Indian mergers and acquisitions in 2011 may surpass this year’s record $71 billion of deals, led by oil and gas, metals and mining companies, according to M&A bankers, including Topsy Mathew of Standard Chartered.
Billionaire Sunil Mittal’s $10.7 billion acquisition of mobile-phone operators in Africa led an almost four-fold increase in takeovers this year as deals surpassed 2007’s $69 billion.
“Large Indian corporates are going through a growth phase. They think there is a lot of opportunity, access to capital,” said 35-year-old Mathew, managing director for M&A, India. The London-based bank climbed 13 places to the second spot among Indian takeover advisers this year, its highest ranking. “They are capitalising on the positive sentiment to undertake long-term strategic transactions,” he said.
Companies in Asia-Pacific, including India and China, are expected to be the most acquisitive buyers in 2011 as attractive valuations and domestic competition drive deals globally, according to Bloomberg’s M&A global outlook survey. Overseas companies might target Indian pharmaceutical and consumer firms, and local enterprises will seek natural resources, said Bank of America, ranked third.
‘Highly active’
“Outbound deals would continue to be highly active, given that international companies’ valuations are still relatively depressed and Indian companies have access to debt and equity capital,” Saurabh Agrawal, the 41-year-old head of India investment banking at Bank of America, wrote in an e-mailed response to questions on December 14. “Inbound and local deals will also take place.”
Cross-border deals rose to a record $59.2 billion in India this year, after Mittal’s New Delhi-Bharti Airtel agreed to buy the African assets of Zain for $10.7 billion in March. Outbound M&A accounted for 74 per cent of that volume.
The acquisition spree in India, China and Brazil contrasts with a slowdown in global deals. Mergers worldwide are down 46 per cent from 2007’s record. In the US, the world’s largest market, volumes are 51 per cent lower and levels in Europe are down by 59 per cent.
Takeover rules
A proposed overhaul of Indian M&A rules may also stoke interest in domestic targets, Hancock said. London-based Barclays is ranked four on takeovers in India, its highest ever position.
“While cross-border will still make up 70 per cent of the total pie, the balance between inbound and outbound will increasingly become more even,” said Hancock. The new rules “are going to make it easier for a listed company to be taken over and thereafter delisted.”
A panel formed by India’s capital markets regulator in July recommended increasing the threshold shareholding level that would trigger mandatory open offers to 25 per cent from 15 per cent. Shareholders who already own more than 25 per cent would also be allowed to offer buying an additional 10 per cent, half the existing requirement.
Indian targets
Easing limits on foreign direct investment would also bolster overseas companies’ appetite for Indian takeover targets, Sameer Nath, managing director and head of M&A at Citigroup’s local unit. New York-based Citigroup is ranked six among takeover advisers in India this year.
“Liberalizing the foreign direct investment framework in a sensible way could be a positive for all parties,” Nath said. Overseas companies may look to India for its telecom, health-care and consumer industries, while local companies will look overseas for oil and gas, metals, mining and technology assets, he said.
Financing remains a major prerequisite for large takeovers in the nation, Nath said. Outbound deals are particularly dependent on funding, Agrawal wrote.
A decline in borrowing costs had allowed Indian companies to replace debt with cheaper financing, putting them in position to be more aggressive on acquisitions, said Ganeshan Murugaiyan, managing director and head of investment banking at UBS AG’s local unit. The Swiss bank was ranked seven this year, in advising on takeovers in India.
“The benign debt market environment, especially from the second half, has helped several corporates to refinance the debt or raise long-term funds at attractive costs,” said Murugaiyan, 37.
