India on the acquisition trail

In 2001 Indian outbound investment was less than $1bn. By 2006 it had reached $10bn and in 2008 India had made $24bn of outbound acquisitions


For many years India has been a willing recipient of overseas investment in order to bolster its economy, provide funding in a market where western debt structures are underdeveloped, and to bring its business operations up to speed with international standards.

The figures bear this out. According to the Indian Ministry of Commerce, investment by foreign companies in Indian businesses has grown rapidly in recent years, from just under $9bn in 2006 to $34.4bn in 2008. The origins of these funds are principally based in the US and the UK. During the period 2001-9 the US and the UK together made total foreign direct investments (FDI) of $11.5bn, accounting for 14 percent of all FDI for the period.

Traditionally, the bulk of all FDI since 2001 has been pumped into the services sector, the figure of $84bn is indicative of the amount of investment in new infrastructure and continued development. Computer hardware and software as well as telecoms have also benefitted, with $9bn and $6.3bn of all FDI respectively.

Clearly India continues to be an attractive proposition for foreign investors and it is easy to see why. GDP projections for the next five years vary between four percent and as much as eight percent, and at an enterprise level, according to Reuters, since 2005, Indian companies achieved an average growth of 8.6 percent per annum. As a rapidly emerging market, investment in India holds great potential upside for those who can penetrate the market at the right moment in the cycle.

Today, the huge amount of investment received by India over the past decade is beginning to bear fruit. Despite the fact that more than 70 percent of the 1.2bn population of India is based in the rural regions, India boasts some 55 billionaires – 22 more than in the UK – a clear sign that India’s business environment is booming. Furthermore, years of inward investment in India has helped create a multitude of successful enterprises that, in turn, have begun to look to expand their geographical reach beyond the Indian Ocean.

To put this into perspective, in 2001 Indian outbound investment was less than $1bn, but by 2006 it had reached $10bn and the following year it had doubled again. In 2007, overseas investment by Indian businesses had eclipsed the total amount of outward investment by Indian companies since the country gained independence in 1947. This growth continued in 2008, when, according to Reuters, India made $24bn of outbound acquisitions.

And since many Western nations have been impacted severely by the recession, these countries are happy to be on the receiving end of investment from a nation in which economic growth has proved relatively resilient to a global economic downturn.

Investments in the UK and Europe
Looking at the figures in more depth, according to Corpfin/Experian, from the beginning of 2007 to the date of publication, there have been more than 239 investments by Indian companies in UK and European businesses, with a combined value of more than $27.8bn. And considering that in nearly half of these transactions the consideration was not disclosed, the total value of these deals may be up as much as 50 percent higher than this tally.

Drilling down to the individual deals it becomes clear that there is a healthy spread both in terms of sector and segment. In total there were seven deals with a total consideration above $1bn. These were:

– Tata Steel’s $8.1bn acquisition of Anglo-Dutch group Corus, Europe’s second largest steel manufacturer
– The $1.6bn acquisition of Germany’s REpower Systems by wind-power operator Suzlon Energy
– Tata Motor’s $2.3bn purchase of the Jaguar and Land Rover brands from the Ford Motor Company
– The acquisition of automotive parts company Valeo France by the diversified conglomerate Hiduja Group Ltd
– Sterlite Industries’ takeover of mining company Anglo American Zinc, for $1.4bn
– Hinduja’s acquisition of KBL European Private Bankers for $1.8bn

But eclipsing these, the largest transaction in this period was the $10.7bn acquisition of Zain Africa BV, a Netherlands-based mobile telecommunications provider, by Bharti Airtel Ltd.

Slightly lower on the scale, there were some 20 deals in the $500m-$1bn segment. The combined value of these deals was in excess of $5bn, with the pick of these transactions being HCL Technologies’ $794m acquisition of Axom Ltd and the acquisition of the Grosvenor House Hotel group by Sahara India Pariwar for $734m.

The $100-500m segment also recorded a great deal of activity, with $3.1bn transacted across 19 deals.

Investments in North America
According to Corpfin/Experian, since 2007, Indian companies made 206 investments in the North American market, totalling more than $22.3bn. And considering that approximately 35 percent of the deals did not have disclosed values, the total value of these transactions may be as much as $34bn.

In the $1bn+ bracket, seven deals accounted for $15.9bn of the total transacted value. These were:

– Aluminium manufacturer Hindalco Industries’ $6bn acquisition of Novelis
– Essar Steel’s $1.56bn takeover of Canadian group Algoma Steel
– The purchase of General Chemical Industrials by Tata Chemicals
– The takeover of US power distributor InterGen by diversified industrial group GMR Infrastructure
– Oil and Natural Gas Corporation’s $3bn acquisition of Kosmos Energy
– Religare Enterprises’s takeover of investment firm Northgate Capital

Looking along the scale, there were three acquisitions in the $500-$1bn range, with a combined value of $1.3bn, in addition to a further 16 deals in the $100-$500m range, carrying a total value of more than $3.2bn.
In view of the success enjoyed by India, South East Asia now looks set to be the new kid on the block when it comes to M&A. According to Mergermarket, the value of deals in the Asia-Pacific region (excluding Japan) totaled $89.4bn for the first three months of 2010, representing an increase of almost 93 percent over the same period a year earlier.

This was against a wider backdrop which saw European M&A activity continue to decline, with the value of European deals falling 5.7 percent during the same period. Furthermore, the US market dipped by 26 percent to $148bn for the quarter.

Further evidence to suggest that South East Asia may be the next growth market comes from Cass Business School’s M&A Research Centre, which published its annual M&A Maturity Index, which gauges a country or region’s ability to attract and sustain M&A. The index, taking into account several financial, socio-economic, financial, political and and regulatory factors into account, concluded that the region was rapidly approaching the levels of maturity and sophistication enjoyed by its European and North American counterparts.

This move towards maturity is visible in the figures. According to Experian/Corpfin, there were 87 investments in UK and European companies by South East Asian businesses in 2010. This compares with 72 the previous year. The total value of these deals was $24bn, almost double the 2009 value.

Looking ahead
Using M&A as a key performance indicator, we can see that India has benefitted from over a decade of investment into the country’s business community and is now committed to repaying the compliment by investing in overseas businesses, principally in Europe and the US. Going forward, all the signs point to South East Asia as being the next growth region, and, once the regulatory environment becomes more stable, we should expect to see a surge of outbound acquisitions originating from this region.