With uncertainty down, M&A deals are back

In last 6 days, Indian companies announce $2.5 bn of outbound acquisition deals, including Indian Hotels' $1.57-bn bid to buy Orient-Express Hotels

Deal makers are busy again, waking up from the slumber of over a year that followed the US Treasury debt downgrade, sovereign crises in Europe and policy paralysis in India. In last six days, Indian companies have announced $2.5 billion of outbound acquisition deals, including Tata Group-promoted Indian Hotels’ $1.57-billion bid to acquire Orient-Express Hotels.

Raj Balakrishnan, managing director and co-head, mergers & acquisitions (M&A), at Bank of America-Merrill Lynch, said: “Sentiments for M&A have improved globally, and we are seeing transactions in many places.” The investment bank is advising Indian Hotels on its bid to acquire Orient-Express.

Balakrishnan’s colleagues in Europe are advisors to Russia’s Rosneft that yesterday announced its intention to buy British oil giant BP’s 50 per cent stake in TNK-BP, in a deal valued at over $50 billion.

So, what has changed the sentiment? “QE3 by the US government, the European Central Bank’s interventions to resolve the sovereign crises and, back home, the government’s recent measures to revive the economy have improved sentiments, boosting M&A transactions,” said Balakrishnan.

Yesterday, Hyderabad-based Rain Commodities bought Belgian chemical maker Rutgers NV from investment firm Triton Partners for $916 million, in the biggest acquisition by an Indian company this year. The day also saw Dr Reddy’s Laboratories announcing a $45.2-million bid to acquire Netherlands-based OctoPlus NV. An important deal announced this month was of global private equity fund Blackstone acquiring a 12.5 per cent stake in the Sonalika Group-promoted International Tractors for $100 million.

SPRING IN OCTOBER Top-10 deals
Date	Target	Acquirer	Total value
Oct 18	Orient-Express Hotels	Indian Hotels Co Ltd,Montezemolo*	1,573.4
Oct 22	Rutgers Belgium NV	Rain Commodities	916.7
Oct 03	Gujarat Gas Co	Gujarat State Petroleum Corp	470.0
Oct 04	Quippo Infrastructure Equipment	Sapurakencana Petroleum	122.0
Oct 08	International Tractors	Blackstone Group LP	100.0
Oct 04	Shale-gas assets	Indian Oil Corp Ltd,Oil India	82.5
Oct 01	Runwal Greens	Runwal Group	47.7
Oct 22	OctoPlus NV	Dr Reddy's Laboratories	45.3
Oct 09	Greenearth Resources and Projects	Aum Saw Pipes & Industries	38.1
*Only a bid has been made                                                                     Compiled by BS Research Bureau

L D Mittal, chairman, International Tractors, said: “We would not have concluded this deal six months back.” It took about 18 months of negotiations by Blackstone to seal this deal. “The improved sentiments really helped in closing the deal,” he said. The company plans to use the money to expand its operations by setting up assembly lines and establishing dealership to cover 100 countries, up from 70, by the year-end.

“The confidence of Indian companies with stronger balance sheets is back,” said Vedika Bhandarkar, vice-chairman and head, investment bank, at Credit Suisse India. “Also, with the initial public offering market quiet, private equity players are pushing for M&A to make exits,” she said.

Bankers, in fact, believe the interest in M&A never waned.

“We never saw the deal pipeline shrinking,” said Chetan Savla, senior executive director and head, corporate advisory group, at Kotak Investment Banking. He explained how increasing interest from Japan for inbound deals compensated for lack of enthusiasm exhibited by European companies.

“It was only that the time lines for deal closure increased due to uncertainties on the economic growth and valuations,” he said. Deals that would usually take six-nine months to close started taking 12-15 months.

According to Bloomberg data, $37.2 billion worth of deals have been announced this year, against $40.2 billion in 2011 and $73.2 billion in 2010.