| NEW DELHI (April 22) - Godrej Consumer recently | | | | Sectors to watch for M&A activity |
| acquired the Indonesian household insecticide maker | | | | For 2010 analysts expect massive M&A activity in |
| Megasari Makmur Group for INR 12 billion to strengthen | | | | Banking, Telecom and IT sectors. There have been |
| presence in Asia, Africa and the Latin America. The | | | | several new entrants into the telecom sector in the |
| announcement comes close to the heels of Bharti | | | | recent time. For many of these companies, telecom |
| Airtel Ltd.'s cash and stock buy of African operations | | | | business is not a core operation. Hence, a few of |
| of Zain Africa BV for INR 493.56 billion. | | | | these companies are likely to sell off to bigger players |
| India's total announced deal value for Q1CY2010 | | | | following the acquisition of bandwidth. Additionally, |
| surged to USD 19,198 million compared with USD 5,195 | | | | sector consolidation eventually will be inevitable with a |
| million a year ago (Source: VCCEdge). According to | | | | large number of players. The Banking sector as well is |
| analysts India will see an increase in the M&A | | | | expected to witness consolidation going ahead. |
| activity in CY10 with the return of investor confidence | | | | Companies in oil and gas and metal sectors have |
| and liquidity. The analysts believe that companies will | | | | grown too big and the only way to grow is via the |
| take advantage of lower valuations to make strategic | | | | inorganic route, and hence the hunger for acquisitions. |
| investments thereby strengthening their position across | | | | RIL's recent USD 14.5 billion offer to buy LyondellBasell |
| various sectors. | | | | Industries is a case in point. |
| For the quarter, Telecommunication Services sector | | | | Liable risks to acquisitionsEven though optimism is at a |
| recorded deals worth USD 14,036 million followed by | | | | high merger and acquisition is risky activity. A large |
| Energy at USD 1,172 million and Healthcare at USD 961 | | | | number of uncertainties accompany an M&A deal |
| million. | | | | in all the phases including preparation, operational, |
| What is driving India's big-ticket global | | | | integration and post-integration. These uncertainties |
| acquisitions?There has been a voracious appetite for | | | | could lead to a huge financial risk. Hence the |
| acquisitions in India for a very long time since there are | | | | companies need to be careful to ensure that the |
| limitations to growing organically. The companies are | | | | acquisition is the best possible fit for them as well as it |
| looking at means to achieve operating synergies and | | | | does not overstretch their plans so that they don't end |
| thereby survive in the competitive environment. In | | | | up with too much to handle later. |
| addition, overseas acquisitions help companies | | | | According to Standard & Poor's Ratings Services, |
| overcome market limitation through cross-border | | | | Bharti's acquisition of Zain, though expected to provide |
| expansion. | | | | the company meaningful growth opportunities in Africa, |
| For instance, Indian FMCG companies are looking for | | | | will face limited integration risk as the two companies |
| acquisitions in the emerging markets like Africa, Middle | | | | have almost no overlapping operations. The rating |
| East, even countries like Brazil and Latin America as | | | | agency placed its 'BBB-' long-term corporate credit |
| well as China where the valuations are cheaper. The | | | | rating on Bharti on CreditWatch with negative |
| strategy is to acquire small/ niche players with a | | | | implications saying it reflects S&P's view that the |
| known brand in these emerging markets and with the | | | | acquisition could significantly increase Bharti's debt and |
| help of the brand channelize their products into those | | | | weaken its business risk profile. |
| markets. | | | | Tata's USD 2.3 billion buy of the UK-based luxury car |
| One of the key reasons for looking outside for | | | | brands Jaguar and Land Rover from the car giant |
| acquisitions is also that there are limitations to growing | | | | Ford is another good example. Even though Jaguar |
| organically and expensive valuations make domestic | | | | has shown signs of recovery now, Tata had admitted |
| acquisitions difficult. | | | | to have overstretched itself in paying USD 2.3 billion for |
| Big deals of Q1CY10 | | | | the deal just as a recession loomed. The company |
| | | | | reportedly admitted that the acquisition was made at |
| ·Bharti Airtel Ltd. agreed to acquire the African | | | | an inopportune time, when the prices were peaked. |
| operations of Zain Africa BV for USD 10.7 billion (INR | | | | ConclusionIndian companies today are in league with |
| 493.56 billion). | | | | the traditional multinationals from Europe, US, and |
| ·GTL Infrastructure Ltd. acquired tower assets of | | | | Japan. The overseas acquisitions by Indian companies |
| Aircel Ltd. for USD 1.8 billion (INR 84 billion). | | | | indicate that they are prepared to compete globally. |
| ·Fortis Healthcare Ltd. acquired a 23.9% stake in | | | | For most Indian companies, the world is truly their |
| Singapore-based Parkway Holdings Ltd. from TPG | | | | playground now. It only needs to be seen how these |
| Capital for about USD 685.3 million (INR 31.10 billion). | | | | companies manage to effectively compete with the |
| ·Essar Group agreed buy Trinity Coal Corp. for about | | | | other players out there, without running the risk of |
| USD 600 million (INR 27.47 billion) from Denham Capital | | | | overworking, and consequently injuring themselves, in |
| Management LP. | | | | the process. The game has to be played but in a way |
| ·Telenor ASA acquired a 7.15% stake in Unitech | | | | as to come out with elephantine returns, not white |
| Wireless Ltd. for USD 433.36 million (INR 20.22 billion). | | | | elephants. |
| (They have named their mobile services in India Uninor.) | | | | |