Insatiable! India sealed $55-bn M&A deals in 2010

Riding high on its insatiable appetite for foreign assets, India Inc announced merger and acquisition deals worth a record $55 billion this year, including a record number of billion-dollar transactions.

As the year 2010 comes to a close, a look back at India Inc's deal activity shows a splendid year, with the total deal value surpassing the previous record set in 2007 and big-ticket deals making a comeback as corporate India regained its deal-making appetite with nine billion-dollar-plus deals -- the highest-ever in a single year.

"Indian companies are ready to pay what they perceive to be the right valuation. They are not just hunting for bargain buys, but they would take advantage of the economic slowdown and the fact that many loss-making companies in developed markets are looking to sell out," said Freny Patel, associate editor, DealReporter (part of Mergermarket Group), Asia-Pacific.

. . .

The M&A landscape was largely dominated by India Inc's global ambitions, with Indian companies acquiring foreign assets worth $27.25 billion with a view to expand their market share -- as was seen in the case of Bharti-Zain -- while Reliance Industries, Tata, Jindal and Coal India also sought to acquire assets abroad to ensure consistent supply of raw materials on a long-term basis.

"There have been acquisitions in South America, Europe, Australia, Singapore, etc, for some time now.

"More recently, there is a lot of interest in developing economies in Africa, Indonesia, Malaysia, etc," Grant Thornton India Specialist Advisory Services Partner C G Srividya said, but cautioned, "It is important to look for value buys, without which there will not be adequate returns coming for the buyer."

. . .

Other major transactions include the end of 26-year-old two-wheeler joint venture Hero Honda and JSW Steel's acquisition of an over 40 per cent stake in Ispat Industries for about Rs 2,157 crore (Rs 21.57 billion).

Out of the two deals, which both happened this month, financial details on Hero and Honda's exit from the Hero Honda joint venture have not been disclosed.

After an one-and-a-half-year lull in M&A activities, the domestic banking space also saw the merger of Bank of Rajasthan with leading private sector lender ICICI in a deal worth about Rs 1,500 crore (Rs 15 billion) this year.

So far this year (from January to December 15), the total announced deal value -- according to research firm VCCEdge -- amounted to $54.6 billion, significantly more than the previous high of $42 billion achieved in 2007.

At a time when Indian companies are aggressive on overseas acquisition plans, some foreign multi-national corporations -- possibly enticed by a near 9 per cent growth rate -- sought to enter India by acquiring local companies.

. . .

VCCEdge research director Kunal Shrivastava said, "Capitalising on the domestic growth story, overseas firms acquired Indian assets worth $10.67 billion, an increase of 57 per cent in comparison to the $4.7 billion of inbound M&A in 2009."

Experts expect India Inc's shopping spree to continue in the coming year.

In the domestic market, the sectors that are likely to witness some consolidation include telecom, textiles, financial services and healthcare.

The surge in M&A activity in India is in line with global trends, where M&As form an integral part of companies' strategy for consolidation, growth, restructuring, technology acquisition, value maximisation and synergy, Grant Thornton said.

. . .

Meanwhile, according to data compiled by VCCEdge so far this year, PE Investments amounted to $8.4 billion, through 376 deals.

Nevertheless, despite the good performance, the value of PE deals was dwarfed by the size of the M&A deals.

"Making new investments has been challenging because of the pricing in the markets and inability to meet promoter expectations in most cases.

"This is expected to continue in early 2011," PricewaterhouseCoopers executive director/partner, Transactions Group, Sanjeev Krishan said.

Going forward, Krishan said, "The volatility in the markets and increase in interest rates are likely to create greater opportunities for PE firms in 2011 than existed in 2010."