In its search for natural resources and relatively uncluttered consumer markets, India Inc?s global M&A attention is turning more towards developing markets in Africa, Latin America, South and South-East Asia.
Recent announcements by a bevy of companies across sectors??Bharti Airtel, Shree Renuka Sugars and National Mineral Development Corporation??bear out this tilt towards developing markets. Twice spurned by South Africa?s biggest telco, MTN, Bharti Airtel has not let the incident dampen its emerging markets appetite. In the first two months of this year, the company, Indian?s largest telco by revenue, has taken over Bangladesh?s Warid Telecom, and is in exclusive talks with Kuwait?s Zain to take over the latter?s African operations in a deal valued over $10-billon.
Says Sanjeev Krishan, executive director, PricewaterhouseCoopers: ?Brazil is part of the Bric countries and South Africa provides a gateway to the entire African continent. These countries are expected to show significant growth in coming years.?
In a span of four months, Shree Renuka Sugars announced its second acquisition in Brazil. The first acquisition of VDI in November 2009 was quickly followed up with Grupo Equipav, to acquire a 50.79% stake in Equipav SA, one of the largest sugar and ethanol producers in Brazil, for $329 million. Next was the announcement by NMDC to pick up a 50% stake in Ferrous Resources? Brazilian operations for $2.5 billion, marking the first overseas foray by India?s largest mining company.
Prasanto Sengupta, director, corporate finance, KPMG, says it is commendable that India Inc is showing the maturity to take risks like never before. ?The risk of entering emerging markets is higher. For example, for mineral transactions, Australia is an established market. It adheres to global benchmarks and has established banking and financial markets. Estimates are also sound?so you know what you are buying and paying for. But in developing markets, especially for mineral acquisitions, accreditation is a big issue?, says Sengupta.
According to him, in the current M&A space, North America and Africa will be the preferred destinations for mineral transactions, and for technology acquisitions, the destination will be the developed West.
The consumer goods space is also abuzz with reports of Dabur, Marico, Godrej Consumer Products vying to grab a share in these emerging markets. According to reports, Wipro Consumer Care and Lighting (WCCL), which forayed into the international personal-care sector by acquiring Singapore-headquartered Unza Holdings in 2007-08, is also focusing big time on East and West African countries. In mid-2009 Vineet Agrawal, president of WCCL, had hinted how Unza?s presence in Nigeria and Egypt had helped the company understand the potential for premium products in East and West Africa, and how they plan to target locally relevant products within the high-growth markets.
Pharma company Strides Arcolab announced on Thursday that it would buy the Brazilian facility of South African pharma Aspen for $75 million. The company?s filing with the Bombay Stock Exchange also said that the Aspen?s Campos facility in Brazil would help the company strengthen its injectible business.
In the M&A space 2010 has been exceptional for India Inc. With 15 outbound deals for January 2010 the total value of outbound deals was high at $341 million, compared with $40 million in 2009, not counting Reliance Industries? $14.5-billion aborted bid to acquire Dutch firm LyondellBasell or its reported $ 2-billion play for Canada?s Value Creation. According to the monthly deal report of VCCEdge, the number of outbound deals more than doubled from eight in February 2009 to 18 in February 2010.
It?s advantage India, says prof Timothy Galpink, author, The Complete Guide to Mergers and Acquisitions; ?Economies around the world are showing signs of improvement, and there is a lot of money that has been sitting ?on the sidelines? during the past year. India companies are in strong financial positions relative to companies in other parts of the world to do M&As. Chinese companies are also on an acquisition spree. And this will force companies in other countries to acquire to keep up.?
India?s outbound story predominantly started in early 2000s, with an effort by IT companies to acquire customer base. Soon, mining, steel, and manufacturing joined the M&A wagon. But the announcement by Religare Enterprises of acquiring about 65% stake California-based Northgate Capital for $200 million hints at an expanding sector/industry base in the M&A purview to include services, too. The company had earlier bought London?s oldest firm of stockbrokers, Hichens, Harrison & Co in 2008, and was also reportedly in the fray last year to take over the fund management business of troubled American insurance giant AIG.
CG Srividya, partner, specialist advisory services, Grant Thornton, opines that the Religare-Northgate deal is setting a new trend in outbound acquisitions; ?Acquisitions abroad, even in the mainstream banking and financial services industry, have not been common, let alone Indian companies acquiring private equity funds abroad. This trend signifies newer opportunities for Indian companies abroad as well as a recognition of Indian companies as one of the capital sources for funds overseas.? A sentiment also echoed by Krishan, ?Religare?s acquisition would be among the first in the financial services space, which tends to be people and relationship driven to a large extent ? this is further evidence of the acceptance of Indian companies as credible global acquirers who can manage change and cultures.?
