Competitors are increasingly becoming collaborators when it comes to mergers and acquisitions (M&A) as the credit crunch has made it difficult for corporates to find bridge loans.
These strategic buyers are now collaborating with private equity (PE) investors to access funds for big ticket overseas deals.
Traditionally, strategic buyers compete with PEs. For example, Tata Motors last year had to compete with One Equity Partners, TPG and Ripplewood Holdings LLC in its bid to buy European luxury brands Jaguar and Land Rover (JLR). The company took a $3-billion bridge loan to finance the deal.
“Lots of cross-border acquisitions have been sealed predicated on raising equity financing from capital markets after a period of time,” said Sanjay Bhandarkar, managing director, N M Rothschild & Sons (India), the Indian arm of the European investment bank advising the companies on such deals.
Tata Motors planned to raise $1.48 billion through three rights issues to part finance the bridge loan. It later scrapped one issue of $686 million due to weak stock market conditions.
The inability to raise funds from the equity market is making it difficult for companies to get access to bridge loans from international financiers. The Tatas now plan to sell some group investments to raise funds for the JLR acquisition.
“More and more companies will look to partner private equity funds to fund M&As,” said Bhandarkar. N M Rothschild is already working on a few such collaborative deals for large size overseas acquisitions.
The trend started this year with Mumbai-based Mahindra and Mahindra group collaborating with ICICI Venture Funds. The consortium bought Italian gear-maker Metalcastello in April for an undisclosed amount. Such deals are already taking place in the international market.
“Credit squeeze will make such deals more prominent,” V S Parthasarathy, executive vice-president, mergers and acquisitions, Mahindra and Mahindra, said,
“It is a real opportunity as private equity is stable capital,” said Sanjay Bansal, managing director, Ambit Corporate Finance.
“We know that most infotech companies are toying with this idea; it is likely to hook other players as well,” he added.
