The Year That Was: The deal market got hotter
Sanket Dhanorkar 24 December 2010

A revival in business after a two-year slump saw a more confident corporate India undertake more M&A deals this year than in 2007. Global biggies came shopping too, with action focused on energy and healthcare

The deal machine was in overdrive in 2010 as Indian corporates all over again showed a voracious appetite for cross-border mergers and acquisitions (M&As), after two lacklustre years. In fact, outbound deal values this year far outstripped those in 2007, when M&A activity was previously at its peak. The uptick in the domestic economy and the resulting business optimism was confirmed by India Inc’s hunger to acquire foreign assets.

Indian companies inked deals worth a total of $67.2 billion during the year (as of November 2010), up sharply from $21.3 billion last year, according to Thomson Reuters data. The average deal-size was also significantly higher. There were 1,047 deals with an average ticket-size of $51.4 million, compared to 1,235 deals with an average ticket-size of $16.5 million in 2009.

The maximum activity by value was in energy and power (around $23 billion), with the big one being the $4.8 billion purchase of Venezuela’s Carababo block by a consortium of state-run oil companies.

According to an energy sector analyst at a leading brokerage, “India is deficient in energy and existing companies can increase their production from domestic sources only to some extent. The only option is to acquire overseas assets to secure domestic energy needs. The government has given a mandate to state-run enterprises to acquire some assets. Private companies like Reliance Industries are also venturing abroad as domestic opportunities get saturated.” The analyst suggested this trend will continue next year.

Outbound transactions amounted to $25 billion—nearly twice the outbound deal value in 2007. The biggest cross-border deal this year was mobile operator Bharti Airtel’s $10.7 billion acquisition of the African telecom assets of Kuwaiti group Zain. Telecommunications was the next big deal activity sector ($15 billion) after energy. Some other prominent outbound deals were Shree Renuka Sugars’ acquisition of a 50% stake in Brazilian Equipav SA for $329 million (Rs1,151 crore), and Jindal Steel & Power’s acquisition of Oman-based Shadeed Iron & Steel Company for $464 million.
Zia Mody, senior partner at law firm AZB & Partners and a respected advisor on M&As, said significant strategic outbound acquisitions by India Inc were the characteristic feature of deal activity this year. “As far as inbound M&A activity was concerned, private equity showed increased significant interest, but off-shore financing remained a problem,” she said.

Foreign companies also showed a keen interest in acquiring assets in a promising Indian market. Inbound deals for the year more than doubled to $16.4 billion. The biggest was Abbott Laboratories’ $3.72 billion buy-out of the branded generics business of Piramal Healthcare.

Put together, energy, power, telecom and pharma accounted for almost 65% of the total deal value so far this year.

At home, GTL Infrastructure’s $1.8 billion purchase of Aircel’s tower business stood out. There were a couple of significant buys in the financial space, where ICICI picked up Bank of Rajasthan and Axis Bank acquired Enam Securities.

Freny Patel, associate editor, DealReporter (part of Mergermarket Group), Asia-Pacific, said, “Indian companies are ready to pay what they perceive to be the right valuation. They are not just hunting for bargain buys, but they would take advantage of the economic slowdown and the fact that many loss-making companies in developed markets are looking to sell out.”

However, several potential deals turned sour during the year. Reliance Industries’ (RIL) $14.5 billion bid for LyondellBasell could have been the biggest acquisition this year, but it fell through. Reliance Communications’ $10.8 billion merger of its towers division with GTL Infrastructure did not happen. Jindal Steel & Power’s estimated $600 million bid for a stake in Zimbabwe Iron & Steel was rejected. Another deal that did not see the light of day was Fortis Healthcare’s proposed acquisition of Singapore-based Parkway Holdings. Vedanta Resources' $9.6 billion proposed purchase of a majority stake in Cairn India is stuck in the government pipeline.

At the close of the year, JSW Steel, the country’s third largest steel maker, announced it was acquiring a controlling stake in cash-strapped Ispat Industries for $476 million (Rs2,157 crore) and Tata Chemicals bought British Salt, the UK-based chemicals company that makes pure white salt, for £93 million (Rs673 crore). Hyderabad-based infrastructure firm Lanco Infratech reportedly paid $795 million-$845 million for 100% ownership of Australian coal miner Griffin Coal.

Global consumer goods major Reckitt Benckiser acquired ointments and personal care manufacturer Paras Pharmaceuticals for $726 million (Rs3,260 crore). Religare Enterprises acquired a 55% stake in US-based Landmark Partners, a private equity and real estate fund-of-funds asset manager for $171.5 million. Opto Circuits (India) bought a 76% stake in Bothell, Washington-based Cardiac Science Corporation for $55 million. This was Opto Circuits’ third acquisition in the year, after it bought Unetixs Vascular Inc (Rhode Island in the US) for $9.7 million in July and a domestic company, NS Remedies, for $1.50 million in April.

It was quite a busy year with regard to M&As. Optimism is high and the appetite is not likely to go down. At the recently concluded VCCircle Dealmakers’ Conclave held in Mumbai, dealmakers and financiers were confident about an increase in both domestic and cross-border transactions in the months ahead. Rajiv Saxena, head of M&A, Essar Group, Rajesh Sawhney, president, Reliance Entertainment, Sanjay Bansal, managing director, Ambit Corporate Finance and Aditya Sanghi, managing director, Investment Banking, Yes Bank, who participated, also suggested that overseas assets in the US and Europe would be of particular interest to Indian companies.

India Inc is shopping hard and the trend is expected to get better. “India is seen as a strong emerging market to invest in. Unless the country takes a beating because of too many scams, the M&A deal flow should continue,” Ms Mody of AZB & Partners, said.

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