And this is one reason why foreign buyouts are gathering pace. In the first six months of 2006, there have been 85 outbound deals valued at $4 billion. Compare this with 2005, when there were 136 acquisitions valued at $4.3 billion.
Says Sanjiv Bhasin, CEO, Rabo Bank, "While their own cash flows today are no doubt stronger, companies are also finding it easier to access money to do overseas takeovers."
In fact, says Bhasin, companies have even started building up war chests through borrowings.
Adds M Shankar Narayanan, MD, Carlyle, "Funds like ours are encouraging companies to go out and do buyouts and we are helping fund them." And with the RBI allowing banks to fund overseas buyouts, banks like State Bank of India have become active in this space.
Clearly, outbound acquisitions are outpacing in-bound acquisitions this year, both in volume and value. What is more, the appetite for risk is growing - the average cross-border deal size this year has increased to $47 million from $32 million in 2005.
And companies are not afraid to take over firms bigger than themselves. Take the cases of Tata Coffee's acquisition of Eight O' Clock Coffee or Subex's buyout of AzureSolutions, the deal values are higher than the revenues of the buyer.
The access to money has, thus, changed the mindset of Indian firms, making them more aggressive and willing to pay more.
Observe V.Anantharaman and Prahlad Shantigram, managing directors, Standard Chartered, Corporate Finance, "Deal sizes are only going to get bigger as transactions happen in sectors such as oil or iron ore and more firms will take the more leveraged buyouts (LBO) route."
They add though that the risks are higher when firms leverage their purchases rather then fund them through equity. Till date most deals have been funded through debt, the Videocon-Thomson transaction involved a swap of equity.
Bhasin believes that overall valuations may be getting a little expensive. While specific data on cross-border transactions is not available, the average Price to Revenue multiple for mergers and acquisitions in 2005 was 3.14, according to Grant Thornton.
Cautions Jayesh Desai, Head, Investment Banking, E&Y, "In several instances, companies are competing with P/Es and need to be careful because P/E funds are smart at auctions, they tend to win 70 per cent of the time."
However, Dhanraj Bhagat, Director, Corporate Advisory, Grant Thornton, believes that since may of the takeover candidates are not in great shape, Indian firms are getting good prices. While there may be many who are willing to bankroll purchases, it is the managements alone who can make the acquisition work.
As the duo from Standard Chartered point out, " The management challenge is far, far bigger than the financial challenge."