Investment bankers are upfront when they say that there will not be a flurry of activity in the overseas acquisition markets for some time to come. They indicate that the managements that made acquisitions are now focusing on integrating their activities so that the fruits of the strategic move are realised. While that might be the case, there are other startling factors coming to the fore.
And, clearly this is about the huge value loss that has taken place through the acquisitions made by Indian companies overseas. Indian companies were especially gung-ho in 2006 and 2007 when they chased acquisitions all over the globe. In many situations it was sheer peer pressure that forced them to look for acquisitions. Readily available cash and a liberalised environment helped. Not to mention that there were some genuine acquisitions made for smart strategic reasons to reach out to newer markets, gain access to raw material sources or even access to technology.
However, in hindsight it seems that the price paid for most acquisitions was a tad expensive, while integration of operations also remains an important factor. Hence the success rate of the acquisitions has been low. According to a study carried out by Padmakshi Financial Services, of the 50-odd acquisitions made by Indian companies, around 81.25% of them have lost money. Hence, only around 18.75% of these companies have managed to see the value of their acquisitions grow, and the average return on investment is around 6.83%. And this return on investment is much lower than what these companies would have got had they invested their monies in safe domestic debt, or definitely the equity market. The study cites that there are only three companies that have recorded worthwhile returns on their acquisitions and these are Tata Tea, Crisil and Bharat Forge. One of the main reasons analysts reckon, for their success, is that they all were done in 2003 when the valuation norms were reasonable and the integration has been strong. So now, a large portion of India Inc, which made overseas acquisitions, would indeed have to work on integration, and justify the high price they paid. Others will remain wary.
?akash.joshi@expressindia.com