Mumbai: The year 2014 has started with a bang for inbound mergers & acquisitions, with India Inc seeing 15 such deals in 40 days. Besides the mounting interest from buyers in the Indian consumer growth story, other sectors such as health care, metals, real estate and telecom have led the way in asset sales this year.
The last of the deals happened just two days ago, with the US-based Sophos buying Cyberoam Technologies. US-based private equity major Carlyle was a common factor in both the first and so far the last M&A deals this year – the first was the largest ever inbound buyout in the Indian dairy space where the PE major sold its 20 per cent stake in Tirumala to Lactalis. In the other deal, Carlyle sold its 87 per cent stake to global strategic buyers.
Deals had dried up in recent times mainly because of valuation issues even as highly leveraged companies have been looking for buyers. Mahesh Singhi, managing director, Singhi Advisors, said companies had been facing growth bottlenecks and needed capital flows. Many of the recent sellouts had been to reduce debt and were prompted by lenders and investors.
Highly leveraged companies such as DLF, Lanco, GMR, etc, have thus been monetising some of their assets in the last couple of months. Early this month, mining and construction company Lanco Infratech, which has a total debt of Rs 7,700 crore, sold its 70-Mw hydel plant in Himachal Pradesh to Greenko for about 77 million euros (Rs 650 crore). It is also in talks for the sale of its 1,200-Mw Udupi Power Corp. The overall deal size of the 15 transactions works out to about Rs 12,151 crore (roughly $2 billion). According to a Grant Thornton report, India Inc had seen inbound deals worth $8.6 billion in 2013.
Besides debt-ridden companies, even some of the largest Indian conglomerates have concluded sales of their loss-making or non-core businesses in the last few weeks.
On January 31, Tata Power announced the sale of its stake in Indonesian coal asset, Arutmin, to the local Bakrie family for $500 million as part of cutting down its debt. The Aditya Birla Group sold its Canada-based business and technology outsourcing firm Aditya Birla Minacs Worldwide Ltd to a group of investors for $260 million, as part of its exit from the information technology business.
According to reports, Tata Communications is planning to sell its South African firm Neotel to a Vodafone arm.
Pramod Kumar, MD, Barclays Capital India, said, “Unrelated diversification or aggressive expansion undertaken by Indian companies in an environment where the growth outlook was much more robust that what has turned out to be in reality raised the question whether they should be in the business and own the asset or not.”
A lack of interest from investors such as private equity players has also cast a shadow over a few core industries in India, leaving the promoters with no option but to sell out or partner with global players, who can access cheap capital as well as advanced technologies and global markets.
“With the current slowdown, not only have profit margins come down, the working capital cycle has also increased substantially in many industries, bringing the overall return on capital employed much below their borrowing costs. Companies in infrastructure, metals, pharma API, build-operate-transfer projects, power equipment, etc have fallen off radar of financial investors,” Singhi added.
Most of the PE investments made five to six years ago are ripe for exits, causing strategic sellouts to foreign companies eager for a strong footprint in the Indian market.
Vikram Hosangady, national leader, private equity, KPMG India, said the exits in most situations were driven by the fact that the PE investor had spent three-five years and the portfolio company was ripe for exit. “It’s heartening to note there remains significant strategic interest among global companies in Indian assets. We’ll continue to see increased strategic interest but largely in defensive sectors such as consumer, pharma and health care.”
