India has climbed seven notches to the 10th position in the global takeover league table and is poised to set a record this year on abundant funding as companies go in search of technology and new markets.
Corporate valuations and financial strength favour more overseas acquisitions by Indian companies than the other way round, say experts. The steep run-up in Indian stock prices could be a deterrent in multinational companies buying domestic ones, they say.
There will be more outbound deals, than acquisition of Indian companies, says Frank Hancock, managing director, corporate finance, Barclays Capital India , who forecasts $100 billion in M&A deals this year. This is not for a lack of interest but more because there are more strong Indian companies than weak ones.
Indian mergers and acquisitions rose 226% in the first nine months of this year to $56.7 billion in 948 deals, compared with $17.4 billion in 747 transactions a year earlier, data provider Daelogic showed. Indian outbound M&A was $24.8 billion, up from $785 million, led by Bharti Airtels $10.7-billion acquisition of Zain Africa.
The opening up of loan markets after the credit crisis and the surge in confidence of Indian corporates due to more than 25% earnings growth is raising interest in deals.
Also, the assets in developed markets are cheaper as investors fear a double-dip recession or a modest growth for many years due to consumer reluctance to spend.
Reliance Industries , the nations biggest company, which in the past mostly depended on the domestic market, has been aggressive in acquiring shale gas assets in the US which is tipped to be a game changer in the energy economy.
The Mukesh Ambani-led company bought a 40% stake in the US-based Atlas Energy for $1.7 billion in April 2010, besides two other small buys. It held $3 billion in cash as of March 2010.
The globalisation of India and the emergence of Indian businesses as global rather than local, is a key factor that has aided in the surge in M&A activities, says Mr Hancock who was part of the team that advised Tata Steel in its purchase of Anglo-Dutch steelmaker Corus.
Indian companies are sitting on a cash pile of about $75 billion, a study by ET Intelligence Group showed. That gives them an edge in negotiations over their rivals from developed markets which are over leveraged. But India still lags behind China where companies get state-funding to pay over the odds as they seek to ringfence resources to feed the 10% growth.
India ranks 11th in acquirer nation transactions and 10th in inbound M&A deals while China is the third largest acquiring nation with deals worth $131.2 billion, behind the UK.
Confidence is high and equity and debt markets are open to provide capital, says Vikram Malhotra, MD & co-head investment banking, Asia-Pacific, Credit Suisse .
While most deals appear to have taken place on the resources side, more opportunities will come up in other sectors such as consumer, financial and technology.