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India gears up for the next big M&A rally
December, 30th 2009

With the year coming to an end, Business Line connected with Anand Vermani, Director, Corporate Finance, KPMG, to get his views about the areas he focuses on, viz. M&A (mergers and acquisitions), financing advisory, and valuations.

Excerpts from the brief email interview.

At the start of the century, or even mid-decade, what were the policy expectations to be fulfilled by the end of the first decade?

Over the last decade, Indias economic growth has shown strong linkage to the quantum of FDI (foreign direct investment) that we have managed to attract, both through the private route and through the capital markets.

Historically, once foreign strategic and financial investors enter any sector in a big way, it has given rise to large-scale M&A activity. Telecom, financial services and healthcare are typical examples of this phenomenon in India, which have seen some of the largest M&A deals that happened on the back of foreign investments.

Whilst M&A activity in India has been primarily driven by the need to capture a growing consumer market and to create a low-cost production base for the world, the role of Government policy has been pivotal in creating a positive environment.

Since 2000, India has seen several positive economic reforms in the form of relaxation of the FDI limits (up to 100 per cent in some cases), streamlining of the FIPB (Foreign Investment Promotion Board) approval process, and a variety of capital markets measures introduced by the SEBI (Securities and Exchange Board of India), which is now regarded as one of the most independent and effective regulators in the world.

It is not surprising, then, to see the flurry of private venture capital being infused into Indian enterprises, especially in the last five years.

It is also evident from the large cross-border deals that India has seen recently and the growth and maturity of the capital markets, that the regulatory environment is not really an issue with both the domestic and international investors.

At the close of 2009, where are we?

In the wake of the global financial meltdown, there have been a number of policy changes that have been undertaken by the Government and the SEBI that are aimed at boosting investments and M&A. It is indeed good news that the policymaker and the regulator have been actively participating in this process.

In 2008, we saw the introduction of the Companies Bill, which proposes a few positive changes in the context of M&A, as compared to the Companies Act, 1956.

Among the recent noteworthy amendments brought in by the SEBI are: the relaxation of registration requirements pertaining to the FIIs (foreign institutional investors), pricing guidelines set out in the DIP (Disclosure and Investor Protection) Guidelines, permitting majority shareholders to further consolidate shareholding under the Takeover Regulations, disclosure of pledged shares by promoters, and additional restrictions on company directors under the Insider Trading Regulations.

On the FDI front, there is better clarity available around rules governing sectoral caps for foreign shareholding.

For 2010, what should be the agenda?

Statistically, M&A activity and economic growth have shown a strong correlation, forming a vortex around each other at the peak of financial market activity. As India gears up for the next big M&A rally, the role of the policymaker and the regulator will continue to become even more important in the coming times.

It will be interesting to see how they deal with issues such as: the FDI in retail, as 100 per cent is already allowed through wholesale; further streamlining of the FIPB approvals process; practical issues that still surround M&A in listed companies; double taxation of cross-border deals; and guidelines relating to leveraged buyouts for domestic M&A.

 
 
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