indian firms shopping abroad:trend, reasons and impact

7/30/2019 Indian Firms Shopping Abroad:Trend, Reasons and Impact

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Rishi Tibrewal


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Indian firms are on a shopping spree abroadby acquiring firms in the global markets,

specially focusing on the West. Between 2000 and 2008 there have been over

1000 international mergers or acquisitions,worth over US$72 billion.


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A cross-border Acquisition is a transactionthrough which an expanding firm buys either

a controlling stake or totally acquires anexisting company incorporated in a foreigncountry .

A cross-border Merger is a transactionwherein, two firms keeping their homeoperations intact, agree to an integration ofthe companies on a relatively equal basis.


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Hostile TakeoverA takeover attempt that is

strongly resisted by the

target firm

Friendly TakeoverTarget company'smanagement and board ofdirectors agree to a mergeror acquisition by anothercompany.


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INBOUND MERGERS

Investment in Business

enterprises by personsresident outside India. In bound M&A in sectors

such as Pharmaceuticals,Power & energy, Metals.

Pharmaceuticalsaccounted for over 50% ofdeal value in 2010

OUTBOUND MERGERS

Investment in Business

enterprises by Indian firms

outside India.

Outbound M&A in telecom,

natural resources, BFSI,

FMCG, IT/ITES,

Manufacturing and Textiles. In 2010, telecom and natural

resources accounted for 60%

of total outbound deal value


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Entry into new markets Proximity to customers Domestic regulatory barriers

Domestic competition scenarioExpand capabilities

Technology Skills

Expand portfolio of products/servicesReduce Tax Liabilities.Gain a more dominant position in a national or

global market


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USD 12.1

billionTata Steel buys Corus Plc

USD 6

billion

Hindalco acquired Novelis

Inc.

USD 2.3

billion

Tata buys Jaguar and LandRover

USD 1.6

billionSuzlon Energy Ltd. acquires

REpower

USD 1.58billion

Essar Steel acquired AlgomaSteel

February

2007

Octobe

r 2006

March

2008

December

2009

June2008


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Changing outlook of Indian promoters

Global vision

Willingness to partner for growth, skill sets, capitalor a combination of these factors

Numerous financing options

Emergence of different classes of investors

including PE/angel funds/retail investors.

External commercial borrowings

New funding structures


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Indian companies

Have made purchases in more than 85 countries.

Developed countries as a group accountedfor 76% of the total number of acquisitions.

Reasons:

Have large markets Have strong base of intangible assets.


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Year 2010 witnessed strong momentum inM&A with the US, with total deal value atUS$6.8bn Around 215 US based firms were acquired by

Indian firms.

IT sector witnessed the largest number of

transactions, (46% in volume terms) Within the IT sector, engineering design, technologyconsulting, multimedia solutions were some of thesegments which witnessed M&A


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India and Europe

The total deal value was US$6.4bn

Around 59 UK and 20 German firms were purchased by

Indian firms India and Africa

Outbound transactions valued at US$11.5bn Bharti Airtels $9 billion acquisition of African operations from

Kuwait's Zain

Vedantas acquisition of Anglo Americans zinc business.

India and Asia

Total deal value was US$5.3bn

20 Singapore firms were acquired by Indian companies.


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All the three sectors of the Indian economy suchas primary, manufacturing and services sectorshave participated in overseas acquisitions.

Indian firms in the service sector were thepioneers to use M&A and later they were joinedby manufacturing Indian firms.

The successful adoption of M&As by software

and pharmaceutical firms had allround effectson Indian firms from other sectors likeautomotive, steel, etc.


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Indian multinationals from oil and natural gasdominate the most with about 93 per cent of

the value of primary sector acquisitions. For securing these exhaustible natural

resources, Indian companies have startedacquiring these firms over the globe.

ONGCs acquisition of Russia based ImperialEnergy for $2.8 billion marked the turnaround of Indias hunt for natural reserves.


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Pharmaceutical firms, transport equipment andchemicals are the top three technology intensiveindustries accounting for 60% of total number of

manufacturing acquisitions made by IndianMNCs. Reasons for increase in pharma sector M&As: Change from a soft patent regime to a global patent

regime. Inadequate capability of developing new products.

Ranbaxy acquired 96.7% of Romanias largestgenerics drug company Terapia for $324 million.


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Metal Industries emerged as the top acquirerwith $23 billion during 20002007.

Some examples: Tata Steels $12.1 billion acquisition of Corus.

Hindalcos $6 billion acquisition of Novelis.

The immediate factor for Indian steelcompanies to acquire overseas

Trend in the global steel industry set up with the

acquisition of Arcelor by Mittal Steel in 2006.


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The services sector acquisitions from India havebeen largely led by Indian firms from the IT andIT enabled services (ITES).

Accounted for 85 per cent in value during 20002007. Majority of them being in the US.

The reason for high rate of acquisition by IT/ITES firms is

Local presence in the overseas markets for effectiveexports of software and related services. Achieve secure skilled manpower. Exploit new areas and technologies.


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Telecommunication services are the secondlargest acquirer after IT and ITES.

Some examples of service sector acquisitionsare:

Reliance Communication acquired Yipes Holding

Inc, USA in 2007 and FLAG Telecom in 2003

Infosys acquires Switzerland based Lodestone andUS-based Marsh BPO in 2012.


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Is a British luxury and sports carmanufacturer.

Ford takes over Jaguar in 1990 as its formulaone entry. Between Ford purchasing Jaguar in 1990 and

selling it in 2008 it did not earn much profitfor them.


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Long term strategic commitment to automotivesector

Opportunity to participate in two fast growing auto

segments (premium and small cars). Increased business diversity across markets and

product segments

Unique opportunity to move into premium segment

with access to world class iconic brands. Jaguar offers a range of Performance/Luxury

vehicles to broaden the brand portfolio.


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July 2007- Announcement from Ford that itplans to sell Land Rover and Jaguar.

August 2007 - Indias Tata Motors and M&Marrived as top bidders ($ 2.05b & $ 1.9b). In Jan 2008, Ford announced Tata as the

preferred bidders and by June 2008 theacquisition was complete.


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Lodestone Management Consultants,headquartered in Zurich, Switzerland, is aglobal consulting firm advising international

companies on strategy and processoptimization . Provides business transformation solutions

enabled by SAP's enterprise solutions. Lodestone clocked revenues of $210 million

in 2011.


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Lodestone will add 750 consultantsexperienced in advising clients on the use

business management software from SAP. The Lodestone acquisition gives Infosys a

profitable and strategic SAP customer base. The Lodestone acquisition will significantly

enhance Infosys' global presence, particularlyin continental Europe.


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On 10 September 2012, Infosys announced adefinitive agreement to acquire Lodestone

Holding AG for an aggregate enterprise valueof US$349 Million in cash. By the end of October 2012, the acquisition

was complete. This was the biggest acquisition by Infosys till

date.


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indian firms shopping abroad:trend, reasons and impact

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