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India Incs resurgence in M&A cycle
November, 24th 2009

Reliance Industries bid for LyondellBasell, if successful, could mark India Incs highest buyout at nearly $13 billion (around Rs 60,000 crore), say top industry sources.

Tata Steel holds the pride of place right now with a little over $12 billion for Corus of the UK in 2006.

What is equally significant is the fact that it is happening at a time when the rest of the world is slowly crawling back to a level of basic survival after the recession. China, like India, has managed to weather the storm post-Lehman which explains why at least one Chinese company is also believed to be in the race for a controlling stake in Lyondell.

This buyout by RIL has, of course, been in the news for sometime now. Should it materialise, the companys topline will be in the range of nearly $80 billion ($29 billion from its side coupled with Lyondells near $51 billion) and catapult it to the top league of global petrochemical players.

Would everything be smooth post-takeover though?

The Tata group, for instance, was unfortunate that its two big ticket acquisitions in the form of Corus and Jaguar Land Rover ran into the recession storm.

This led to more borrowings coupled with restructuring the workforce of both companies and watching market share (especially in the case of JLR) shrink.

It remains to be seen if RIL will be up against similar issues in terms of trimming manpower (Lyondell has an estimated 20,000 plus people globally) or encountering a downturn in the petrochemicals business which again is notoriously cyclical.

Eventually, any entrepreneur knows that it is more important to hang in there and sweat out the downturn as the Tatas have shown, experts say.

The positive side to the entire deal is that India Incs appetite for mergers and acquisitions is back which, in a sense, marks the emergence of the proverbial silver lining in the cloud post-Lehman.

In the energy sector alone, RILs private sector counterpart, Essar, has been quietly snapping up refinery assets in Africa and Europe though on a smaller scale.

In the public sector domain, the Oil and Natural Gas Corporation was in the news early this year for buying out Imperial Energy of the UK for close to $3 billion.

So, will 2010 see more Indian companies back on the M&A route?

There has, doubtless, been a lot of activity in the energy space but observers believe that Europe and the US will be happy hunting grounds for auto component majors eyeing inorganic growth.

Bharat Forge comes to mind as being the most aggressive in recent years.

The only difference is that there will be strong competition from Chinese companies which are as eager to carve out their place in the sun.

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