Arvind Singhal: A chorus of acquisitions

MARKETMIND

On a recent trip to Europe, I had the opportunity to be sitting next to a successful European business leader at the dinner table. His business was entirely centred within a medium-sized European country and hence while we made polite conversation about the rise of India and the prospects for the Indian economy in the future, it was clear that the contact would last only till the time we were together at the dinner table. Two weeks later, on the day the Tata-Corus deal was formally announced, I had a mail from my dinner acquaintance expressing his admiration on the vision of the Indian businessmen and suggesting that we should be in touch to explore any business opportunities for ourselves. The world elsewhere is also taking note of this new-found ambition, enterprise, and aggression on the part of Indian businesses. According to a recent report in The Economist, Indian companies made 115 foreign acquisitions valuing over $7.4 billion in the first nine months of this year. If the Corus deal goes through, foreign investment from India in 2006 will far exceed the foreign investment in India in the same period, and many of us can expect receiving more mails from our international contacts.

For us Indians, once we have savoured this proud moment, it is also a time to reflect on what we need to do in the coming months and years.

First, our policymakers, comprising politicians and bureaucrats, have to take a pragmatic view of the overall subject of investment. By and large, India will benefit more if there is a freer regime that facilitates investment rather than worrying about which nationality the investor belongs to. If most of India has cheered the Corus acquisition move, and prior to that the Tata-Glaceau and the Mittal-Arcelor investments, it should also be broad-minded enough to let a Wal-Mart or a Singapore Airlines invest in India in a non-discriminatory fashion. India's case for banning or limiting or discouraging FDI in so many sectors such as infrastructure, airports/ports, retail, airlines, education, banking, agriculture and many agri-related businesses becomes weaker each time an Indian company goes out of India to make an acquisition in some of the same sectors, e.g. Indian textile companies buying retail businesses in North America and Europe.

Secondly, in my view, it is about time that some of the market leaders in other high-potential sectors such as IT started thinking big and not be content with single- or at most double-digit million dollar investments outside India. While some of these investments would have strategic merit in terms of entry into a new vertical or a new market, by and large these are not likely to be adequate in catapulting such companies into the league of the top three or even five players in the world. Just to illustrate a big dream, can a Wipro or a TCS or an Infosys now make a move to acquire Accenture? At about $20 billion or so, the market cap of each of these Indian companies is not far too behind that of Accenture (probably more than that of Accenture) and hence, at least in financial terms, any such move will still not be as audacious as the Tata Steel one.

Thirdly, as the Tata-Corus deal news reports indicate, one of the big facilitators in the process is the sterling reputation of the Tata Group as a whole. Unbridled ambition, strong balance sheets, extraordinary understanding of global finance, and an unflinching determination to succeed are certainly the most important ingredients in making an aggressive acquisition play fructify into a positive outcome. However, having a great "brand" name, backed up with a reputation for high-quality management and stellar corporate governance, can certainly assist. It would, therefore, make good sense for some of the more traditional Indian business houses to allocate some time and other resource in building these attributes too.

Finally, the urge to acquire should also be tempered with a very careful introspection on internal strengths and weaknesses. Managing businesses in India successfully itself is going to be a tougher prospect in the coming years in a more competitive business environment. Many Indian businesses are woefully stretched when it comes to management leadership, and have little or no experience of running any business activity outside India. Hence, while the desire to acquire a business (such as a brand or a retailer or a manufacturer) outside India will now become stronger in many, and the balance sheets could probably support such a desire, sometimes the business case for doing so may yet not be so strong (like Indian companies, especially in the home textile segment, acquiring or wanting to acquire distributors or retailers outside India in very competitive markets such as the US and western Europe) and in other instances, the management calibre and bandwidth may not be sufficient enough to profitably run a business outside India. Forging strategic alliances or even taking a minority financial stake in businesses of interest and then observing and learning from the sidelines the nuances of managing businesses outside India could be a more desirable first step for many such aspirants.

arvind.singhal@technopak.com