india going global.indd - The IIPM Think Tank

MERGERS & ACQUISITIONS
“We are slowly but surely moving from a regime of “large number of
small banks” to “small number of large banks.” The new era is going to
be one of consolidation around identified core competencies. Mergers and
acquisitions in the sector are going to be the order of the day”
–Excerpt from speech by Mr. V Leeladhar, Deputy Governor of the Reserve Bank of India, to Kanara
Chamber of Commerce and Industry, Mangalore (March 11, 2005)
Mergers and acquisitions activity is heating up
in India at par with its counterparts across
the globe as the Indian companies go on a
buyout rampage as a means to strengthen their global
footprints. This acquisition spree by Indian companies,
though as not fervent as Chinese, has still been a
major contributor to the Mergers and Acquisition activity
across the continents. The
fact being significant here is that
most of the Chinese acquirers are
Government-owned, while acquisition
by Indian Companies
are notably private initiatives.
And, what might be the reason
for relatively high Indian interest
in the buyouts and takeovers
Simply put, the annual turnover
of companies in India has been
rising at a steady pace of about 25-30% in last 5-6 years,
which adds up to the profitability of the companies and
enviable reserves. With copious cash reserves under
their bellies, the ideal expansion strategy for Indian
corporations (especially for the large ones like Infosys,
Tata and Reliance) is to expand globally to meet their
hunger for control, growth and diversification. Before
we proceed further in this direction, let’s fi rst have a
quick recap at the evolution and growth of Mergers and
Acquisitions activities in India over past few years.
Recap:
The Indian economy has undergone a major transformation
and structural change during the past decade
or so as a result of economic reforms introduced by the
Government of India (since 1991) in the wake of policy
of economic liberalization and globalization. In this
liberalized era, size and “core competence” have become
the focus of every business enterprise. Naturally, this
requires companies to grow and expand in businesses
or processes that they understand well. Thus, leading
corporate houses have undertaken massive restructuring
exercises (M and A being one of them) to create a
formidable presence in their core areas of interest. The
corporate sector increasingly resorted to Mergers and
Acquisitions due to significant gains they entail in terms
of synergy, economies of scale, better fi nancial and marketing
advantages, diversification and reduced earnings
volatility, improved inventory
management, increase in domestic
market share, and above
all capturing fast growing
markets abroad. Since such a
restructuring exercise should
promote fair competition for
the overall benefits of shareholders
and consumers, regulations
were thought to be necessary
to govern this exercise.
The SEBI, therefore, notified the, ’Takeover Code in
February 1997, which laid down the rules, which govern
corporate takeovers in India’.
Initially, it was necessity that compelled Indian Companies
to venture into industries abroad, when companies
like Oil and Natural Gas Corporation embarked
on the acquisition journey so as to meet their demands
by securing Oil fields. But, the motives of mergers and
acquisitions have changed over time ranging from monopoly
of Technological Expertise, Control over the
entire Value Chain to mere diversification to increase
the risk spread in this era of globalization. The second
wave of M and A activity represented general consensus
towards M and A being a good means of consolidation.
The steel giants, communication sector and Sahara-Jet
deal being the highlight of this wave which is going to
continue for some more time in the coming months.
And very soon, what might capture the Markets, as I see,
would be a third wave impelled by the need to grow and
diversify which will be impelled largely by the Services
and Real Estate/Infrastructure sectors.
Mergers and acquisitions
activity is heating up
in India at par with its
counterparts across the
globe
July-October - 2007 Need the Dough
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