In 2007, bond with the best and make the best out of it. India is the best example for this.
Powered by the Tata-Corus deal, India's commodities sector in 2007 showed the way to rest of the world how to cash in on mergers and acquisitions.
Following the two major deals -- Tata-Corus and Hindalco-Novelis -- the Indian commodities sector, in value terms, accounted for 57 per cent ($20.9 billion) of total deals done across sectors for the first two months of 2007.
According to accountancy firm Grant Thornton India, in 2006, deals involving commodities ($3.5 billion) accounted for 20 per cent of total deals while in 2005, the commodities sector in the country witnessed $3.7 billion worth of deals (25 per cent of total deal value).
In the recent years, the commodity sector started seriously adopting the strategy of establishing a global footprint through inorganic growth in order to achieve higher capacity over a very short period of time.
The trend to use acquisition as a growth strategy started in 2006 and some of them have materialised in early 2007.
However, the rise has been from a handful of high value deals rather than a general growth in the number of deals.
Moreover, several other Indian companies in the steel, metal, energy and other sectors are exploring large international acquisitions. Commodity sector is bound to witness more mergers and acquisitions in the coming months of this year.
In commodities sector, steel has been gaining the maximum share of value at 52 per cent and most of it is from Tata Steel's acquisition of Corus -- which is also corporate India's largest acquisition so far.
The second position is occupied by "other metals" at 21.5 per cent, again, primarily contributed by Hindalco's acquisition of Novelis. It is followed by energy and oil and gas sector accounting for over 20 per cent of the deal value.
Another interesting factor in all these deals was most of them were acquisitions or mergers done in foreign land. However, there were some large inbound deals as well. Recently, outbound deals were much larger in number and value compared to inbound deals.
The rationale for inbound deals such as Holcim's investment in Gujarat Ambuja and Ambuja Cements was to expand capacity by acquiring companies in India with higher margins at attractive valuations.
The main reason for outbound deals has been to make significant strides in the international market by making high value acquisitions.
There were some more notable factors in all these big deals abroad. In most of these cases, the acquirer has bought companies with values bigger than their own revenues.
One of the reasons for such high value deals is the tremendous increase in confidence and support shown by banks and financial institutions in these Indian companies.
The commodity sector comprises segments including agro-products, oil and gas, energy, cement, steel, aluminium and other metals and coal.