India Inc. on the prowl

After a relative lull, India Inc. is showing renewed interest in cracking deals. December 2008 suddenly saw a flurry of outbound M&A activity. Piramal Healthcare, Wipro and Rolta led the way with acquisitions ranging from $10 million (Rs 48.7 crore) to $127 million (Rs 618 crore).

Analysts had been predicting a revival of interest in dealmaking. After all, globally, valuations are down and several Indian companies also have sizeable cash on their books. C. G. Srividya, Partner (Specialist Advisory Services) at Grant Thornton, a global audit, accounting and consultancy firm, says: “This is a good time for outbound acquisitions by Indian companies in view of the attractive valuations at which global companies are available currently.” Adds Hiranya Ashar, Director and Chief Financial Officer of Rolta India: “Something that used to be valued at 1.5 to 2.5 times sales revenue can now be negotiated to a value of even less than one time sales. When valued on the basis of EBITDA, what used to be priced at 12-15 times EBITDA can now be acquired at six to eight times.” Khozema Anazwalla, Managing Director of KNAV Advisory, a firm that advises Indian companies on overseas accounting and valuation regulations, says there is a decline by almost a third in valuations.

However, with the economic downturn eroding bottomlines, Indian corporates are circumspect as well. They are trying to ensure that there are adequate business synergies with the target companies. Piramal Healthcare, for instance, did its homework properly before acquiring Minrad International for $40 million (Rs 195 crore). Says Ajay Piramal, Chairman of Piramal Healthcare: “The company started off in the late eighties, spent a lot on research and installed manufacturing capacity and then ran out of money. Piramal Healthcare had perfect synergies with Minrad and has committed another $40 million to expand capacities.”

Still, experts say, a growing number of Indian companies are on the prowl for acquisitions. Says Grant Thornton’s Srividya: “There could be more acquisitions like the Wipro-Citigroup or WNS-Aviva deals going forward, as these make eminent sense for both the buyer and the seller in the present situation. Indian companies will continue to be among key acquirers in the international market.” Adds Anazwalla: “Funds are being cleared with a delay. What would have been cleared by financiers in January will now only come through in March as due diligence has become stringent.”

Interestingly, apart from the outbound deals, December also saw the first PE investment by Morgan Stanley in an Indian company. The firm invested Rs 182 crore ($37.5 million) in an unlisted Indian castor oil maker Biotor Industries. Lower valuations of domestic companies could spark off a reverse trend and more PE investments in Indian companies are likely.

The urge to merge Major outbound acquisitions were announced in December. • Piramal Healthcare acquired Minrad International for $40 million • Wipro acquired Citi Tech for $127 million • Rolta India acquired Chicago-based Piocon Technologies for around $10 million • Financial Technologies acquired a 60 per cent stake in Bourse Africa (a pan-African exchange) • TCS completed its acquisition of Citigroup Global Services