SIGNIFICANT SURGE OF INDIAN COMPANIES ACQUIRING OVERSEAS ASSETS - REVEALS RESEARCH BY CLOSE BROTHERS, EUROPE'S LEADING INDEPENDENT CORPORATE FINANCE ADVISER
Trend set to escalate throughout second half of 2006
Close Brothers advising Indian companies
16 May 2006, London – New research from leading independent corporate finance house, Close Brothers, shows that the number of international corporates being acquired by Indian companies has risen sharply over the past four years.
Since the beginning of 2002, Indian corporates have acquired 101 international companies with a total consideration of over US$5.5 billion. But it is the acceleration of acquisitions throughout this period that is significant.
In 2002 there were only three Indian acquisitions of overseas companies with a value of US$97 million; in 2003 there were 12 acquisitions of overseas companies, valued at over US$699 million; and by 2004 this figure had risen to 15 acquisitions valued at US$387 million.
However, the surge of acquisitions started in earnest in 2005 when Indian companies acquired 42 overseas assets – more than the previous three years together – with a total value of over US$2.3 billion. In the first four months of 2006 this trend has continued, with 29 international acquisitions valued at just over US$2.1 billion.
Commenting on these findings, Alka Bali, a Director at Close Brothers who has been focusing on India said:
"The acceleration of Indian acquisitions overseas is significant. The level of international acquisitions in the first four months of 2006 is close to the whole of 2005, which was itself a significant year. We expect this to become more pronounced in the second half of 2006. A key influence is not only the growing ability of Indian corporates to finance these deals, but as importantly their increasing confidence."
In the second half of 2005 Close Brothers advised Tata Technologies on its
US$98.9 million acquisition of INCAT International Plc, an international provider of engineering and design IT software, in what was the first public offer into the UK by an Indian bidder and the largest Indian acquisition into the European software and IT services sector.
Factors that have contributed towards Indian corporates turning their targets on international assets have been based on the fact that many of them are cash rich, combined with liquid debt and private equity markets. In addition, many of these companies now have the credibility necessary to raise finance internationally and are doing so.
Target geographies
Of the 101 international acquisitions, the Close Brothers research shows that 35 deals were into the US; the UK was the next biggest target geography, accounting for 17 acquisitions; with Germany and Belgium being the most popular European countries, accounting for nine and seven deals respectively.
Alka Bali commented:
"The UK and the US are undoubtedly the natural places for Indian companies to look to for international acquisitions. Not only is this due to their openness and benign economic environments but also language and similarities in tax and accounting regimes. However, with their increasing confidence, Indian companies are now comfortable acquiring European assets."
Recent high profile transactions include Dr. Reddy's Laboratories' acquisition of Betapharm, the German pharmaceutical company, for US$612 million; and Ranbaxy Laboratories' US$324 million acquisition of Terapia, Romania's largest drugs exporter.
Target sectors
Looking at the sector breakdown of the acquisitions over the past four and a half years, manufacturing has been the most active sector, accounting for 31 acquisitions, with a total deal value of US$2 billion.
The technology sector is second, accounting for 23 deals; followed by the pharmaceuticals sector standing at 20 deals; and support services (including business process outsourcing, technology outsourcing solutions providers and consultants) at 18 deals with a value of US$283 million.
These most active sectors making international acquisitions are also India's fastest developing and highest growth sectors of recent years. So the majority of these international acquisitions are being initiated not solely for technical expertise but to buy front-end relationships and routes to the international markets. A prime example of this is Tata Technologies' acquisition of INCAT.
Close Brothers expects the trend of Indian acquisitions into Europe and America to accelerate in the months and years ahead. Alka Bali commented:
"Even if there are global market corrections in the coming months, we do not expect this level of Indian acquisitions to abate. The momentum in the growth of the Indian economy is too advanced for this trend to reverse.
"We are actively advising Indian corporates in overseas transactions and it is this track record, along with our leading position in European mid-market mergers and acquisitions, that positions us well to further develop our Indian business."
Enquiries:
Justin Clark
Close Brothers Corporate Finance
+44 (0)20 7655 3784