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Mergers and acquisitions activities in India pick up pace across industries
February, 27th 2015

India Inc's quest for growth in what is now the world's fastest-growing major economy is starting to show some results. Its entrepreneurs are becoming richer as cash-hungry private equity firms chase ambitious start-ups and ecommerce firms; consumers are happier as discount deals become a daily, predictable affair rather than an annual or semi-annual event; and the much sought-after, talked-about right sizing of corporate balance sheets is becoming a reality as hard-nosed lenders crack down on bad loans and promoters become more pragmatic in selling assets.

Ending months of soul searching, Suzlon promoter Tulsi Tanti decided to lighten up Suzlon's stretched balance sheet by selling his German crown jewel Senvion for over a billion bucks a few weeks ago. A fortnight later, Anand Mahindra looks all set to bulk up his defence sector presence through a strategic acquisition of Pipavav Defence.

Most of the m&a activities spurred by lender pressure

In between, Alibaba's Jack Ma smelled an opportunity in the booming mobile commerce space and committed a $575-million cheque to debut in India with an investment in Paytm while India's largest private sector insurer ICICI Prudential Life got busy prepping up in anticipation of a liberalised foreign investment regime to raise additional funds and create a valuation marker of $6 billion prior to its IPO in the near future. These are some examples of how India Inc is trying to prepare for a future laden with opportunities and challenges. Rightsize, downsize, sell loss-making assets, buy growth wherever possible and raise money in a market which was the world's second-best performer in dollar terms in 2014. It's just 2 months into the new year and deal street has already shrugged off its ennui. The buzz is most certainly back.

This month alone, nearly five deals either got announced or were close to being concluded in the past week. Star TV announced that it is buying Telugu entertainment channel MAA for over Rs 2,000 crore, while Economic Times broke the story that several pharma firms are in the race to buy Claris Life Sciences' injectable business for Rs 2,500-3,000 crore. Singapore's Sembcorp announced that it will buy 60% in IDFC-backed Green Infra for over 1,000 crore while Dilip Shanghvi of Sun Pharma announced a personal investment of 1,800 crore into Tulsi Tanti-promoted Suzlon. Rainmakers insist that it's not just episodic M&A but in general, activity levels are picking up even in debt and equity capital markets. This after a roaring 2014 when the value of announced M&A deals involving Indian companies rose to $37 billion, a 25.5% increase compared with 2013. This value was the highest since 2011, according to data culled by Thomson Reuters. The average deal values too climbed as more number of bigger deals ($500-million-and-above) were announced. Experts and rainmakers believe this is just the beginning and deal activity will pick once the economy starts growing and companies regain confidence in demand projections. The perception of India among global investors has undergone a dramatic change over the past 12 months with a strong RBI governor delivering lower inflation and a stable exchange rate, feels Frank Hancock, Managing Director, Corporate Finance, at Barclays.

"Meanwhile, the stable new administration at the Centre has reasserted policy stability, thereby reversing the flight of capital. The debt market in particular is now very active, and Indian companies are taking advantage of both equity and debt-raising opportunities to refinance high-cost debt and create acquisition war chests," he adds. Obviously, much of the activity has been spurred by lender pressure. Record high NPAs and pressure on profits means banks are no longer willing to tolerate business-as-usual stance of promoters with high debt and no meaningful downsizing strategy. They are pushing promoters to sell projects and companies even if it means a loss. Suzlon recently sold its German wind business for one billion euros after buying it for about 1.4 billion euros in 2009.

"This is the consolidation phase in power, cement, steel or infrastructure. This is the first sign of optimism as some amount of confidence and trust is coming back in India Inc. The second phase will see rollout of new plants and capex. But that is still 1-2 years away once policies fully unfold. In a way, these takeovers are also a kind of capex for the acquirers," says Sushil Maroo, CEO, Essar Energy. These takeover talks have multiple catalysts. As regulators, lenders as well as investors tighten their screws, stressed companies are pro-actively looking to pare assets to cut debt. From Jaypee to Kesoram and Bharti; or from Lanco to Crompton Greaves - cutting across sectors and scale of business, India Inc has prioritised portfolio rebalancing through hive-offs, asset or business sales.

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