Finance minister Jaswant Singh said what most in Corporate India were waiting to hear. At the FE-Electrolux Women in Business awards last week, where Mr Singh premiered his ?India Accelerating? theme, he also exhorted India Inc to go out and conquer the world. If Indian corporate houses wanted to buy companies abroad, they should just go and do so, he told the audience, comprising some of the most powerful names in Indian business. The government, he said, would do everything to support Indian business houses in their quest for the global spotlight. The audience, quite spontaneously, broke into applause, and the media got its big headline for the next day.
Mr Singh had, indeed, made a very important announcement. In fact, he even cited two specific instances to show how Indian corporations are getting aggressive on the global scene, buying companies of international scale. Reliance?s recent acquisition of FLAG Telecom, and the Tatas? entry into Daewoo were clear instances of such aggression from Indian companies.
Importantly, even as India Inc gets hungry for global entities, a similar churning is taking place once again within the country. Investment bankers are again getting busy with mandates and drawing up lists of potential acquisitions for their clients. There?s a paradox in this, though. A couple of years ago, when the economy and the markets were on the mat, India Inc did see some acquisitions taking place. But those, investment bankers point out, were more on account of the smaller entities at the margin not being able to survive the rough and tumble of a stagnant economy and a depressed stockmarket, and preferring to sell out.
However, what is surprising even the most seasoned of investment bankers now, is the appetite for Indian companies to pick up other firms even as the markets show signs of bullishness. As a senior investment banker close to most of the key corporate houses told me the other day, his experience had been of corporates wanting to sell out in bad times, and buyers keen to pick up companies when valuations are low. But this time, it?s been different.
Investment bankers are busy with clients who are desperate to pick up companies despite valuations being on the rise. Why? As demand picks up in a number of sectors and consumption increases, companies are realising that they need to expand either organically or inorganically. This, in turn, is driving them to look for acquisitions. Consider some sectors where acquisition mandates are doing the rounds. One is clearly cement, where consolidation will be seen even as demand rises. With a couple of players like the Birla group and the ACC-Ambuja combine becoming the big daddies in the sector, the other smaller players will be forced to consolidate or enhance capacities. Consequently, investment bankers are getting calls from cement companies looking for consolidation opportunities.
The other sector is pharma, where some companies are looking to buy out bulk drug units. Telecoms is the third important sector where further consolidation is waiting to happen. With the sector clearly polarised between the CDMA and GSM majors and cut-throat competition coming up, only the fittest will survive the telecom game. And fittest in telecom means those with deep pockets. The option for the others is to sell out while the valuations are good. Already, some acquisitions have taken place, like Sivasankaran?s takeover of RPG Cellular. But more are on the anvil as the industry restructures for the future.
Even in the financial sector, there?s action coming up. With the Industrial Development Bank of India (IDBI) turning into a full-fledged bank, an acquisition is seen as a distinct possibility as IDBI seeks to gain critical mass in the retail segment. Add to that the imminent activity on the foreign and private banking front and you have a lot of action coming up. The mutual funds sector is already witnessing a churning.
All in all, as India hits the 8 per cent growth horizon, and stockmarkets move north, India Shining may well be replaced by the new, and perhaps more palpable, ?India Accelerating?. And the mergers and acquisitions activity will clearly bear that out in the coming days.