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2006: India Inc. strikes a deal
The year 2006 was marked by increased traction in deal making by India
Inc. The country witnessed 782 deals including mergers &
acquisitions (M&A) and private equity (PE) this year compared to
467 in 2005; a growth of 67.5% according to a report by Grant Thornton
India, a leading financial
and business adviser. The total value of deals increased to $28
billion from $18 billion last year, a growth of 54%. Please see the
detailed round up of deals discussed in our Special Report of this
issue.
In the 266 cross border deals at $15 billion,
India Inc.’s growing global ambitions continued unabated as Indian
companies made more acquisitions abroad through 190 deals valued at
$10 billion (outbound) compared to just 76 acquisitions for $5.4
billion made by overseas companies in India (inbound).
Interestingly, Indian companies closed the
year 2006 with maximum acquisitions in Europe with a share of 42%,
maintaining the momentum since we first reported this emerging trend
in our Volume 2 | Issue 13, followed by North America at 24%. The U.S.
and the U.K. together garnered the maximum share in outbound deals at
29%.
The private equity (PE) deals too seem to know
just one direction of move and that is up North registering the
highest growth of 295% to $8 billion this year from $2 billion in
2005. The momentum is expected to continue in to the next year as
well, as about $4.4 billion in new investment capital would be
available for venture investments in India over the next five to six
years through 44 new funds announced by venture capital firms in the
U.S. alone during the year.
The U.S. based private equity firm Kholberg
Kravis Roberts & Co’s investment of about $900 million for
acquiring Indian IT services provider Flextronics Software Systems was
the largest PE deal. The number of $50 million plus deals went up to
29 in 2006 from only 10 in 2005.
Indian Telecoms: A Growing Opportunity
If you thought the Indian telecommunication sector is saturated –
Think again. The proposed acquisition of Hutchison Essar Ltd (HEL),
India’s second largest GSM mobile service provider and the telecom
venture of Hong Kong based diversified Hutchison Whampoa group through
67% stake of its subsidiary Hutchison Telecom International Ltd (HTIL)
where India’s diversified Essar Group has 33% stake is set to become
the country’s largest merger & acquisition (M&A) deal.
An expected bid of atleast $14 billion for the
stake of HTIL in HEL signals to other global mobile telecom
service providers who are absent in the world’s fastest growing
mobile telecommunication market that there is ample room to enter,
atleast inorganically.
Some of the large mobile telecom service providers such as
Telefonica SA of Spain, Deutsche Telekom AG of Germany and the French
service provider France Telecom are among those missing out on the
opportunities that exist in the Indian market, which is growing at
more than six million subscribers a month and expected to reach a
mobile subscriber base of 348 million by 2010 from the current 143
million.
The companies in the fray to acquire HEL include Vodafone Group Plc,
U.K.-based world's largest mobile operator by revenue; India’s
largest CDMA mobile operator Reliance Communications Ltd and Essar
Group itself. But going by the regulatory provisions, if the acquirer
is an overseas company, it will have to go with an Indian partner and
its stake in the acquired company cannot exceed 74%. Looking at the
current stake holding of HEL - 67% owned by HTIL and 33% by Essar
Group, the swing vote is in the hands of the later.
The acquisition of HEL will give the telecommunication sector a
head start in the sectoral break-up of M&As going into the next
year. The sector had a share of about 11% in the total deal value in
2006 through 12 deals worth $2 billion. The deal will also be higher
than the acquisition of U.K.’s largest steel company Corus Group Plc,
if it ends up with India’s Tata Steel Ltd. The Tata-Corus deal was
expected to be the largest at $8 billion.
Sensex 2007: Next milestone 20,000-mark
The year 2006 was the fourth year in a row when India’s benchmark
index Sensex showed double digit growth, symbolic of the growing
investor confidence in the market.
Starting the year at below 10,000-mark the Sensex
peaked at 14,000, a growth of more than 40%, continuing with the trend
from last year. Going by the growth trends in India’s corporate
earnings at 20%-25% and the Sensex companies at 30%-40%, there are
reasons to be optimistic of the growth to be replicated in 2007. Can
we expect to see the Sensex surpass the 20,000-mark in 2007?
While there is a general word of caution in the
market, the Indian economy growing at more than 9% offers high growth
opportunities across sectors, as discussed in Volume 2 | Issue 15 of
our publication. In the backdrop of the slow-down in global growth,
foreign investments in to India are expected to be strong. We discuss
the market trends and outlook 2007 for the Indian stock market in the
Market Watch section.
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