the total mergers and acquisition deal value during 2007,” she added.

“The large volume of outbound deals is indicative of the current mindset of many Indian companies - grow, acquire and utilise debt facilities to the full,” said Ian Gomes, chairperson of KPMG’s new and emerging markets practice.

“The hunted are fast becoming the hunters, with increasing numbers of companies in developing nations casting their eyes far beyond their own borders, putting their stamp on the international acquisition trail,” he added.

A study by the consultancy said of the four major emerging economies - Brazil, Russia, India and China (BRIC) - India recorded the largest number of merger deals in 2007.

From large business groups such as the Tatas, Essars and the Aditya Vikram Birla group to mid-sized and smaller firms with turnovers of less than $1 million, an unprecedented effort was made for global integration and economies of scale.

“It is with much enthusiasm that I underscore - Indian industry has grown wings. Globalisation has given a new meaning and dimension to India Inc,” Commerce Minister Kamal Nath said, while releasing a book on Indian multinationals.

“Many Indian firms have slowly and surely embarked on the global path, leading to the emergence of Indian multinationals. Indian industry has crossed domestic frontiers and established a credible presence in markets abroad.”

In fact, the flow of money for the corporate sector is also now at a record high, with Ernst and Young estimating the figure at $8.3 billion through 95 initial public offers in 2007 to rank India seventh in the world.

Even inflows from foreign institutional investors (FIIs) in the Indian equities markets touched a record level of $16.995 billion during 2007, as against $7.993 billion last year, latest data with the markets regulator showed.

Little wonder the United Nations Conference on Trade and Development (Unctad), in its World Investment Report 2007, rated India the second hottest destination for foreign investment, next to China and ahead of Russia and Brazil.

In recent months the Tata group announced the biggest-ever takeover of an overseas firm by an Indian company when Tata Steel acquired Corus - a company several times larger in terms of valuation as well as revenues.

This deal was ranked among the 10 best in 2007 by Time magazine. “Although India’s technology prowess in the outsourced world grabs the headlines, there is no more powerful symbol of India Inc.’s rise than this one,” Time said.

“Ah, the delicious irony, as the Tata family conglomerate, India’s steel giant, buys the Anglo-Dutch firm that includes the remnants of British Steel at one time, a symbol of Britain’s imperial might,” the magazine noted.

In April last year, another Tata company in the power sector bought significant stakes in two Indonesian groups, PT Kaltim Prima Coal and PT Arutmin Indonesia, for $1.1 billion, while Essars acquired Canadian firm Algoma Steel for $1.55 billion.

In May, Vijay Mallya-led United Spirits bought Scotch whisky distiller Whyte and Mackay for $1.18 billion, followed by an announcement that Suzlon Energy has taken over the German firm Repower Systems for $1.7 billion.

Similarly, Hindalco paid $6 billion to acquire Canadian aluminium products manufacturer Novelis and as the year was drawing to a close the Tata group had emerged frontrunners in acquiring two British brands - Jaguar and Land Rover.

Looking ahead, some global agencies like Unctad predict India’s emergence as a major player in the foreign investment market, with domestic companies wanting to access new technology, become competitive and build strong global positions.

“China and India are beginning to challenge the dominance of the Asian newly industrialising economies - Hong Kong, Republic of Korea, Singapore and Taiwan Province of China - as main sources for foreign direct investment.”

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