Even many years ago, Birlas had some enterprises in Africa and South- east Asia. In one of my trips to Japan, I had a stopover in Bangkok and attended a dinner with the executives of Indian companies there. However, it was a rare thing. With lot of restrictions on foreign exchange, only some very big business houses endeavoured. Moreover, mostly the Indians built nod managed those companies.
Acquisitions of companies abroad are new phenomenon. It is a good indictor of Indian companies globalising. A new breed of Indian MNCs is spreading its wings acquiring companies worldwide. And it makes one feel proud.
Only last week Tata Group acquired 30% stake in Energy Brands Inc, a specialty mineral water and energy drink company in the US. And gradually, these Indian MNCs are aiming for bigger companies, especially among pharma and auto-component firms.
The big Indian acquisitions of 2006 are Dr Reddy’s of Betapharm Arzneimittel in Germany ($570.3 m), Ranbaxy’s of Romanian company, Terapia ($324 m) and the Tata Tea deal worth $677 m. Videocon may soon be acquiring South Korean consumer goods giant Daewoo Electronics with a bid of $650 m.
FDI outflow from India may be even much higher than inflow. Many global private equity firms today are giving Indian companies funding for these acquisitions in the West.
The number has been rising steadily ever since Tata Group acquired UK’s Tetley Tea for $431.2 m five years ago. According to the World Investment Report 2005, India’s FDI outflow has been increasing steadily since 2002. From $1.1 b, it rose to $2.2 b in 2004. FDI inflow figures do also show a rise from $3.4 b in 2002 to $5.3 b in 2004. According to a recent study by Ficci, India Inc made over 300 overseas acquisitions between 2000-2006 with deals worth over $10 billion.
In the first six months starting January this year, around 76 deals got through. In July alone, as per Grand Thronton (GT) report, 34 M&A deals worth $589.14 m were announced.
Acquisitions covered IT/Software/BPO, healthcare and pharma and automotive sectors. US accounted for 100 acquisitions while Europe saw 121 acquisitions during the six-year period. The total amount invested during the period totaled $10 billion with deal sizes varying between $0.1 mn to a high of $766.1 mn. The average deal size for all sectors remained under $100 mn. For example, the average for IT sector was around $22 mn.
What’s driving the trend? Acquisition means getting a market, and a product line.
Though most of the deals are happening in Europe (40%) and North America (34%), some like Tata Motors and now Videocon are venturing in S. Korea. Among the sectors, the IT sector has seen the most acquisitions, (33.6%), followed by pharma/healthcare (20.5%). The oil and gas sector accounts for 18.6% acquisitions, mostly by ONGC.
India still accounts for less than 2% of global outbound FDIs. China’s investment abroad increased from $400 mn in the 1980s to $38bn last year.
However, India is among the serious buyers today, and sellers from across the world are targeting Indian buyers. Indians are selective too. Strategies for acquisition must be very clear. And with these acquisitions, there may emerge an Indian management system that will be distinctly superior.
Many of these acquisitions may add to the manufacturing activities in the country, if the cost advantages and advance technology can be integrated properly. Indian manufacturing sector must establish plants in Africa and South America before China makes it impossible for any other country to come in.