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'Tatas' Corus win to spur M&As abroad'

By BS Reporter in Mumbai
February 02, 2007 10:57 IST
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A day after Tata Steel's announcement of the country's biggest overseas deal, bankers and deal makers feel the takeover will give fillip to mid-sized acquisitions of Indian companies in the overseas markets.

Standard Chartered Bank Group CEO Peter Sands, who came to the city within a month after assuming office, said the ambitious acquisition would induce more mid-sized corporate to buy companies overseas.

Describing Tata Steel's acquisition of Corus as an important milestone in the history of corporate India, he said: "India Inc has just began its journey in overseas acquisitions. The summit is a long way off."

Experts said with the foreign investors, bankers and private equity funds had been keen to finance overseas acquisition, outbound deals got only one way to go up and up.

As many as 740 domestic companies were involved in M&A and private equity deals worth $26.7 billion last year, according to Grant & Thornton, an accounting and corporate advisory firm. This was 45 per cent higher than $18.3 billion in 2005. Last year, 460 M&A deals worth $19.5 billion were struck, 19 per cent jump over deals in 2005.

P-E investments rose three times to $7.2 billion last year. There were 82 inbound deals worth $ 5.5 billion, 170 outbound deals worth $ 9.57 billion and 208 domestic deals worth $ 4.43 billion.

Experts said domestic companies had been becoming more aggressive of taking risk and going for acquisitions, which are bigger than their sizes. In fact recently many deals showed that the companies are going for leveraged buyouts (where the acquirer's balance sheet is leveraged to raise debts) to takeover bigger enterprises.

For example, the Rs 2,100 crore Dr Reddy's Laboratories acquired Germany's fourth largest generics company betapharm for Rs 2,600 crore (Rs 26 billion); the Rs 184 crore (Rs 1.84 billion) Subex Systems bought Azure Solutions of the UK for Rs 630 crore (Rs 6.3 billion); the Rs 500-odd crore (RS 5 billion) Aban Offshore bought 34 per cent stake in Norwegian drilling company Sinvest ASA for over Rs 2,000 crore (Rs 20 billion).

However, experts said very few companies have appetite to go for huge acquisition like. But there is no dearth of companies to strike small and medium deals in the overseas markets.

"Globally, large groups can acquire large companies, Alex Wilmot- Sitwell, joint global head of investment banking of UBS had recently told Business Standard. The top honcho of UBS, the largest investment bank in Asia, pointed out: "The reasons being that large groups can manage risk more easily, they have access to funding, they can generate funds by leveraging their balance sheet, and they have got the management depth to integrate and execute a big acquisition," he had said.
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BS Reporter in Mumbai
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