India comes of age in M&A, but not always smooth

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Bharti Airtel's overtures towards South African telco MTN Group, which could lead to India's biggest foreign takeover, are a sign that big Indian firms are hungry for deals and undaunted by a global credit crisis that has dented M&A activity around the world.

While Bharti shares have been hit as analysts query the mobile firm's ability to fund a deal that could top $20 billion, few doubt there will be more acquisitions by increasingly outward-looking Indian firms.

"Indian corporates have come of age," said Pramit Jhaveri, head of investment banking at Citi India, which advised Tata Motors on its $2.3 billion buy of Ford Motor's Jaguar and Land Rover brands in March.

"Some of these headline-grabbing transactions would have been unimaginable just a few years ago," he said, noting they have become possible because of strong balance sheets from profitable growth, good management teams and easy access to capital.

"Local bank liquidity remains strong, and the local and global capital markets have embraced well thought-out and well structured transactions from India," he said.

Global M&A volume is down by nearly a third this year, according to Thomson Reuters data, and even Indian outbound M&A has dropped 38 percent, but there have been three $1 billion-plus deals, including the Tata Motors acquisition.

"Maybe because M&A is cooling off elsewhere, bankers are telling Indian companies this is a good time to look at acquisition opportunities," said S. Subramanian, head of investment banking at Enam Securities.

Indian firms do not have to compete as much with Western rivals and private equity firms for assets now, he said, adding they have de-leveraged in the last couple of years. "They've become larger, too, so they know how to run big businesses."

But it will not be an easy ride.

Tata Steel has struggled to raise funds through a mixture of equity and debt for its $13 billion 2007 acquisition of Anglo-Dutch steelmaker Corus Plc, India's biggest foreign takeover to date, and Tata Motors' $3 billion bridge loan for the Ford deal has not been smooth. Other companies have had trouble raising money from rights issues in a turbulent stock market that is down more than 15 percent this year, while the cost of borrowing overseas has risen by 200-300 basis points over a year.