Downturn creates new M & A wave for India

MandA deals emanating from the country are getting bigger and better. At least, that is what would seem from the proposed merger of Indian telecom major Bharti and South African company MTN. The merger will create the fourth largest telecom company in the world in terms of market capitalisation. Given that the country is better placed than many other countries to weather the downturn, Indian companies are in a strong position to strike the right chord.

"This is due to the fact that the Indian banking system is primarily government owned and was not very exposed to the global derivatives credit crisis. India's relative economic strength during the global downturn hasn't driven a lot of consolidation. There are some strong Indian firms that are well positioned and taking advantage of their strength to acquire other firms, like the Tatas," said Timothy Galpink, author of The Complete Guide to Mergers and Acquisitions: Process Tools to Support MandA Integration at Every Level reasons.

Given that the potential targets are at an all time low, Gautam Ahuja, professor of strategy, Ross School of Business, University of Michigan, opines, "Companies in strong financial positions, whether in India or abroad, will find this a great opportunity. It actually makes more sense to do an acquisition at these prices than at the prices of the last few years. So, if a company has a solid business model and good cash flow, this is the right time for an MandA."

Experts feel that non-cyclical sectors such as pharmaceuticals, healthcare, utilities, basic consumer goods, telecom and education to be relatively less impacted by the slowdown. Ranjan Biswas, national director, Transaction Advisory Services, Ernst and Young, affirms, "Typically, the peak-to-trough variation in these sectors is smaller than in others and these are considered to be more resilient to changes in the economic cycles. Cyclical and certain export-oriented sectors such as manufacturing (specifically automotive, textiles and capital goods), metals and mining; oil and gas; and retail could witness decline in deal volumes. This is driven by the fact that there are few buyers who have the ability to raise finances for a transaction."

However, Lauro Vives, chief executive officer, XMG Global ICT Research and Advisory, Canada, predicts that the second half of 2009 will see the next wave for MandAs. "Indian companies will participate without an exception despite the Satyam fiasco. We live in a forgiving world, especially when commercial opportunity and future potential benefit is at stake." He anticipates more in the horizon through 2010. "As compared to the 1990's frenzy and MandA explosion that was focused on fast, speculative growth, we will witness a rather gradual consolidation movement in various industry sectors in a feebly recovering economy. As the market recalibrates itself, there will be an increase in a number of 'good deals' as acquisition targets, as numerous companies will experience poor sales results and less support from investors," he added. And this for sure makes for a good Indian deal making.