M&A in India seing unprecedented boom

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The mergers and acquisitions market in India (both by Indian companies within the country and outside and by global companies looking to acquire Indian companies) is witnessing an unprecedented boom, according to Vedika Bhandarkar, Managing Director & Head of Investment Banking, J.P. Morgan India Pvt Ltd.In the first nine months of 2005, the total size of mergers and acquisitions (M&A) in India was about $13 billion against about $4.5-5 billion for the whole of 2004. The major deals struck this year include Hutchison's acquisition of BPL's mobile business, Oracle's acquisition of i-flex and Vodafone picking up a stake in Bharti. "This year, it is very robust," she told reporters here on Thursday on the sidelines of a CII-organised conference.

Asked if Indian companies were looking abroad for acquisitions and the sectors, she said that companies were active in the auto components sector. The pharmaceutical industry also offered opportunities because European and US generics players were in deep trouble as they did not have a pipeline (of drugs). The other sectors that offered scope were mining and metals, and oil and gas.

Bhandarkar said the telecom sector in India was attractive for acquisitions, especially after Vodafone picked up a 10 per cent stake in Bharti Tele-Ventures Ltd.

Asked about opportunities in the IT sector, she said IT was one of the sectors where it was difficult to have an aggressive M&A strategy when the only assets were the people and the challenge of integrating them was much bigger. Indian IT services companies would go in for acquisitions by and large to fill some gaps and to get customers. The challenge for Indian companies would come from wage inflation, which could be a real problem in the next 3-5 years. Another challenge that Indian IT services companies would face was to move up the curve. | Read more Finance news. |

Bhandarkar said a mistake that companies tend to do was to underestimate the integration difficulties. Lack of management depth (to handle the integration) was also a factor. It was also a reason why family-owned companies needed to change if they were to go global, she said.

Pvt equity firms outbidding industrial bidders

Earlier, addressing a session on "Mergers and acquisitions" at the two-day The India Finance Forum - a conference on "Going for growth: Emerging global trends in finance" - organised by the Confederation of Indian Industry, Bhandarkar said private equity firms were increasingly outbidding industrial bidders in M&A deals. These firms determined price from return requirement and exit price and leveraged accordingly. They also focussed on disposal of non-core assets, reducing costs, working capital, capital expenditure that industrial acquirers typically did not.

She said that M&A deals build scale by adding businesses and they did not accelerate growth. Globally, M&A volumes rebounded strongly in 2004 and 2005 after a downturn during 2001-03. Bhandarkar said in M&A deals, cash once paid fixed price forever but stock deal gave more flexibility as both bidder and target stock might be over or under valued. Equity markets, she said, judged these deals based on value framework and looked at the premium paid versus realisable synergies.

The real challenge in M&A deals was in the integration, especially in cross-border deals, which had to be planned right from the day a company identified another that it wanted to buy. M&A deals succeeded or failed depending on how well the integration issue had been handled.

A. Gopalakrishnan, Senior Partner, Venkatachalam Iyer & Co, chartered accountants, dealing with the legislative issues on mergers and acquisitions, said the process was court-driven and was long drawn and problematic. There was need to make the whole process less cumbersome, for which legislative changes were required. Valuation standards should be developed on the lines of the International Valuation Standards issued by the International Valuation Standards Committee. The differential stamp duty regime prevalent in the States inhibited M&A deals and there should be a uniform rate of stamp duty across the country, he said.

November 25, 2005