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Upsurge in outbound acquisitions by Indian firms
By agencies
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Monday, 14 August 2006, 19:30 IST
NEW DELHI: If statistics from the first half of the year are anything to go by, Indian firms no longer need worry about a fund crunch coming in the way of overseas acquisitions.
For as against 136 foreign buyouts valued at $4.3billion in 2005, the first six months of 2006 has seen 85 outbound deals valued at $4billion.
The figures also highlight Indian business' growing ability to take risksthe average cross border deal size has increased from $32 million last year to $47 million this year.
This splurge in buyouts is a pointer to the fact that whether through syndicated loans, or through private equity, Indian firms have far greater access to funds today. And with the RBI having allowed banks to fund overseas buyouts, banks like State Bank of India have become more active in this space.
Says M Shankar Narayanan, MD, Carlyle, "Funds like ours are encouraging companies to go out and do buyouts and we are helping fund them."
The upsurge in outbound deals, believes Sanjay Bhasin, CEO, Rabo Bank, is also a result of stronger cash flows on the part of the companies themselves.
While outbound acquisitions are outpacing inbound acquisitions this year, both in value and volume, companies are not afraid to take over bigger firms than themselves; be it Tata Coffee's acquisition of Eight o'Clock Coffee or Subex's buyout of Azure Solutions, the deal values have been higher than the revenues of the buyers.
Observes V. Ananthraman and Prahlad Shantigram, Managing Directors, Standard Chartered Corporate Finance, "Deal sizes are going to get bigger as transactions happen in sectors such as oil and iron ore and more firms will take the leveraged buyouts (LBO) route."
The risks though are higher when firms leverage their purchases rather than fund them through equity, say the duo.
Notably, most deals till date have been funded through debt.
Though there are differences among industry professionals as to the profitability of such takeovers that involve huge amounts of money, many like Dhanraj Bhagat, Director, Corporate advisory, Grant Thontorn believe that since many of the takeover candidates are not in good shape, Indian firms are getting good prices.
Eventually, as the duo from Standard Chartered point out, " It is the managements alone who can make an acquisition work; and that challenge is far far bigger then the financial one."