‘Daring transactions’ overseas by Indian companies yields 72 acquisitions

Indian companies spent $11 billion in 2012 for acquisitions.

Bureau Report

CHENNAI: Indian companies made 72 acquisitions abroad worth $11 billion, in 2012, a decline from 2007 highs of 125 deals worth $18 billion but an improvement over 2011’s deal value of $6.7 billion, according to Kroll Advisory Solutions, a risk mitigation and response advisory service, and Mergermarket, an independent mergers and acquisitions (M&A) intelligence service.

According to them said many Indian companies are engaging in ambitious outbound M&A, making “daring transactions across industries”, reported the Business Standard.

“As Indian companies grow restless operating within the country’s domestic market, the outbound wave has seen a notable shift over the past 10 years, changing from deals centered on IT and pharmaceuticals to acquisitions in the consumer and energy space. These new deals have been driven largely by the need to satisfy India’s growing consumer class and meet the country’s growing need for oil and coal,” the report said.

The findings are part of the fifth issue of Spotlight Asia, Kroll’s quarterly newsletter for M&A practitioners. The issue this time focuses on Indian outbound M&A activity, developing trends and best practices for Indian M&A practitioners to follow as they venture abroad.

In terms of outbound target sectors, over 2012 Indian companies made major acquisitions into energy, mining and utilities, with totals reaching $6 billion, accounting for 55% of deal activity for the year. Notable buys included ONGC Videsh’s purchase of an 8.4% stake in a major ConocoPhillips oilfield in Kazakhstan for $5 billion. That deal was the largest natural resource deal ever for an Indian business.

By geography, Indian companies have typically targeted Western jurisdictions. Taking advantage of attractive valuations in distressed markets, Indian companies are finding cheap buys in advanced markets. The preference toward developed markets is also due to a comfort factor, with shared language allowing for a smoother deal-making process. Since 2003, the United States and United Kingdom has ranked as the top two investment destinations for Indian capital, according to mergermarket data.

A recent trend has seen India-based businesses investing in emerging markets, utilizing best practices learned domestically to acquire assets in markets in Central and Southeast Asia. A first-hand familiarity with the deal process in emerging markets, and the various intricacies that can often occlude deals from reaching completion, puts Indian businesses at a competitive advantage over their western rivals, said Standard.

However, Indian corporates need to tread softly before committing resources to unfamiliar markets. Kroll’s Reshmi Khurana, Advisory Solutions head for India, says understanding the risks – political, economic and labor-related – is crucial to successfully investing abroad.

“One of the risks in these investments is how national or regional political changes will impact the deal or the investment schedule. Granted, certain risks are out of an investor’s control, but identifying all stakeholders involved in the deal and considering various scenarios can help prepare for those risks,” Khurana is quoted as saying. “For Indian companies looking at the US or UK, they need to be aware of their responsibility under the Foreign Corrupt Practices Act and UK Bribery Act, respectively. Targeted due diligence in advance can help mitigate an investor’s risk in these markets.”

Khurana also says Indian companies must also understand the background, reputation and corporate governance standards of the target company. This is because differences in corporate cultures, especially corporate governance standards and internal control frameworks, could significantly impact the integration process later in the deal.

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