Amid the current uncertain macro-economic environment, inorganic growth seems to be the mantra for multi-national corporations looking to establish a foothold in India.
“India is received very well. There are issues here like in any other country. But I think the Indian model for private enterprise structure is seen to be very advanced. People see the demography of India, the intellect here, its international perspective, emerging middle class and democracy,” said Alex Thursby, chief executive (Asia-Pacific, Europe and America), Australia and New Zealand (ANZ) Banking Group.
According to Dealogic, 281 inbound M&A deals, aggregating $27.5 billion, were announced in the January-September period, compared with 220 inbound deals, with a combined value of $13.4 billion, in the same period last year. BP's acquisition of 21 oil and gas blocks of Reliance Industries for $9 billion in February is the largest deal so far this year.
While outbound deal flows have slowed because of uncertainties in the global economic environment, industry players say most Indian companies are still exploring inorganic growth opportunities in foreign markets to expand their operations.
“The general macro-trend is there is a slowdown in deal flows, and this would continue for some time. But I think opportunities would materialise in the next one to three years. Indian corporations clearly smell this trend. I think they would be patient now and wait for prices to come down,” Thursby said.
He added while deal closures were being delayed, there was no slowdown in India Inc's interest to acquire companies abroad. A total of 142 outbound deals, aggregating $9.7 billion, were recorded in the first nine months this year, compared with 175 deals, with a combined value of $23.9 billion, in the year-ago period. Adani Enterprises' acquisition of Port Terminals in Australia for $1.97 billion in May is the largest outbound deal so far this year.
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“A lot of Indian companies are setting up backward or forward linkages globally. For instance, a company may have power plants in India. So, it is looking for tie-ups with coal mines in Indonesia, Africa or Australia. This business is growing,” said Chanda Kochhar, managing director and chief executive, ICICI Bank.
Bankers say M&A deals this year were seen across sectors like financial services, oil and gas, energy, technology and media and telecommunications. They added most of the enquiries on M&A opportunities were about sectors like energy and natural resources.
“There is a pipeline of deals being spoken about and negotiated. Natural resources, including coal for energy assets, remain at the top of the corporate agenda for mergers and acquisitions,” said Gaurav Khungar, managing director, Religare Capital Markets.
While volatile commodity prices and regulatory barriers are expected to slow deal closures in the short term, most bankers and industry analysts are confident deal flows would rise in the long term. “National and local considerations have taken commodity markets hostage in many countries. This would slow deal-making in the near term. However, demand from emerging nations such as India would drive long-term growth and fundamentals,” said Kameswara Rao, executive director and leader (energy, utilities and mining), PricewaterhouseCoopers, India.