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India back on the global (M&A) map after a two-year lull
December, 06th 2010

Sunil Mittal and Mukesh Ambani are poles apart in style when it comes to running an enterprise. But in 2010, they exhibited a similarity in at least in one aspect buying assets beyond the shores to sustain earnings growth putting India back on the global mergers & acquisitions (M&A) map after a two-year lull.

While Mittal bought customers, Ambani bought resources. There was a fun acquisition too, when chicken supplier Venkys bought English Premier League football team Blackburn Rovers for $37 million. For almost the same reason, Abbot Laboratories, which has been in India for a century and the home-grown, London-listed, Vedanta Resources, have agreed to buy assets in India.

Given the pain that takeovers inflicted on Tata Steel , Dr Reddys Laboratories and wind energy company Suzlon in the past two years, it required top entrepreneurs to revive the high-risk, high-rewards game.

Bharti Airtels promoter Mittal realised his dream of many years to get a foothold in the promising Dark Continent Africa as profitability in the domestic market dwindled.

Reliance Industries Ambani gambled on the yet to be proven shale gas, but touted as a game-changer in the energy industry as he is fast running out of investment options due to price controls and regulatory hurdles. The revival of easy funding for takeovers and the willingness of asset owners to monetise some of them contributed to more than double M&A deal volumes this year compared with $17.6 billion in 2009, Bloomberg data show. The highest-ever takeover was in 2007 at $43.7 billion.

Indian promoters seem to have got wiser. Unlike the pre-crisis, when they were carried away by the lure of overseas assets without a compelling reason to buy them, a lot of analysis seems to have gone be-hind the purchases this year. This seems to be the case even in re-sources, where Indias Prime Minister urged local companies to pip its Chinese peers to secure overseas assets.

Indian companies are cautious in their overseas bids, even for re-sources , said Frank Hancock, head of India investment banking business at Barclays Capital.

Bharti Airtel, the nations biggest, which was plagued by 10 straight quarters of slowing profit growth, bought the African assets of Kuwaits Zain for $10.7 billion. That was the second biggest ever by an-Indian company, after Tata Steels $12.9-billion purchase of Corus Group at the peak of a bull market.

A billion people, 10 times the size of India, it poses truly amazing opportunities to grow within the 15 countries, and were looking at more opportunities as we build and roll out Airtel in Africa, Mittal had said.

For the nations richest Ambani, it is the exhaustion of business opportunities that pushed him to seek shale gas assets, which, if proven right, could ring in billions. It is economically unviable for Reliance to set expand oil retailing despite talk of deregulation of petroleum product prices. Its eagerness to bid for new oil & gas exploration blocks is also waning.

Reliance, in total, has agreed to pay $3.4 billion for stakes in three shale-gas companies, including Atlas Energy, Pioneer Natural Resources and Carrizo Oil & Gas. Vedanta, awaiting government approval for a $9.5 billion takeover of explorer Cairn India, has secured $6-billion funding from a consortium of European and US banks. A counter-bid , unless it comes from state-owned Oil and Natural Gas Corporation, is unlikely given Vedantas rich offer, said at least six bankers.

The $3.8-billion Abbott-Piramal deal, agreed by principals, reiterated multinationals willingness to pay a premium for Indian companies, and the dearth of sellers here.

While the key actors in the M&A play keep changing, the pecking order in the advisory league table usually remain the same in many countries with dominant positions for US banks such as JPMorgan, Goldman Sachs and Bank Of America Merrill Lynch.

But in India, the advisory business is beginning to turn in favour of those with cash and the regional expertise. The US order is seems to be giving way to a new paradigm in India, which some believe may become a norm in coming years.

M&A is a self-sustainable business. It is ideas-driven, though increasingly balance sheet is playing a role, said Prahlad Shantigram, global head of M&As at British bank Standard Chartered, which sold its depository receipts in Mumbai early this year.

Rothschild, Barclays and Standard Chartered are among the top rain-makers in India this year in industry league tables of Dealogic and Bloomberg, poised to grab more deals from Indian companies than American rivals such as JPMorgan.

Rothschild gained $36 million from M&A advisory in India this year, followed by Barclays Capital, which took home $22 million. Deutsche Bank is third with a $15-million advisory fee.

Rothschild advised the Government of Indias telecommunications ministry in the 3G spectrum auction, and Aircel in the sale of its tower assets to GTL Infrastructure. It is also the advisor to Cairn India. Bar-clays advised Bharti, RIL and GTL Infrastructure in their acquisitions this year.

None would hazard a guess on what would be the fate of all those acquisitions given the miserable past experiences. If the thrashing of Blackburn Rovers at the hands of Manchester United soon after the buy is a gauge, anxious moments are back again.

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