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India Inc on overseas shopping spree

BS Bureaus

Calendar year 2002 just might go down as a year when India Inc went on an unprecedented overseas corporate shopping spree.

In the first few months of the year, Dr Reddy's Laboratories announced that it had acquired two companies in the United Kingdom - BMS Laboratories Ltd and Meridian Healthcare (UK) Ltd - in a £9.05 million deal. NIIT has acquired Osprey Systems Inc and Clicktolearn in the US for $6 million.

Several information technology and pharmaceutical companies have announced that they want to shop for companies overseas.

The list includes Tata Consultancy Services, Wipro, and NIIT. "Companies with strong operating capabilities in the technology and pharmaceuticals sectors are increasingly looking at going overseas," DSP Merrill Lynch executive vice-president (M&A) Rajeev Gupta says.

So Ranbaxy Laboratories, which bought three companies overseas - Ohm Laboratories in the US, Rima Pharmaceuticals in Ireland and SP Medicamentos in Brazil - some years ago, wants to be listed in the US to build up a war chest for further acquisitions (Ranbaxy would like to buy an R&D outfit in the US).

Forecasts I-Sec managing director and CEO Devdatt Shah: "We will see some action by pharmaceutical companies in the months to come."

But more companies have announced their intentions of buying firms overseas this year - and 'old economy' companies seem to be spearheading the charge so far.

The BPL group is acquiring a Slovenian television producer called Electronika Valanje. The Onkar Singh Kanwar-controlled Apollo Tyres Ltd has signed a memorandum of understanding to pick up a 76 per cent stake in a Chinese tyre producer.

Kanwar is now trying to rope in Continental AG of Germany as a technology partner in the venture.

Indian Rayon & Industries, the AV Birla group company, is scouting for carbon black facilities in China, Romania and the Ukraine.

BS The group is also scouting for chemical companies in Europe. Another group company, Indo Gulf, is on the verge of buying mines in Australia and South Africa.

The Zuari-Chambal group has now mandated Ernst & Young to find a tech company to buy in Europe. The Delhi-based Havell's India group is close to acquiring a European firm that produces and markets electrical meters for Rs 250-300 million.

Essel Propack, the Subhash Chandra-promoted laminated tube manufacturing major, is looking at acquisitions in Europe, company executives confirm.

There are several small family-owned businesses in Europe that are available for acquisition, they add.

Anil Agarwal, chairman and managing director of Sterlite Industries, continues to scout from London for companies to buy overseas after picking up copper mines in Australia.

Tata Steel is considering the possibility of acquiring a large ferro-chrome project overseas, even as the Taj group of hotels continues its quest for hotels in South-East Asia and in the US.

Other businessmen too say they're eyeing overseas acquisitions. Says V.N. Dhoot, chairman of Videocon Industries: "I am looking at acquiring any consumer electronics company that is up for sale."

Even a jewellery unit at Mumbai's Santacruz Export Promotion Zone has announced ambitions of acquiring a jewellery chain in the US or the UK.

"SB&T has aggressive acquisition plans. We are looking at the US and the UK in a big way," confirms Varji Sethi, managing director, SB&T.

Reserve Bank of India statistics on corporate acquisitions overseas are not readily available -- its figures relate to total investments, including technology.

The only figures it has that it could make available immediately relate to last year.

Between April 2001 and March 2002, 27 Indian companies spent $1,2 billion on acquiring companies overseas. These include the Zuari-Chambal group's acquisition of the US-based NovaSoft in a $6 million deal and ONGC's having picked up a 20 per cent stake in the Sakhalin I oilfield in Russia for $1.7 billion.

The RBI has no statistics for this year so far. But other factors testify to the quickening interest among Indian companies in shopping for businesses overseas.

PricewaterhouseCoopers partner Deepak Kapoor says that in the last 6-8 months, he has worked on 8-10 overseas acquisitions in the tech area, at least half of which have worked out. "Large groups as well as small and medium companies are looking at acquiring companies abroad," he affirms.

Vedika Bhandarkar, head of investment banking at JP Morgan in Mumbai, backs the point. During the first few months of this year, six leading companies have mandated the investment bank to scout overseas for firms operating in a range of industries, Bhandarkar says.

Last year, JP Morgan had very few overseas acquisition mandates.

If 2001 was a ho-hum year for acquiring companies abroad; it was perhaps, as Bhandarkar says, due, among other things to last year's dismal economic conditions. "Indian companies have been too busy setting their own house in order to go abroad and gobble up companies," explains a Mumbai-based merchant banker.

So why is India Inc cocking an eye overseas this year? For several reasons. Dhoot points out that the government announced in this year's Budget that companies could invest up to $100 million, up from $50 million, overseas. "Once they allow you to invest $100 million as equity, you leverage it to raise another $300 million," adds Dhoot.

This has had another fallout. This year's acquisitions are largely cash deals. "With the government relaxing the limit on the money that can be sent abroad, a distinct cash deals trend has emerged," notes Mukesh Butani, a partner at Arthur Andersen which is being merged into Ernst & Young.

In the first wave of overseas takeovers a couple of years ago, stock deals were the rage. But with stock prices falling, stock deals are passé.

Second, in many cases companies abroad carry relatively low price tags, thanks to the worldwide recession. "We have moved away from a situation where a number of buyers were chasing a few companies. It is a buyer's market right now," DSP Merrill Lynch's Gupta says.

Third, Indian companies are sallying forth in search of capacities, new markets, raw materials (Indo Gulf wants to buy mines in Australia and South Africa) and new technological skills.

Essel Propack wants to more than double its global capacity -- it already has a presence in 10 countries -- to 7 billion laminated tubes per annum from its current worldwide capacity of 3 billion tubes.

The company sells 1.2 billion tubes in India, where it has a 70 per cent market share and sees little future growth prospects at home.

"We are looking at acquisitions to enter new markets and acquire new technology skills," says Arun Kumar, managing director, Hughes Software Systems.

Adds Phiroz Vandrevala, executive vice- president, TCS: "Acquisitions will help Indian companies grow at faster rates than they are growing at the moment." The company is looking at acquisitions in the US and Europe.

For all the action that's building up, some caution that acquiring a company is but the first step -- what follows is far more difficult.

I-Sec's Shah says that several leading domestic companies are still reluctant to look at overseas buyouts because of cultural and post-acquisition integration travails.

And no one has yet announced in 2002 a big bang acquisition on the lines of Tata Tea's acquisition of Tetley of the UK in 2000 for over Rs 18 billion.

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