Sunday, January 30, 2011

Alpha to Buy Massey in $7 Billion Deal

Alpha Natural Resources said on Saturday it agreed to a $7.1 billion deal to buy Massey Energy Co, which was rocked by a deadly coal mining accident last year.

The deal -- the latest in a wave of consolidation sweeping the industry -- creates the second largest U.S. coal miner by market value, holding 110 mines and combined coal reserves of 5 billion tons. The deal is expected to be completed in mid-2011.

Massey shareholders will receive 1.025 Alpha share for each Massey share in addition to $10 a share in cash, for a value of about $69.33 a share, the companies said. That represents a 21 percent premium over Massey's closing share price of $57.23 on Friday.

Surging Asian demand for coal to fuel steel mills and power plants has made the sector one of the hottest for dealmaking over the past year. After the acquisition, Alpha will be the largest supplier of metallurgical coal, which is used in steel making, in the United States.

Friday, January 28, 2011

Verizon Buys Terremark for $1.4 Billion

The Wall Street Journal

The deal, Verizon's largest since its $6.8 billion purchase of MCI in 2005, comes as telecom operators are moving deeper into selling processing power, data storage and software hosting services over the Internet as their landline businesses shrink.
The acquisition could help the company secure more deals for such services—collectively known as "cloud computing"—and compete with companies like Inc., which runs a cloud-services business alongside its giant online store.
Kerry Bailey, Verizon business group president of cloud services, said the carrier has made cloud computing a key part of its growth strategy, in addition to the wireless business it runs with Vodafone Group PLC.
Verizon already operates more than 220 data centers in 23 countries. The deal for the Miami-based company would bring another 13 in the U.S., Europe and Latin America, as well as a strong position in federal government work.
Verizon said it plans to keep the Terremark brand and operate the new unit with its current management team as a wholly owned subsidiary.

Thursday, January 27, 2011

Davos Analysis: Emerging market companies buy up the world


DAVOS, Switzerland (Reuters) - There's a new swagger among the bosses of emerging market companies as they sign checks for a growing list of acquisitions in both the developed and developing world. And this is just the start.

After suffering less in the downturn and rebounding faster than their U.S. and European counterparts, corporations from China to Mexico are taking advantage of their strength to go shopping for an ambitious range of businesses.

Emerging markets are, more than ever, a key topic at the annual meeting of the World Economic Forum in Switzerland. Traditionally, most focus has been on Western firms buying assets in fast-growing developing economies, to hedge against sluggish growth at home.

But it is a two-way street and, increasingly, emerging market firms are shopping in the developed world as they move up the value chain and pursue their own diversification.

"The three words that characterize the last decade have been 'Made in China'. The three words that are likely to dominate the next decade will be 'Owned by China'," said Gerard Lyons, chief economist at Standard Chartered.

"And by the time we move to the 2020s it will be 'Paid in renminbi'."

China may grab the most headlines, but it is not alone. Acquisitive companies from India, Mexico, Russia, Brazil and South Korea are also on the prowl.

Take Indian wind turbine maker Suzlon Energy (SUZL.BO), which owns 91 percent of Germany's REpower and whose chairman, Tulsi Tanti, says he can "leverage huge synergies" through matching REpower's technology with low-cost components.

Or Apollo Tyres (APLO.BO), another Indian manufacturer that acquired businesses in the Netherlands and South Africa because, in the words of chairman Onkar Kanwar: "We are hungry and passionate and want to do things."

In the five years since China's Lenovo (0992.HK) bought IBM's (IBM.N) PC business for $1.25 billion, cross-border deals have changed other parts of the industrial landscape -- from cars to bread.

Jaguar and Land Rover are now owned by India's Tata Motors (TAMO.BO), while Mexico's Grupo Bimbo (BIMBOA.MX) will become the world's largest bread maker when it closes the purchase of Sara Lee's (SLE.N) North American bakery business this year.

Firms in emerging markets want to move beyond the advantage of cheap labor -- anyway on the decline -- to create global organizations with the skill base found in Western companies.

The strategy looks to be working. By 2020, the top 100 stars of the developing world could collectively generate $8 trillion in revenues, roughly equivalent to aggregate S&P 500 revenues today, according to a new report from Boston Consulting Group.

The 100 "global challengers" come from 16 countries but China, India, Brazil, Mexico and Russia dominate the list.

"These companies see M&A as a path to access technology, to access channels and to access brands around the world," said Mark Foster, global head of management consulting at Accenture.

"We have to expect more of this because they've got the cash and, perhaps more importantly, they've got the confidence."  For emerging market firms, investing in sluggish developed world economies is a long-term play that sits alongside a parallel drive to snap up targets in other developing economies.

In that space, however, they are competing with Western multinationals whose growing appetite for assets in the world's big developing economies has driven up prices. Last year, emerging markets accounted for 33 percent of the world's $2.4 trillion tally of all mergers and acquisitions -- totaling $806 billion, or a 76 percent increase over 2009, according to Thomson Reuters data.

Much of the activity was focused on resources, where China's state-owned firms, backed by soft loans, have made a land-grab for commodities, often in competition with India.

Asian groups like Sinopec (0386.HK) of China and Thailand's PTT Exploration and Production (PTTE.BK) struck deals last year ranging from buying stakes in oil fields to Korea National Oil Corp's KOILC.UL hostile takeover of Britain's Dana Petroleum.

Helped by strong currencies, emerging market companies are also contemplating chunky deals in more advanced sectors.

Significantly, the biggest deal of any kind in 2010 was America Movil's (AMXL.MX) $27.5 billion purchase, including debt, of Carso Global Telecom -- a tale of Latin American empire building by Mexican tycoon Carlos Slim.

India's Bharti Airtel (BRTI.BO), meanwhile, became the world's fifth largest mobile operator, by subscribers, after buying Zain's African operations for $9 billion in 2010, and Russia's Vimpelcom (VIP.N) is locked in its own fight for overseas expansion.
Things don't always pan out as planned for the new players.

Last year's $1.8 billion purchase of Ford's (F.N) Volvo unit by Geely (0175.HK) was a notable win for "China Inc", but earlier this month Xinmao threw in the towel on a 1 billion euros bid for Dutch cable maker Draka (DRAK.AS).

The odd setback and current fears of over-heating in some emerging markets are not likely to derail a key part of what Jim Quigley, CEO of Deloitte Touche Tohmatsu, describes as "the next phase in globalisation".

"What the U.S. and the UK accomplished in a 200-year span since the Industrial Revolution, we are going to watch China and India accomplish in a 30-year span," he said.

Sara Lee to split coffee, meat units

Sara Lee Corp (SLE.N) plans to split its meat and coffee businesses rather than sell the company as a whole, a source familiar with the situation said on Thursday.

The U.S.-based food and beverage company had been leaning toward a split after a private equity group led by Apollo Management LP APOLO.UL decided against further pursuit of Sara Lee after its bid of nearly $13 billion was rejected, a second source said.
Brazil's JBS SA (JBSS3.SA), the world's biggest meat company, meanwhile, had been struggling with financing to make a higher offer, the second source said.


Wednesday, January 26, 2011

Intel wins EU approval for McAfee deal


Intel's acquisition of data security firm McAfee Inc cleared its last major hurdle after EU regulators approved the $7.68 billion deal on condition Intel grant rival firms access to its technology.
World No. 1 chipmaker Intel said it now expects to close the acquisition, which it aims to use bolster the security of Internet-connected devices, before the end of the first quarter.
Intel secured clearance from the U.S. Federal Trade Commission on December 21 to acquire McAfee, the world's No. 2 maker of security software after Symantec Corp. The deal will be Intel's largest acquisition to date.
The decision on Wednesday by the European Commission, the EU competition watchdog, confirmed a Reuters report on January 20.

Davos Debates: Can India Leapfrog China?


DAVOS, Switzerland — India is trying hard not to be forgotten at the World Economic Forum amid the China-focus. The country has brought the single biggest delegation to Davos and ads for its “Inclusive Growth” slogan could be seen not just in the conference center but on public buses in Davos.
Indian executives here prided themselves on the things that set their country apart from its biggest rival among emerging markets, China: democracy, a reliable legal framework for investors, a widespread command of English, a young population due to overtake China’s by 2030, and of course its famed information technology sector.
But there was also an acute sense of envy of China’s superior infrastructure, Beijing’s capacity to map out long-term economic development unbound by election deadlines and the country’s comparatively high literacy rates, particularly among women.

ProLogis in talks for biggest logistics merger


ProLogis, the world’s leading warehouse company, is in advanced talks to combine with AMB Property, another US industrial real estate company, in a deal that would establish the pair as the clear global leader in the logistics and distribution business.

According to people familiar with the matter, a tie-up between the two real estate investment trusts could be announced soon. However, talks about the terms and structure of a combination were continuing, they added, so the deal could yet be delayed or derailed.

Financial terms of the proposed deal couldn't be learned. The two companies have a combined market capitalization of $13.9 billion.

Tuesday, January 25, 2011

JBS submitted verbal offer for Sara Lee

Global Dealings first reported JBS' offer for Sara Lee back on December 18th.  Brazilian beef processor JBS (JBSS3.SA) made a verbal buyout offer for Sara Lee Corp (SLE.N) on Monday and is expected to submit a written proposal later on Tuesday, sources familiar with the situation said.

Sara Lee already received a takeover bid from a group of private equity firms, which values the coffee and meat company at up to $20 a share or nearly $13 billion, sources previously told Reuters.

Sara Lee's board is scheduled to meet on Wednesday and Thursday, one source said. The company will compare the takeover bids to a plan to split the company into separate meat and coffee units, said that source, who declined to be identified by name because the situation was not public. 

DAVOS-CEO confidence bounces back to pre-crisis levels; Over a third of CEOs expecting to complete a merger or acquisition in 2011

* 48 pct of bosses "very confident" about short-term growth
* Fewer plan to cut costs in next 12 months than a year ago
* Optimism about emerging markets fuels upbeat business mood
* Confidence lowest in W.Europe but Germany an exception
DAVOS, Switzerland, Jan 25 (Reuters) - Crisis? What crisis?
Optimism among chief executives has bounced back to almost the same level as before the financial crisis, with half of those questioned in a closely watched survey released on Tuesday very confident about 2011 revenue growth.
Excitement about prospects in emerging markets is fuelling the bullish mood, even though economies in the developed world, particularly western Europe, remain sluggish.
The PricewaterhouseCoopers (PwC) [PWC.UL] survey of 1,201 chief executives, published at the annual World Economic Forum (WEF) in Davos, found 48 percent were "very confident" that they would grow revenues in the next 12 months.
That reading is close to the 50 percent level reached in January 2008, before the depths of the economic crisis. It is up sharply on the 31 percent recorded a year ago.

Rio leads in Riversdale takeover race


Rio Tinto improved its odds of winning an Australian coal company after Tata Steel of India, the target company’s largest shareholder, signalled it backed the deal.

Rio’s A$3.9bn (£2.4bn) agreed takeover of Riversdale Mining – which is developing coal deposits in Mozambique – still faces possible disruption from a consortium of five Indian mining and steel companies. Tata, one of the world’s largest steel companies, was seen as the most likely potential counterbidder. It owns 24 per cent of Riversdale’s shares.


U.K. to Hear News Corp.'s Case for BSkyB

LONDON—The U.K. government Tuesday gave media giant News Corp. the chance to provide "undertakings" over its £7.8 billion ($12.48 billion) proposed takeover of British Sky Broadcasting Group PLC before deciding whether to refer the deal to the competition regulator.

Secretary of State for Culture, Olympics, Media and Sport Jeremy Hunt said he currently intends to refer the merger to the Competition Commission because "on the evidence available, I consider that it may be the case that the merger may operate against the public interest in media plurality."


Saturday, January 22, 2011

McKinsey Quarterly Article: A Return to Deal Making in 2010

M&A volumes rose last year for the first time since the crisis. Capital markets think deals created more value too. The return of market confidence in deal making during the latter half of the year was perhaps the most encouraging aspect of M&A in 2010. Overall deal activity was measured rather than excessive, and capital markets looked favorably upon the resulting value creation. Companies also once again seem willing to engage in more ambitious cross-border deals. Barring any major macroeconomic upsets in 2011, a positive trend seems to have begun.

The global M&A market ended two years of malaise in 2010, rebounding decisively in the second half of the year. After languishing for the first six months in the wake of higher market volatility and the sovereign-debt crisis in Europe, companies ended the year having announced more than 7,000 deals, at a value of $2.7 trillion. This marked the first increase in M&A deal numbers and volumes since 2007, as well as a 23 percent increase over 2009 levels, which were the lowest since 2004.

Judging by share price movements before and after deals were announced, investors felt upbeat in 2010 about the acquirers’ ability to extract value from M&A. Our analysis found that deals created more value overall than they did in any year since we began tracking them, in 1997—and that acquirers were more disciplined at capturing this value for their shareholders. Other trends in M&A for the year included continued growth in cross-border M&A, an increase in the number of deals in Asia and Latin America, and modest growth in private-equity deal volumes.
A measured rebound
M&A activity recovered in 2010 but remained well short of a deal frenzy. A rally in stock markets around the world drove growth in the total value of deals: global market capitalization rose to around 80 percent of the 2007 peak, up from around 65 percent in 2009. M&A activity for 2010 as a share of market capitalization3 (a good indicator of overall deal sentiment) was slightly below the long-term average of 7 to 8 percent. Despite the resurgence, M&A activity as a share of market capitalization was still considerably lower than it was in 1999, when volumes rose as high as 11 percent of global market cap. Last year’s other highlights included:
  • Cross-border activity regained momentum. The long-term trend of increasing cross-border M&A activity seemed to stall in 2009, with a significant drop to just 25 percent of global M&A volumes, down from 40 percent in pre-crisis years. But cross-border activity returned to pre-crisis levels in 2010 as a result of both megadeals,4 and numerous smaller cross-border transactions.
  • Asia–Pacific outbound M&A continued to grow impressively. Asia–Pacific5 acquirers increased their share of cross-border activity in 2010. Outbound M&A from that region into Europe and the Americas more than doubled (after having slowed down the year before), growing around twice as fast as M&A volumes in the opposite directions. The Asia–Pacific became a net exporter of around $46 billion in M&A deal volume, while Europe, the Middle East, and Africa exported $9 billion and the Americas imported $55 billion. The Asia–Pacific region accounted for 23 percent of all global activity in 2010, up slightly from 2009.
  • Latin America saw by far its largest M&A volume ever. In 2010, M&A volumes in Latin America grew to $250 billion (more than double the 2009 level), accounting for almost 9 percent of global M&A. The growth has been continuous since 2005, and although 2010 volumes were supported by a few megadeals, such as telco América Móvil’s bid for Carso Global Telecom, the number of deals also stood close to an all-time high.
  • Private-equity activity recovered but remained concentrated in OECD countries. From late 2007 to mid-2009, as access to cheap debt ended abruptly, private-equity activity levels declined steeply, falling to just 4 percent of global deal activity. As many predicted, private-equity activity picked up again in late 2009 and throughout 2010 as credit spreads narrowed and banks again started to offer financing for leveraged buyouts, albeit at significantly higher prices. For 2010, private-equity M&A, at a bit above $200 billion, accounted for 8 percent of deals by volume. Although nearly double the levels of 2009, this remains far from the $700 billion peak seen in 2006 and 2007. This rebound was, however, mostly a phenomenon of Organisation for Economic Co-operation and Development (OECD) countries. In 2010, as in previous years, private equity’s share of M&A elsewhere remained small. Non-OECD countries constitute around 30 percent of global M&A but only 10 percent of private-equity activity.
Positive market sentiment toward acquirers
Stock markets have typically assessed the value of M&A to acquirers cautiously. Over the past decade, capital market reactions to deals, as gauged by share price reaction to deal announcements, suggested that investors perceived them as creating around 10 percent of their value for the seller and destroying around five and a half percent for the acquirer. This perception reversed sharply in 2010, however: for only the second time in the past decade, markets viewed the average deal as creating value for both acquirer and seller. The net value created by M&A, measured as deal value added (DVA), has fluctuated between 3 and 9 percent over the past 14 years, excluding 2000, when it fell to –6 percent. It fell to around 3 percent during the past recession but rose sharply in 2010, to 13 percent—the highest level seen over the past 15 years and far above the historic average of 4.6 percent (Exhibit 1).

Moreover, the data suggest that acquirers also exercised more discipline in their deal making in 2010. The proportion of deals in which the immediate market reaction caused the acquirer’s share price to fall—the percentage of overpayers (POP)—fell to 47 percent (Exhibit 2). This level, which implies that investors thought slightly above half of the deals created value for the acquirers’ shareholders and slightly below half destroyed value, is significantly better than the historic average of 60 percent, which we have observed since we began tracking this metric in 1997. Yet premiums paid remained fairly high during 2010.

Markets often treat cash and share deals differently, and that gap widened dramatically. Capital markets consistently perceive cash deals as creating more value than stock deals. On average, cash deals create 11 percent of the deal value, partly as a result of the positive signaling effects of using cash; in contrast, markets typically perceive share deals as destroying around 3 percent of the deal value. The gap between the two funding methods dropped to a mere 4 percent in 2008, widened again in 2009, and rose as high as 20 percent by 2010. Markets gave extremely positive responses to cash-only deals in 2010, but they also perceived share deals as creating value on average, to the tune of 2 percent.
Furthermore, small deals created significantly greater value than larger ones. Indeed, deals with a value above $5 billion had a significantly lower deal value-added (DVA), at 3 percent, than smaller deals, at about 15 to 16 percent (Exhibit 3). While markets rewarded sellers equally, regardless of deal size, they on average rewarded acquirers significantly less for large than for small deals. This pattern lines up with long-term averages, in which large deals have a slightly negative DVA, while small to midsize deals have a positive 5 to 6 percent DVA.

The gap is not a result of higher premiums for large deals, as premiums paid are fairly similar across deal sizes: for stock deals, there is also no substantive difference across deal sizes. For cash deals, however, a significant difference can be found: markets give a much better reception to small cash-financed deals than to large cash-financed ones. Potential explanations for this negative attitude could be an anticipation of paying out cash as dividend, worry about increased debt levels, or a need for a rights issue.

Google Co-founder Page Takes Over Again as CEO But Can Google Make Any Deals?

Last Thursday Google co-founder Larry Page was named CEO again to replace Eric Schmidt in April in order to make the search giant more nimble against fierce competitors such as Groupon and Facebook. Typically, a company of Google’s size would get itself into layers of bureaucracy resulting in slow decision making, layered management and scarce innovation. This is how Microsoft got itself into a stagnant technology behemoth of the last decade.

The record of technology company founders who later take on the CEO role is mixed. Mr. Jobs revived then-foundering Apple when he became its CEO in 1997 and has since propelled it to become the world's most innovative technology firm. Others who have tried to pull off the same feat have stumbled. Yahoo Inc. co-founder Jerry Yang led the company between 2007 and 2009, but handed the reins over to current CEO Carol Bartz. Michael Dell, who returned to turn around Dell Inc. in 2007, is still in the process of revitalizing the personal computer company.

According to Google’s official blog, Schmidt will stay as Executive Chairman focusing externally, on the deals, partnerships, customers and broader business relationships, government outreach and technology thought leadership that are increasingly important given Google’s global reach; and internally as an advisor to Larry and Sergey.

Since the middle of 2009, Mr. Schmidt has steered Google into a number of acquisitions such as the $750 million acquisition of AdMob and the $228 million deal for Slide.comBut more recently all of Google’s acquisition efforts have gone south, however. The company is reportedly running into antitrust trouble in its $700 million deal for the online travel company ITA. And Google failed miserably in its attempt to buy the social buying site Groupon for a staggering $6 billion, in what would have been the company’s biggest-ever transaction.

In our opinion, Google will continue to suffer from merger troubles going forward. Convincing founders of an up-and-coming start-up like the next Facebook or Groupon to sell out to a large, bureaucratic firm like Google will be quite difficult. Just like Groupon or Facebook or Zappos, they will always want to make it bigger on their own first. Secondly, with Larry Page, the proud and legendary co-founder, in charge of daily operations such as new product development and technology, any larger acquisition becomes a tough sell internally as it gets in the way of cannibalizing internal efforts to try to put the giant back to its start-up roots. Not to mention, when a technology company full of geek engineers suffers from lack of innovation and commercialization, it becomes virtually impossible for the same group of leaders to acquire a competitor and to smoothly merge with a different culture.

Let’s wait and see how the top management shake-out will play out at Google. Any investors betting on Google to fly high soon with multi-billion dollar acquisitions should watch out how the company executes over the next several quarters first. 

Tuesday, January 11, 2011

Global Dealings hit $83 billion year-to-date, up from $67 billion in 2010

According to a recent article by Financial Times, a flurry of dealmaking by companies on both sides of the Atlantic has given the year the busiest start for mergers and acquisitions activity for a decade, firming up expectations of a bounceback in volumes as the economy recovers.
With deals worth $34 billion announced globally on Sunday and Monday, deal volumes so far this year have topped $83 billion, up from $67 billion in the same period last year.
That puts 2011 ahead of the boom years with deal volumes higher than in any year-to-date period since 2000.
Duke Energy agreed to buy US utility peer Progress Energy in a stock-based deal worth $13.7 billion, or $26 billion including debt.
Meanwhile, US chemicals group DuPont sought to shore up its position in the fast-growing food and nutrition industry, signing a $5.8 billion deal with Danisco of Denmark, the maker of food ingredients and enzymes. There have been many deals with unclear strategic fit I witnessed but this deal has topped my all-time-worst-deals list
Companies across a broad range of sectors are turning to M&A as they look for growth opportunities globally and consider spending the cash piles accumulated since the financial crisis.
US companies are estimated to have more than $1,000 billion in cash on their balance sheets and are expected to come under increasing pressure to put those funds to work or return money to shareholders.
In addition a lower-growth environment in the US and Europe may prompt companies to team up and create value through cost-cutting.
Duke, for example, said that it should be able to pass on $600 million - $800 million in savings to customers in North and South Carolina over five years, as a result of the deal with Progress, with potential for cutting costs expected to be greater still.
Improving equity markets have also helped drive activity. However, improving financing markets coupled with better valuations and desperate search for corporate growth force management and boards to look for more deal making activity.
Even Hugh Hefner, the 84-year-old founder of Playboy, on Monday agreed a deal to take the publisher private, after making an offer for the company in July.
Genzyme said it was discussing a possible transaction with Sanofi-Aventis after the French pharma group made an $18.5 billion hostile offer for the US biotech last summer.
Sara Lee, the food and household goods group, could also bolster the deal statistics. The company has been talking about a sale to Brazilian protein producer JBS and has attracted private equity interest. We were one of the first blogs to report this deal and will continue to monitor its progress.

Sunday, January 09, 2011

Global M&A volume exceeded $2.8 trillion in 2010

According to the Economist, America remained the top destination for mergers and acquisitions (M&A) in 2010. American companies were targets in 9,676 deals worth $895 billion last year, up from 7,338 deals worth $797.1 billion in 2009.

Britain was the next-most-popular target in terms of the value of deals inked. But China occupied the second spot measured by the number of transactions. 

The financial industry saw the largest volume of M&A, but the oil industry took the top spot in value terms. Globally, M&A deals were worth $2.8 trillion last year, up from $2.3 trillion in 2009.

Morgan Stanley takes top spot in Global M&A league

Another year of busy M&A year ended. Morgan Stanley ended up at the top with 356 deals of a collective value of $595 billion, according to final 2010 tallies released today by Dealogic. Goldman received credit for its work on 346 deals valued at $581 billion. Credit Suisse and J.P. Morgan were a distant third and fourth place, respectively.

Globally, M&A deals were worth $2.8 trillion last year, up from $2.3 trillion in 2009. We project even larger M&aA volume this year globally with more emphasis in deals originated into or executed in emerging economies with shifting focus from BRICs (ie Brazil, Russia, India and China) to CIVETs (ie Columbia, Indonesia, Vietnam, Egyp and Turkey).

Wednesday, January 05, 2011

Indian conglomerates on global M&A hunt

According to latest surveys, global M&A activity should increase $2.2 trillion in 2010 and over $3 trillion in 2011, which would be the highest level of activity since 2007. In my opinion, about half of this volume will either be initiated by a national champion from an emerging economy or executed in an developing market such as India, Russia, Columbia, South Africa, Turkey, Vietnam, Indonesia, and Egypt. 
For example,  a great case in point are Indian companies who are hungry for overseas assets and have launched an armada of overseas mergers and acquisitions in the past few months according to a latest article by Financial Times.
Sahara India Pariwar’s £470m purchase of the Grosvenor House hotel in central London last week was one of the highest profile international acquisitions by an Indian company since the Tata Group snapped up Land Rover and Jaguar, the British car marques, two years ago.
The conglomerate, owned by billionaire Subrata Roy, had made no secret of its desire to purchase overseas assets and, over the past six months, it expressed interest in Metro-Goldwyn-Mayer, the Hollywood studio, and Liverpool Football Club.
A month before, Venkateshwara Hatcheries, a poultry company, bought Blackburn Rovers, another English premiership club. And in the middle of last year, Reliance Industries, owned by Mukesh Ambani and India’s largest conglomerate, began what is likely to be a sustained buying spree of shale gas assets to build its business in the US.
Last year, cross border M&A recorded a strong revival; deals in and out of India were five times the total value of those of the previous year.
More outbound acquisitions were made last year than inbound ones to the world’s fastest growing large economy after China. Overall M&A activity was estimated at about $45bn by auditors Grant Thornton, the auditing group, for the first 11 months of the year.
Sahara’s deal is at the larger end of a fleet of smaller deals that characteristically expand in stealthy steps Indian ownership in regions such as Africa, the Middle East and eastern Europe. Many of the deals were worth below $100m and attracted little attention.
“When investing in the west, Indian companies have tended to look to the UK but increasingly more European markets will become the focus,” says Robin Johnson, a partner at Eversheds, the London-based law firm, of the fast-widening ambitions of Indian companies.
“Up until recently an acquisition by a Chinese or Indian company in Europe assumed a transfer of technology or assets back to Asia. This is no longer the case. They want access to European domestic and business consumers and hard currency through permanent investments.”
Outward investment has totalled as much as $80bn over the past decade, with the most favoured destinations including the UK and US. A study by the University of Maryland found that there were 372 acquisitions by Indian companies in the US between 2004 and 2009 worth $21bn.
Reserve Bank of India estimates that investments by domestic companies in overseas joint ventures and wholly owned subsidiaries totalled $10.3bn during 2009-10, a period characterised by global economic gloom.
“Indian companies are now more experienced in dealing with overseas M&A transactions and are considered serious contenders for acquiring global businesses,” says Mahad Narayanamoni, a partner in the corporate finance division of Grant Thornton.
“Acquiring global brands, gaining access to overseas markets and leveraging new technologies for Indian markets are some of the key drivers for outbound acquisition.”
At the same time, India is one of the most promising destinations for foreign direct investment. In the first 10 months of 2010, India attracted $78bn in foreign direct investment. This is well below what many analysts believe Asia’s third-largest economy can achieve if it freed uprestrictions on FDI and pared down its often-stifling bureaucracy.
Yet, the level of investment in the first 10 months of 2010 was almost double what the country attracted during the same period in 2009, $42bn. As foreign capital flows into India, Indian capital is seeking routes out.
RBI data show that Singapore, Mauritius, the Netherlands, the US and the British Virgin Islands accounted for 67 per cent of total outward FDI from India last year. This reflects the crucial role these financial services centres play in channelling Indian capital flows. But RBI data does not capture the extraordinary spread and geographical ambition of Indian acquisitions.
In past weeks, Elecon Engineering has bought the UK’s Benzlers-Radicon group for $35m,Biocon has invested $160m in a manufacturing facility in Malaysia, and Aegis, owned by Essar Group, has bought Actionline, the largest business processing group in Argentina to give it Spanish-speaking capability.
Likewise, Mumbai-based Twilight Litaka Pharma has picked up 26 per cent in South Africa’s Intepro Healthcare, auto component maker Ashok Mindra Group has bought a moulding manufacturer in Germany, Aksys Koengen, and Tata Chemicals has bought British Salt for close to $100m.
Patni Computer Systems is expanding in China’s Yangtze region, while Fortis Healthcare is tying up with hospitals in Tanzania and in Dubai.
In spite of the rising deal flow, Indian business leaders are divided about the returns on overseas expansion. One head of a Mumbai private equity group, perplexed by the outward investment, said there were few markets offering better returns for Indian business than a home economy growing at 8.5 per cent.
Tell your colleagues your first heard it on and follow @GlobalDealings