MUMBAI -
Think of the merger and acquisition (M&A) game and
immediately a number of American or European companies
come to mind. But as of late, a quiet metamorphosis is
taking place in Asia as Indian companies buy up their
rivals and capacities abroad.
Indian firms took
over more than 75 international companies last year.
Among the most-publicized deals, Tata Motors, part of
Tata Group, India's oldest industrial conglomerate,
bought South Korean company Daewoo's truck plant in that
country. Reliance Infocomm, belonging to India's largest
privately held business house, Reliance Group, took over
Flag International, a major telecom network, for US$211
million. The deal gives Reliance access to 50,000
kilometers of fiber optic network worldwide. Software
giant Wipro Ltd has acquired US-based consulting company
Nerve Wire for $18.7 million even as its contemporary,
Infosys Technologies, snapped up Australian software
firm Expert Information Services Pty Ltd for $23
million.
Meanwhile Sundram Fasteners Ltd, an
auto ancillary manufacturer based in south India, has
acquired Dana Splicer Europe, the British arm of a
global multinational corporation (MNC) that supplies
leading automotive giants like Volvo and Scania. Pharma
major Ranbaxy has purchased RPG Aventis, the French
generic wing of multinational Aventis. Cadilla
Healthcare has bought the formulations business of
another French company, Alpharma. Mahindra Group has
picked up a majority stake in California-based
technology consulting and services firm Bristlecone. And
Hindalco, a flagship company of the $6 billion Aditya
Birla Group, has acquired two copper mines in Australia
for $68 million.
In fact, the global ambitions
of Indian industrial houses are best illustrated by
Aditya Birla Group, which has a presence in 18 countries
and overseas revenue of $1.8 billion (excluding exports
of $900 million), which amounts to 30% of its total
sales. The group employs 12,000 people in 20 countries.
Their manufacturing activities span carbon black, tire
cord, viscose staple fiber, metals and chemicals.
"Earlier, global operations for an Indian
company meant plain exports. But now the definition has
been expanded to denote assembly and manufacture in
foreign shores," says Tushar Jadhav, a member of the
managing committee at the Maharashtra Chamber of
Commerce and Industry. According to information released
by the Indian Ministry of External Affairs, last year
Indian companies invested $1 billion towards marketing,
production, acquisition, and even research and
development abroad. Stretching back the period to
2001-2003, they acquired 120 foreign firms worth $1.6
billion.
It began with acquisitions in the
information technology and related services sector. But
now, the net has been spread far and wide to cover other
industries too. In pharmaceuticals, Wockhardt has bought
C P Pharma of the United Kingdom for $10.85 million.
Tata Tea has taken over Tetley of the UK, the world's
biggest tea bag maker, for $430 million. In the process,
it has become the world's second largest tea company.
Bharat Forge, which hammers out forgings in the
west Indian city of Pune, has acquired German firm Carl
Dan Peddinghaus Gmbh for $28 million. A supplier to
companies like BMW, Audi and Volkswagen, Carl Dan boasts
of sales of Rs 6.5 billion ($144.5 million. And there's
also Amtek Auto, which acquired the UK-based GWK group.
A well-known manufacturer of auto components, GWK has a
turnover of more than $200 million.
Like
Sundram, Bharat Forge and Amtek, a number of other
Indian auto component manufacturers are in acquisition
mode. The latest to jump on the bandwagon is G G
Automotive Gears, a Rs 250 million company that is in
negotiations to acquire an 80-year-old US company that
manufactures high-precision custom gears and planetary
gears.
There are two main reasons for this
predatory mood. Having established a domestic presence,
the component makers are now looking for an
international presence. Second, having improved their
productivity, quality and reliability, Indian companies
feel more confident about spreading their wings abroad.
Various other factors are being attributed to
this Indian penchant for the takeover game in all
sectors. An upswing in manufacturing is one of them.
According to T N Ninan, editor of financial newspaper
Business Standard, there is no shortage of Indian
companies that have slashed costs, improved
productivity, mastered technology and invested in
marketing. He cites specific examples to illustrate this
renaissance in the manufacturing sector in India, such
as the case of Kalyani Forge, which has slashed costs by
30% over the last five years. Similarly, SRF, Asia's
largest manufacturer of tirecords, has substantially cut
its manufacturing costs.
Along with lower costs,
there has been a marked improvement in the quality of
output. And in the vanguard of companies that are waving
the quality flag high is Sundram Fasteners Ltd (SFL),
established in 1966 as a part of TVS Group. SFL, the
largest Indian manufacturer of high tensile fasteners in
India, is better known as the principal supplier of
radiator caps to General Motors (GM), North America. SFL
became a GM vendor in the mid-nineties. Since 1996, it
has been regularly been winning GM's "Supplier of the
Year" award. It is on the urging of GM that SFL set up
its China operations in May 2004 in Hainan province.
A presence abroad means easier access to new
markets. This explains why TVS Group has also set up a
motorcycle plant in China, Aditya Birla Group has bought
up mining companies in Australia and Tata Steel has
floated a subsidiary in South Africa. To illustrate
further, Asian Paints, India's largest paint company and
one of the best-run companies in Asia, acquired Berger
International late last year. This single move increased
Asian Paints' footprint across the globe to as many as
22 countries, stretching from the Caribbean in the West
to Singapore in the East.
A changing perception
about India has also helped. India is no longer a
backward,Third World country in the minds of many
international bankers and businessmen and this positive
attitude has translated directly into a growing
confidence in the Indian community to take bigger steps
westwards. Helping boost the image are favorable
opinions of leading international financial institutions
(FI). A recent report by Goldman Sachs, for example,
predicts that India will be the third biggest economy by
2050, just behind China and the US, in that order. The
FI assumes that over the next five decades, the Indian
gross domestic product will rise by 6% annually. This
reads very well when compared to the US (1.7%).
But perhaps the biggest facilitators for Indian
businessmen are the more flexible norms and terms
announced by the Indian government. Late last year, then
finance minister Jaswant Singh had announced that
companies with a proven track record would be allowed to
make acquisitions abroad in non-related areas as well as
their major fields. In addition, the minister had also
raised the annual ceiling of $100 million on pre-payment
of external commercial borrowings. In January 2004, the
government removed the $100 million cap on foreign
investment by Indian companies and raised it to the net
worth of the companies. The Reserve Bank of India (RBI),
the country's central bank, has also stipulated that
local companies can raise external commercial borrowings
for overseas direct investments in their joint ventures
and wholly owned subsidiaries, including for mergers and
acquisitions overseas.
R Ravimohan, managing
director and chief executive officer of Crisil, vouches
for this new openness, having been party to a recent
takeover when his credit rating firm acquired
Economatters of the UK. "The environment now is very
favorable," he has said. "It was amazing to both Crisil
and the British negotiators that the RBI and the
government have made our regulations so conducive to
overseas acquisitions. The process was so simple that we
took legal counsel to ensure that we were indeed fully
compliant."
As a direct result of such liberal
regulations, Indian companies, including branches of
multinationals, are now becoming more adventurous in
their business forays. Thus, Alfa Laval India is
examining the possibility of forming joint ventures with
its Swedish parent outside India. The Indian government
had announced some time back that domestic companies can
invest up to 25% of their net worth in listed foreign
companies which have at least a 10% stake in any listed
Indian company. Alfa Laval India, which has plants in
three locations, is taking this step to better utilize
its reserves.
In the UK alone, Indian firms have
about 440 investments/joint ventures, with India being
the eighth largest investor. Last year, the top 92
Indian-American owned companies in the US generated
business of $2.2 billion and provided full time
employment to about 19,000 in 2002. There are 1,441
Indian companies operating in Singapore. Of these more
than 450 are technology enterprises.
Having
ventured abroad, some Indian companies are already
leaders in their fields. Essel Propack is the world's
largest laminated tube manufacturer with a presence in
11 countries and a global marketing share of 25%. Moser
Baer is the world's second largest manufacturer of blank
compact discs. Hindustan Inks has the world's largest
single stream fully integrated ink plant of 100,000 tons
per annum capacity and 100%-owned subsidiaries in the US
and Austria. Aditya Birla Group is the world's largest
producer of viscose staple fiber.
A spin-off of
Indian companies taking the acquisition route for
further growth is the trend of other corporates setting
up greenfield ventures abroad. Mahindra & Mahindra
is producing 10,000 tractors annually at its US
subsidiary. The automotive giant is now planning similar
forays in Indonesia, China, Russia and South Africa.
Electrosteel Castings is setting up a finishing facility
for ductile iron pipes in Spain with a capacity of
175,000 tons per annum. Hindustan Seals, manufacturer of
roll on pilfer-proof closures and crown closures, is
setting up manufacturing facilities in Sri Lanka, Egypt,
Morocco, Tanzania and Russia. Finally, Oswal Projects is
commissioning an ammonia project in West Australia with
an investment of $630 million.
With economic
liberalization having paved the path to prosperity,
Indian companies are better equipped to take advantage
of new opportunities. Many of them are sitting on piles
of cash thrown up by profitable local ventures. Add to
this the erosion in the values of international
companies due to an ongoing global recession. More
Indian companies can therefore be expected to snap up
their foreign competitors in the months to come.
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