The slowdown in the global economy has turned into an opportunity for the country?s auto sector, especially the components segment, to go for big-ticket buyouts. While exact figures are hard to come by, industry experts confirmed that leading Indian manufacturers are developing war chests for overseas acquisitions.
?The liquidity crunch in global markets, as well as a significant drop in the demand for automobiles, has resulted in substantial losses for automobile companies as well as their component players in the US and Europe. As a result, some companies are up for sale at discounted rates,? says Abdul Majeed, an auto analyst & partner at PricewaterhouseCoopers.
?The depreciation of the dollar has given Indian companies an advantage in cross-border buyouts as the purchase value has come down substantially,? concurred Vishnu Mathur, executive director, Automotive Component Manufacturers? Association.
The acquisitions may not, however, be leveraged ones. Tight money supply globally as well as high interest rates have made it difficult for private equity (PE) majors to raise loans to fund such acquisitions. ?PE players traditionally seek loans at 3-5% interest. However, with the slowdown in the US and EU, lending rates have gone up substantially. So, PE players are not venturing into any big deals,? Majeed said.
M&As in the automotive sector worldwide are expected to fall by 25-30%, compared to last year?a major dip for the first time since 2001?but Indian companies could perform better. In the current year to July, there have been nine deals involving the domestic automobile sector, valued at $2.4 billion.
The number of PE-financed deals was only four at a combined value of $225 million, according to a Grant Thornton report. Other than Tata Motors, the deals include Mahindra & Mahindra?s buy of Italy?s GRGrafica Ricerca Design and the JK Tyres acquisition of Mexico?s Tornel.
According to industry estimates, the total value of M&As in the automotive industry globally has come down to $12 billion in the first half of 2008, compared to $29 billion in the same period last year, a sharp decline of 58%. However, the scenario would have been even more dismal if not for the $2.3-billion buyout of Jaguar and Land Rover by Tata Motors.
From a high of $80 billion in deals in 1998, the value of global M&As has dropped to $50-55 billion over the last few years. ?Funds have become tighter and people are evaluating deals much more closely compared to last year,? says Vivek Gupta, partner, BMR Advisors.