GLOBAL DEALS BY INDIAN MNC
Globalization seems to be in all its glory in India as a new breed of Indian multinationals stamping their presence in many countries by acquiring reputed companies of those countries.. And while earlier Indian companies were buying smaller profit-making firms, the trend is changing now. The size of the deals in 2005-06 shows that the appetite of Indian MNC is growing. They are going for bigger companies, especially among pharmaceutical and auto-components firms.
Foreign Direct Investment (FDI) outflow may soon surpass Inflow. The reason is the acquisitions by Indian MNC. Let us have a look at the deals the Sakhalin-I oil project in Russia, Betapharm Arneimittel GmbH, a generic drug company in Germany, Thomson SA, a plastic tubes company in Italy and Comicrom, a Chile-based IT company. Theyâ€™ve all been acquired either fully or partly by Indian companies.
Only a few days ago, the largest ever acquisition by a private Indian firm took place abroad. The Tata group had acquired 30% stake in Energy Brands Inc, a speciality mineral water and energy drink company in the US. Another Three big deals worth $2 billion have been cut this year. If the trend continues, FDI outflow may surpass inflow soon.
To top it, research by India Brand Equity Foundation shows many global private equity firms are giving Indian firms funding for acquisitions in the West. Theyâ€™re now courting them more as buyers than as sellers.
Take a look at the big deals of 2006. These include Dr Reddyâ€™s of Betapharm Arzneimittel in Germany ($570.3 m), Ranbaxyâ€™s of Romanian company, Terapia ($324 m) and the Tata Tea deal worth $677m. It is reported that Videocon has emerged as the front runner for acquiring South Korean consumer goods giant Daewoo Electronics with a bid of $650 m. In percentage terms, already FDI outflow from India is much higher than inflow, say experts.
This year, around 76 deals had been cut. In July alone, studies by Grand Thronton (GT) show, 34 M&A deals worth $589.14 m were announced. Sixteen outbound deals valued at $303.96 million were signed and nine inbound, worth $151.08 m. The trend now is for Indian companies to acquire more overseas, than international companies acquiring Indian ones.
The World Investment Report of 2005 reveals Indiaâ€™s FDI outflow has been increasing steadily since 2002. From $1.1 b, it rose to 42.2bn in 2004. FDI inflow figures do show a rise from $3.4bn in 2002 to $5.3bn in 2004. Experts say more than half of whatâ€™s coming in is actually going back as outflow.
Indian firms are acquiring assets abroad. The number of Indian firms investing abroad has been rising steadily ever since Tata Group acquired UKâ€™s Tetley Tea for $431.2 million five years ago.
The main driving force of the trend is the aspiration of Indian firms to go global. They have a potential market in the US and Europe. Acquisition means getting a market, and a product line of 50 to 60 products. This shows the capability of Indian entrepreneurs to operate globally provided the Government of India gives them right support as it seems now. Liberalization is turning into globalization.