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Global bucks chase Indian
businesses
By Kunal Kumar
Kundu
MUMBAI - Indian entrepreneurial talent has
caught global fancy in a big way. After a slow
start in the early part of 2004, merger and
acquisition (M&A) activities in India picked
up substantially toward the end. Well before the
Sensex took on a life of its own in October and
foreign fund managers drove the market to new
highs, corporate India was busy cutting deals,
some of which would become benchmark transactions.
It is estimated that the total value of
the M&A deals out of India in 2004 was over
$7.5 billion, against $4.5 billion the year
before. Investment bankers estimate that the
M&A component in FDI last year was higher than
even China's. The biggest deal - and the one
likely to change the way other firms look at
captive Business Process Outsourcing (BPO)
operations in India - is the 60% sale of GE
Capital International Services (GECIS) to General
Atlantic Partners and Oak Hill Capital Partners.
Under the transaction, which valued GECIS at $800
million, GE will retain a 40% stake in GECIS and
receive cash proceeds of about $500 million.
The year also saw the re-entry of foreign
mobile companies. The 32.9% holding of Cingular
Wireless (formerly held by AT&T) in Idea
Cellular was snapped up by Singapore Technologies
Telemedia (STT) and TM International (the
international investment arm of Telekom Malaysia),
for around $200 million. The two agreed to hike
their stake in the company to 47.7%, at a total
consideration of $390 million. The deal also
marked the entry of Asian players into the
segment.
In one of the largest BPO buys by
an international company, IBM acquired Daksh for
an estimated value of $170 million. CDC Capital
Partners, Citicorp Venture Capital and General
Atlantic had invested around $29 million over
three years for a 60% stake in Daksh. That apart,
DHL acquired 68% stake in Blue Dart for over
Rs5.50 billion (US$126 million) - the biggest
acquisition in the courier industry. Toward the
end of 2004, the UB Group announced the entry of
the world's sixth largest brewer, Scottish &
Newcastle in UB. The deal, the biggest in the
liquor segment, will see the UB Group and S&N
holding 37.5% each in UB.
Some more deals
could have been finalized had the valuation of the
target companies not gone up phenomenally due to
the bull run in stock prices, which led to the
promoters asking for more. Some of the biggest
initial public offerings (IPOs) hit the market in
2004, starting with ONGC, then TCS and NTPC. All
of these attracted substantial global interest.
NTPC, for example, saw the largest retail demand
of 1.48 million applicants and participation from
over 350 global and domestic institutional
investors. The company raised Rs53.70 billion
through the IPO and saw a total demand of a
staggering Rs707 billion.
As the dollar
slipped, external commercial borrowings by
corporates shot up. Among these, SBI's $400
million fetched the finest-ever pricing by an
Indian issuer at US Treasuries plus 117.5 basis
points, or Libor plus 73.5 bps. The biggest-ever
bond issue of $500 million by a company with
operations in India was by Vedanta. The issue was
oversubscribed to around $1.8 billion. The largest
ever FCCB (Foreign Currency Convertible Bonds)
issue amounted to $400 million by Tata Motors.
Indian companies also rose strongly to the
challenge of attaining a global footprint and made
several notable international acquisitions in
2004. After staging a turnaround, Tata Motors
acquired Daewoo Commercial Vehicles (DWCV) in
Korea for $103 million - 50% infused as equity and
the balance as debt, directly raised by DWCV in
Korea. This was the first overseas buy by an
Indian company in the auto sector. Reliance
acquired the telecommunications infrastructure
company Flag for $207 million, making it the
single-largest overseas acquisition by an Indian
company in recent times. Flextronics announced the
purchase of DirecTV Group's entire 55% stake in
Hughes Software Systems, India (HSS). Overall, it
acquired 70% of HSS for $290 million. This was the
largest acquisition of an Indian company by an
international one last year. Then VSNL acquired
Tyco Global Network for $130 million and Tata
Steel bought NatSteel for $284 million.
The year also marked big-ticket
investments by private equity investors. Other
than the GECIS deal, Newbridge Capital and Temasek
Holdings acquired 40% in Matrix Lab. The
acquisition was priced at $195 million. During the
last quarter of the year (third quarter of the
current financial year), money poured in as
big-ticket investments were made by venture
capital and private equity firms in Indian
companies. Over $443 million was invested in 30
Indian companies during the quarter, significantly
higher than in the same period last fiscal, when
10 companies raised about $243 million.
The previous two quarters saw $180 million
and $94 million in investments, respectively.
According to TSJ Media, a company that tracks
venture capital and M&A activities, removal of
political uncertainty and a flurry of deals led to
a dramatic hike in investments compared to the
previous quarters. Investment activity was spread
out across diverse sectors - manufacturing,
pharmaceuticals, engineering and construction
services.
The biggest deal in the last
quarter was the $57 million investment made by
Hong Kong-based Asia Debt Management Fund in
Chennai-based, publicly listed cement manufacturer
India Cements. Following this was the $50 million
each that Jubilant Organosys and Punj Lloyd
raised. Jubilant Organosys raised capital from CVC
International (a Citigroup unit) and HPC
(Mauritius) - a unit of Henderson Investment
Management - in exchange for a 9.7% stake. Punj
Lloyd was funded by Merlion India Fund (a private
equity fund jointly owned by Standard Chartered
Bank and Singapore's Temasek Holdings).
The $40 million investment raised by
low-cost airline Air Deccan from ICICI Ventures
and US-based Capital International was the third
largest investment during the quarter. Other big
deals included Suzlon Energy, the Pune-based
provider of wind energy turbines, raising $22.2
million from ChrysCapital. There were more.
Chinese wireless Internet firm TOM Online acquired
around 77% stake in Mumbai-based mobile
entertainment firm Indiagames from Infinity
Ventures, IL&FS Investment Managers and the
management team of Indiagames for about $17
million. GW Capital paid $4 million to acquire
ICICI Venture's stake in Hyderabad-based retail
chain, Trinethra Super Retail, while US-based
Conexant Systems acquired chip design services
company Paxonet Communications for $15 million in
cash. Paxonet's investors included Raza Venture
Fund, Crompton Greaves, Inc3 Ventures, American
Express, Alliance Select Investors and Rothschild
Technology Partners.
Hi-tech companies
founded by Indians in the US also raised over $216
million in venture capital/private equity
financing during the quarter ended December 2004,
according to TSJ Media. Of the 23 companies that
raised funds during the quarter, at least seven
raised $10 million or more. During the
July-September 2004 quarter, 31 such companies
raised $376 million.
Clearly, venture
capitals in the US are increasingly looking at
companies that have an India-based business plan
and managements that have Indians on board.
According to TSJ Media, the single-largest
investment during the latest quarter was the $52
million raised by Infinera Corporation, co-founded
by Jagdeep Singh. The company provides optical
networking technology. The second-largest
investment was the $16 million raised by Othera
Pharmaceuticals Inc, co-founded by Ghanshyam
Patil. Two companies, TuVox and Intelligroup,
shared the third slot. TuVox, co-founded by Ashok
Khosla and which provides natural-language speech
recognition systems for call center applications,
closed a $15 million fourth round led by new
investor Norwest Venture Partners. Intelligroup
Inc, co-founded by Nagarjun Valluripalli, Rajkumar
Koneru and Ashok Pandey, raised $15 million from
Softbank Asia Infrastructure Fund and Venture Tech
Assets Pvt Ltd.
Partha
Bhattacharya-co-founded Protego Networks Inc,
provider of security monitoring and threat
management appliances, agreed to be acquired by
Cisco Systems Inc for about $65 million in cash.
Another company, Murli Thirumale-founded Net6 Inc,
provider of secure access gateway and Internet
Protocol telephony products, was acquired by
Nasdaq-listed Citrix Inc for about $50 million in
cash.
Kunal Kumar Kundu is a
senior economist with a leading bilateral Chamber
of Commerce in India. He has a Masters in
Economics with specialization in econometrics from
the University of Calcutta.
(Copyright
2005 Asia Times Online Ltd. All rights reserved.
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