India Inc eyes overseas M&A transactions

India Inc eyes overseas M&A transactions

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Indian companies with strong balance sheets have shaken off the shock from the coronavirus pandemic to chase overseas acquisitions, hoping to pick up attractive assets whose valuations have been hammered by the virus.

While the pandemic has dragged India’s outbound deal volume down 23% this year, there have been signs of a recovery in recent weeks. Renewable energy company Greenko Inc., for instance, is in the race to acquire NEC Energy Solutions, a struggling US-based battery maker, Mint reported on Thursday. A day before, the UK’s SKY News reported that Mukesh Ambani’s Reliance Retail Ventures Ltd is eyeing bankrupt retailer Debenhams.

To be sure, Reliance has denied that it is looking at Debenhams.

Big deal

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Big deal

The ramifications of the crisis on businesses have not been uniform. Software services, drugs and packaged-food industry have either remained unscathed or caught the tailwind. Software services companies, for example, have seen demand for cloud computing and cybersecurity services rise after the pandemic. They have moved swiftly to fill in the gaps in their portfolios through small acquisitions. “There will be interest as there is financial distress, and assets will be available for cheap. However, it will be very selective. Companies or groups with strong balance sheets or companies backed by private equity funds could look at such overseas acquisitions,” said Anuj Kapoor, managing director and head of investment banking at UBS India.

While the pandemic has presented many opportunities to acquire overseas companies at distress valuations, Indian companies are not rushing to buy them, and only a few are expected to have the funds and the confidence to take advantage of this, given the fragile global economic recovery is threatening to stall amid a resurgence of coronavirus cases.

Also, Indian companies have rarely made large overseas acquisitions in the past few years, as their purchases in the go-go years before the global financial crisis hit unravelled soon. Since then, marquee deals such as Tata Steel Ltd’s acquisition of Corus or Hindalco’s acquisition of Novelis have rarely been repeated.

Except for 2018, when firms acquired assets abroad worth $12.9 billion, outbound M&As have slid into the slow lane, shows Refinitiv data.

According to Kapoor, sectors such as pharma and chemicals, which are seeing significant investor interest, could potentially look to expand overseas. “For PE-owned firms, it could be a step towards eventual monetization. If a tuck-in acquisition makes business sense and improves the marketability of the company eventually to a strategic or financial investor, they may evaluate M&A,” he added.

The cash-rich technology sector has been the most acquisitive. Companies such as Infosys, HCL Technologies and Tech Mahindra have made overseas acquisitions. Just last week, HCL announced the acquisition of Australia-based IT solutions provider DWS Ltd for around $137 million.

Sector bellwether Tata Consultancy Services Ltd is also scouring for acquisition opportunities. In an April interview, chief operating officer N. Ganapathy Subramaniam said while TCS is not interested in pure workforce augmentation, it is looking for firms with a complementary customer base with some intellectual property and patents. The company will also look into opportunities that can lead to market expansion, he said.

“IT firms are cash-rich…and keep acquiring overseas companies to build capabilities in weak areas. So, deals in digital, cloud and SaaS (software as a service) space keep seeing healthy activity,” said Ajay Garg, managing director at Mumbai-based i-banking firm Equirus Capital.

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