The global buzz that surrounded the recent power shift in India’s largest company, the Tata Group, was telling of the growing influence of Indian firms. Ratan Tata, the iconic outgoing chairman, oversaw nearly 50 major international mergers and acquisitions (M&A) in only the past decade. When he left in December, the sprawling conglomerate had interests on almost every continent in an array of industries, with more than half of its revenue of more than $100 billion (Dh367 billion) earned outside India.
At the beginning of Tata’s time at the firm’s helm, few outside the national media would have covered leadership changes in the company. Today, India occupies a very different place in the world.
For Indian companies, 2012 was a slow year for M&A activity right up until the last quarter. A sudden spurt of deals pushed the year’s results to levels comparable to 2011. Perhaps the most significant aspect of the year’s deals was the fact that outbound transactions exceeded those inbound, suggesting that India is hungrier for foreign assets. On the flip side, it could also be inferred that India itself has become a less attractive place to invest over the course of the year.
The reality is that global M&A activity was squeezed due to pressures faced by developed economies, especially in Europe. While this may provide incentive to venture into emerging markets in search of growth, a large number of European, American and Japanese firms decided to consolidate at home.
According to Dealogic, an information platform for the financial industry, the total deals involving Indian companies in 2012 (as on December 12), numbered 1,123, about 128 less than the previous year. There was a similar gap in the value of the deals as well — $43.8 billion, compared to $44.5 billion in 2011.
India suffered a few economic setbacks over the course of the year. Industrial output fell unexpectedly in September and the trade deficit widened. Interest rates are largely expected to drop as regulators attempt to reboot the economy. Capital outflow is a risk, although a cheaper rupee and higher growth rate would make Indian assets more attractive to buyers. However, that is far too contingent on the fragile state of developed economies.
Overall, domestic economic conditions in India suggest that annual declines in M&A deals should continue into this year. But that could change, depending on the opportunities and European fire sales that lie ahead.
Whatever 2013 may bring, the past 12 months have seen some interesting strategic manoeuvring by Indian firms. Here are ten of 2012’s more notable deals.
ONGC Videsh’s acquisition of a Kazakhstani oil field
ONGC Videsh, the international arm of the Indian petroleum behemoth Oil and Natural Gas Corporation Limited (ONGC), splashed out around $5 billion for 8.4 per cent of a key fuel resource in the central Asian state of Kazakhstan. The stake was purchased from ConocoPhillips, one of the world’s largest firms.
This is the biggest deal for ONGC since it paid just over $2 billion for Imperial Energy about four years ago, and is one of the largest acquisitions ever by an Indian firm.
Kashagan Field is said to hold reserves of more than 30 billion barrels of oil, of which at least a third is known to be recoverable, and produces about 370,000 barrels a day. The next couple of years will reveal how astute an acquisition this was.
Gulf Oil Corporation (Hinduja) acquires Houghton International
Chemical manufacturer Houghton International was owned by AEA Investors, a global private equity firm. Hinduja’s subsidiary Gulf Oil Corp paid the fund just over $1 billion for the 150-year-old Houghton, which has a presence in more than 70 countries. The company last registered sales of $850 million with a gross profit of about $130 million.
The sale price reflects a standard enterprise value of five years free cash flow plus a forward premium for earnings in perpetuity. However, the strategic value of the company to Hinduja could be far greater through expected synergies. This acquisition makes Gulf Oil the world’s ninth-largest lubricant company.
Godrej Consumer Products’ acquisition of Soft & Gentle
This acquisition is notable for the fact that another familiar brand for international consumers is now owned by an Indian firm. The niche female deodorant was acquired from Colgate-Palmolive and is the UK’s fourth-largest brand in the category by market share. Sales in 2011 were reported at about $34 million. Soft & Gentle was first released in the 1970s and has built a solid customer base since then. Godrej undertook a leveraged purchase of the brand, taking on debt equal to roughly 3 per cent of the company’s net worth.
The company now has a formidable portfolio of consumer products.
Diageo’s acquisition of a majority share in United Spirits
One of the largest transactions of the year happened to involve the inflow of investment into India, bucking the general trend in 2012. British company Diageo is the world’s largest producer of spirits by sales. It has agreed to pay $2.1 billion for 53 per cent of its Indian counterpart, United Spirits.
Acquisitions tend to be lengthy, complicated deals and this may take months to complete. The share price of United Spirits, however, got a much-needed bump on news of the acquisition, much to the delight of chief Vijay Mallya, who has been under public scrutiny following the colossal disaster that is Kingfisher Airlines.
Piramal Healthcare acquisition of Decision Resources Group
Mumbai-based Piramal coughed up about $620 million for US business intelligence (BI) outfit Decision Resources. The company specialises in predictive analytics, BI and consulting for the health-care industry. It boasts a client base that includes almost every publicly listed health-care company in the world. Piramal continues to pursue a unique strategy of blending fat-trimming with diversification. After selling off large parts of its medicinal business, it has ventured into information technology and banking.
Business guru Azim Premji’s Wipro Limited recently announced an agreement to acquire Singaporean fast-moving consumer goods firm LD Waxsons. The deal is said to be worth around $144 million. The strategic incentive behind Wipro’s foray into Singapore is to gain a foothold in the facial skincare market in Asia, with special consideration to China.
LD Waxson has an impressive brand portfolio with names such as Ginvera (pictured) and Ebene. Wipro, originally an IT and outsourcing firm, seems to be following a popular trajectory in India, where leading companies are adopting an expansive policy of diversification.
Cargill’s acquisition of Sunflower Vanaspati
This time Wipro finds itself at the other end of the table. The company agreed to sell its brand of edible oil to food giant Cargill for an undisclosed amount. Sunflower Vanaspati will join several other Vanaspati products in Cargill’s line, such as NatureFresh and Purita. Sunflower Vanaspati has been around as a desi ghee brand since 1949 and enjoys a strong following in Maharashtra, India.
Wipro’s interests in this space seem to be thinning, while Cargill is only strengthening its geographical presence in what is one of its core competencies — edible oils and agro-byproducts.
Gujarat State Petroleum Corporation (GSPC) acquires Gujarat Gas
In what sounds like a purely domestic transaction, government-owned GSPC purchased Gujarat Gas from BG Group in Britain — also known as British Gas. Gujarat Gas was actually acquired by BG Group in 1997. GSPC paid $672 million to take it back under Indian ownership.
The next few years are set to be significant for Gujarat Gas, as global liquefied natural gas (LNG) and liquefied petroleum gas (LPG) markets develop. India is following the regional trend of upping LNG capacities and consumption, much like its gargantuan neighbour, China.
Vedanta Resources consolidates its Indian assets
Sesa Goa and Sterlite Industries are two of the numerous Indian components in British metals company Vedanta. In 2011, Vedanta broke the record for the largest-ever transaction in India’s energy sector when it bought oil and gas company Cairn for $8.6 billion. Today, Vedanta is set to merge Sterlite and Sesa Goa into one entity, and pass over majority ownership of Cairn to the new Sesa Sterlite company.
The move is actually part of a larger debt restructuring, whereby Sesa Sterlite will inherit a liability of almost $6 billion as well.
Rain Commodities’ acquisition of Rutgers
Hyderabad firm Rain Commodities has pulled off perhaps the boldest of any deal on this list. In October it agreed to acquire Belgian chemicals firm Rutgers for a cool $915 million from yet another private equity intermediary, Triton Partners. The amazing thing about this transaction is that the agreed price is almost four times the market capitalisation of Rain Commodities, the purchaser.
This isn’t the first time this ambitious mid-sized company has been at it either, purchasing US calcined petroleum coke manufacturer CII Carbon for almost $600 million in 2007.