28 Oct 10 Outbound M&A deals on the rise

Corporate India is back on the prowl. Post recession, many European and North American companies are looking at dispensing their non-performing, non-core assets and Indian companies are lapping them up.

The Indian mergers and acquisition scenario started with a bang in 2010 with domestic companies announcing M&A deals valued at an impressive USD 14bn in just the first 45 days. In contrast, corporate India was involved in M&A transactions worth only around USD 20bn in 2009, when the worldwide economic slowdown forced Indian companies to look within the boundaries of the nation for M&A deals. Domestic deals accounted for more than 60% of the total deals last year while outbound deals accounted for just around 13%. However, the drift seems to be changing now as more and more domestic companies have ventured out and announced a number of multi-million dollar international acquisitions like the USD 9bn Bharti-Zain deal, which took place in March this year. India’s economy recovered quicker than most developed nations, growing at a better-than-expected rate, which has boosted the morale of corporate houses and investors.

As per ISI Emerging Markets database, a total of 220 M&A deals were announced, with a total deal value of over USD 28.56bn, in the first six months of the financial year 2010-11 (April to September). Out of these, 91 were domestic deals amounting to a deal value of USD 14bn, 40 were outbound deals where Indian companies acquired a foreign target (deal value USD 5.9bn) and 85 inbound deals saw Indian companies being acquired by foreign firms (deal value USD 7.9bn).

The biggest M&A deal announced in first two quarters of financial year 2010-11 was, Vedanta Resources Plc, the UK-listed metals and mining company, agreeing to acquire between 51%-60% in Cairn India, the listed Indian oil and gas company, for USD 9bn. The deal, however, is currently stuck in red tape, with Cairn needing at least 10 separate clearances from the Petroleum Ministry before it can close the deal.

As far as outbound deals are concerned, the biggest deal was Jindal Steel and Power (JSPL) announcing that it would acquire Oman’s Shadeed Iron & Steel Co for USD 464mn (INR 21.34bn) with an aim to tap the demand for steel in West Asian and North African countries. The second biggest outbound deal for the period was Aditya Birla Group, through its cement company UltraTech Cement, agreeing to acquire a 51% stake in Dubai-based ETA Star Cement Company LLC for an enterprise value of USD 378mn (INR 17bn).

A sector wise analysis of the first half of financial year 2010 shows that, the oil and gas sector accounted for 31% of the total M&A deal value while telecom accounted for 13%. Electric power generation was the third most active sector, as it contributed 12% in deal value.

The rise in the number of outbound deals provides clear proof that corporate India is consolidating and at the same time aggressively working on global expansion. As global economy continues to recover from recession blues, I believe that interest in outbound activity will continue as Indian companies target global expansion to boost both growth and resources, with a focus on medium sized deals. However, it will still take some time before corporate India can mirror the peak deal activity levels of 2007-08.

Notes: Includes deals announced in the period of April-September 2010. Includes joint ventures, acquisition of minority stakes & restructuring deals

Source: ISI Emerging Markets Database