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:: 48 India

Business Sentiments Survey on Indian M&A Trends
48 India 10/10/2008 1:10:27 PM

Is India Inc. justified in going for big-ticket buy-outs across the globe?

Executive Summary

When Anglo-Dutch steelmaker Corus accepted the $ 13 billion takeover bid from India based
Tata Steel, questions were raised around the prices and rationale. Many analysts and
industry experts felt the buy-out price to be highly unreasonable and inflated. But, the largest
Indian deal ever, enabled the 56th biggest steel producer, Tata Steel, to leap-frog from the
56th to the 5th position in the global steel sweepstakes. Steel giant Mittal Steel’s buy-out of
Arcelor for $ 32.2 billion redefined the industry further. India-born steel tycoon L. N. Mittal
portrayed the ambitions of new age companies aspiring to achieve global leadership.
It’s not just steel. This trend is evident in the pharmaceuticals, consumer goods, chemicals,
IT & ITeS, automotive, and hospitality sectors to name a few. Would this over-exuberance
lead to stormy days for these companies, or are these initial indications of consolidation and
signs of emerging giants?

Evalueserve and Greenfield Online conducted a survey among 100 top Indian executives to
understand their opinions on the recent mergers and acquisitions (“M&A”) by Indian
organizations. Aimed at senior finance and strategy executives and M&A analysts, the
survey results throw up some interesting insights:

  • Most executives felt that the acquisition trends reflect India Inc.’s global leadership
    aspirations and that M&A is an integral part of companies’ globalization strategies.
    While achieving global market leadership remains the top priority for the acquirers,
    access to best-in-class technologies and the business imperative to achieve critical
    scale were also felt to be key drivers of these acquisitions.
  • While 56% of survey respondents felt that these deals were overvalued, most of
    them went on to highlight that given the strategic aspirations of the acquirers, they
    did the right thing by moving aggressively on these buy-outs. In short, companies
    have little choice but to pay more than the ’true value’ in a highly competitive bid
    atmosphere, hoping that they would be able to over-achieve on value realization.
  • Meeting international regulatory compliance requirements is expected to be the
    most important challenge ahead for the acquirers.
  • While acquisition integration is also viewed as a key challenge, an overwhelming
    83% of survey respondents expressed confidence in companies’ ability to manage
    such issues.
  • ’New-economy’ industries such as IT/ITeS, telecom, pharmaceuticals and
    biotechnology are expected to be the nurturing ground for future M&A activity.
  • Most interestingly, such M&A activities are seen to be indicators of the Indian growth
    story, and serve to boost market sentiments. With the per capita GDP growth rates
    approaching double digits, these deals are viewed to be evidences of Indian
    corporate houses’ coming of age. While less than 40% of respondents doubt the
    ability of Indian business houses to create adequate value from these acquisitions, a
    resounding 90% of them feel that such trends are symptomatic of their aggressive

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