Most of the Americans may have never heard of these Indian companies: Reliance Gatewaynet, VSNL, Scandent and GHCL – but these are growing number of Indian companies who have recently acquired US firms. The news of Indian company acquiring a US firm may have been a surprising to most just a few years back, but not now – It is become a common place in today’s world.
And these US acquisitions are a very small part of the bigger picture. Indian companies have been on a buying spree in Continental Europe in the quest to become players in the global market. Very recently, Tata Steel bought the English-Dutch steel maker Corus for a staggering deal of $12 billion. These are the signs that global commercial and industrial leadership is beginning to pass from the West to emerging economies like India.
From where has this confidence come in Indian Businesses ?
The outsourcing phenomenon, especially in IT Industry has helped Indian companies in lot of direct and indirect ways. First and foremost, it has ensured that Indian managers and executives are now far more exposed to to Western business culture and practices. Over a period of time, the Indian offshore companies have created an image of reliable low cost, yet high quality products and services. Outsourcing/ Offshoring companies have increased their profits exponentially. There is a lot more cash available with Indian companies than ever before. Their capacity to borrow large amount of cash has also gone high.
What does all this result into – Acquisitions.
Indian companies are now eyeing Global markets instead of domestic to move up the growth ladder. If you are a large company, you need to have a presence in US and Europe. Managers and Executives of Indian companies are taking much higher Risks than ever before.
Also, the regulatory changes have made the whole process of acqusition much easier than ever before. Some restrictions like the amount of Foreign exchange entering India have been relaxed. Net result? Indian companies are flush with foreign exchange !
An Array of Acquisitions
In the year of 2006, for example, Indian companies announced 125 foreign acquisitions with a value nearly 10 billion.. That is roughly eight time that it did in year 2000. However, in year 2007 first 5 months itself has crossed $ 15 billion (Thanks to a $12billion Tata-Corus deal) and there are big acqusitions in pipeline. The sign of things to come !In 2006, largest proportion of outbound deals (Indian companies acquiring international companies) occurred in Europe (50% of deal value), followed by North America (24% of deal value). The IT sector saw the lion’s share of outbound M&A deals, with 23% of the total number of international acquisitions, followed by pharmaceuticals/healthcare/biotech (14%). As for deal value, telecommunications led the way with a 33.6% share of deal value, followed by energy (14%), IT (8%) and steel (6.5%).
One of the major U.S. acquisition took place last year, when GHCL, based in the state of Gujarat, India, acquired Dan River, a Danville, Va.-based maker of home textiles for $93 million ($17 million in cash and the assumption of $76 million in debt). Also making major moves in 2006 were members of the Tata Group, a major Mumbai-based conglomerate with interests in, among other things, manufacturing, transportation, software and hotels. In June, Tata Coffee paid $220 million to buy Eight O’Clock Coffee, a venerable U.S. brand. In August, Tata Tea paid $677 million for a 30% stake in Glaceau, a maker of vitamin water. It is now safe to say that Indian companies are now firmly setting up themselves in global marketplace !
Note: This is the 6th post in the 30 part series that I am doing on Key success factors for doing business in India – A 30 part series!
Update: I mentioned that I would cover atleast one point a day and will cover . However, it seems it is going to take longer than a month to cover the series and interval between this series post may be longer than a day. Stay tuned, it may take longer but it will be a worthwhile reading.