india going global.indd - The IIPM Think Tank

MERGERS & ACQUISITIONS
– Distress sale
● Schemes of arrangement by companies, etc. – Supporting
management buy outs
There is also a rising trend in buyback of issued equity
by companies. Disinvestment is also an acquisition by
the new owners of the business hitherto owned by the
government. This trend is as significant at the State level
(if not more) as compared to the Central government.
Private Equity or PE players are actively promoting
all forms in this trend. Along with dedicated foreign
funds with Asia / India / Emerging Markets specific
nature, funds scout around for profitable and promising
ventures and organizations wherein they can participate
and fund the action deals.
Composition and Constituents:
M & A activity which started as stray instances in the
80s started to trickle in the 90s and becoming a surging
phenomenon in this decade, thereby taking tsunami
– like proportions in 2007. The figures tell the entire
story: considered in no. of deals, in terms of deal size,
in the sector of economy covered, competition faced,
et all. The absolute numbers were to the tune of globally
transacted 24806 deals amounting to US$ 2059 bn
worldwide while India’s share in that was roughly to the
tune of 394 transactions amounting to around US $ 10
bn in the year 2005 which saw a steep rise of 52% over
the previous year and thereby promising to outbeat the
previous year by a good measure in 2006.
While the activity was seen mainly in the domestic
markets, with firms acquiring a certain critical mass,
the focus then shifted overseas. Then again in 2005
the majority of action was seen in the IT and ITES
sectors, the following year saw transactions in general
engineering industry and infrastructure segments. The
average size of the deal also rose significantly – US $
794 mn for the top 20 transactions – much higher than
the previous years` average of US $ 538 mn.
The chart showing the value of deals done by India
Inc., referenced in terms of US $ million against FY
2001 to FY 2006
The stats give a very healthy picture of M & A activity
area. The different categories of this phenomena, namely,
domestic, international, whether in-bound or outbound,
or be it integration upward / backward or attracting
diverse interests and work areas, to expand geographies,
to increase numbers, gain strength and competitiveness,
to strategise – whatever may be the compelling driving
force, this form of inorganic growth has been resorted to.
The only damper to this great show of numbers is that
when viewed in the global context, that is as a percentage
of the amount of funds flowing into other emerging
economies, like our great neighbor the awakening dragon
China or Mexico - the other nation joining the band of
fast developing nations, India’s share is quite small and
apparently remains lagging behind.
Support Structures:
The steady growth in all sectors of the Indian economy,
the policies and regulators placing a level field of operations
enabling good competition and freeing the processes
of handicaps have gone a long way in fulfilling this
dream run for India Inc’s member units.
The political will of the country along with its governance
institutions have enabled the economic growth
activities of the country, maintaining low inflation volatility
and on the other hand containing the risk to price
stability. The authorities’ guidance has been effective
in chanelising the corporates into productive economic
ventures. There has been a surge in the interests of gaining
practical work experience and of good management
skills and efficient financial organizing which have paid
rich dividends in terms of contribution to growth
The gross domestic product has been growing at an
appreciable 6% and more in the last few years, last year
registering a 9 % and 2007 estimated to clock the same
rate atleast. With inputs from technology, better farming
practices and good overall monsoon, the agriculture
sector also has been supporting the economic growth
story.
The IT sector progressed as an island of growth in the
early years of 2000 which had a cascading effect on other
sectors and rub off on engineering goods industry, infrastructure
sectors, telecom, power and services all picking
up strength and growing to boost economic growth.
Growing domestic consumption induced demand increasing
in the economy, industrial performances have
matched the demand and created a local plough back of
capital in building utilities and assets.
The capital formation, investment by firms in plant
and machinery, capital goods and capex programs and
abundant capital flows thru FDI and FII has been substantial
facilitating growth and M & A transaction deals.
July-October 2007 Need the Dough
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