Presentation

By
Mr. M.N. Chaini - Vice-President
Indian Merchants’ Chamber, Mumbai
 M&A : Background & Scenario
• In 1990, only six developing and
transition countries had made any
outward investment.

• In 2005, the number increased to 25.

• Between 1987 and 2005, the share of

global M&As by MNCs from
developing and transition countries
rose from 4% to 13% in value terms,
and their share in greenfield and
expansion projects exceeded 15
percent in 2005.
 M&A : Background & Scenario…...Contd.
• A survey shows that 81% of the companies have
considered M&As and 30% have actually done a
transaction in the past 3 years. Over 70% say that
they expect to do a deal in the next 3 years. All this
denotes that we are set for an M&A boom in the years
to come. Global M&A volumes of $10bn a day, India’s
$18bn for the year 2005 indicates that there is still a
long way to go. The trend is clearly on the way up.
• M&A in 2006-07 - $ 3.6 Trillion
• M&A in 2005-06 - $ 3.55 Trillion (data by Bloomberg)
• October 2006 M&A deals - $ 262 Billion
• The Asian M&A market saw 5792 deals worth $ 255.07
billion
• China alone was the largest market with 1862 deals
worth $54.76 billion
 Indian Scenario - Major Deals
• Corporate India has gone on an acquisition spree,
powered by the urge to go global, strong market
fundamentals and the drive to dish out cost-
competitive products. Acquisitions were not limited to
the domestic market, but spread out in the global
arena also.
• Though India's public sector took the lead in investing
abroad, especially looking for oil assets, the private
sector is now going full speed ahead, driving overseas
investments e.g.
• Arcelor acquired by Mr. Lakshmi Mittal.
• Mahindra & Mahindra's takeover of 90 percent stake
in Schoneweiss, a family-owned German company.
• Tata's takeover of Corus & Tetley Tea Co.
• Hutchison Whampoa of Hong Kong sold their
controlling stake in Hutchison - Essar to Vodafone
for a whopping $11.1 billion.
Indian Scenario - Major Deals …….Contd.-
• Swiss cement major, Holcim, which acquired a 67 per
cent stake in Ambuja Cement India Ltd (ACIL).
• Videocon Group's acquisition of Thomson's colour
picture tube business in China, Poland, Mexico, and
Italy for a total of $290 million.
• The other large overseas deal was by pharmaceuticals
Matrix Laboratories, which acquired 100 per cent of
the Belgian Pharma Co., Docpharma for $263 million).
• Birla-Hindalco Indian business conglomerate Aditya
Birla group-owned flagship company Hindalco
Industries Ltd. Took over Atlanta-based aluminum
giant Novelis Inc. for US$ 6.4 billion

• Indian firms concluded 70 M&A deals between April and

September, spending $14 billion and would have saved
as much as Rs.6500 crore ($1.66 billion) because of the
over 10% rupee appreciation against the greenback, an
Assocham Eco Pulse study said.
 Why M & A ?
• Quicker way to growth.
• Accessing new markets.
• Taking on the global competition.
• Improving operating margins and efficiencies, and
• Acquiring visibility and international brands.
• Buying cutting-edge technology rather than importing it
• Developing new product mixes

Objective behind M&A Transaction Responses (in%)

To improve revenues & profitability 33%

Faster growth in scale quicker time to market 28%

Acquisition of new technology or competence 22%

To eliminate competition & increase market share 11%

Tax shields & investment savings 3%

Any other reason 3%
 Determinants of M & A
• Ever-growing appetite of entrepreneurs to
strike deals across sectors.
• Availability of financing options – both in Debt
as well as in Equity due to low interest-regime
of recent years and high stock-market
valuations.
• Barriers – Surmountable? And Legal System.
 Liberal approach of Anti-trust authorities /
regulators in recent years.
 Availability of the unit / business.
 Strategy, planning & environment.
 Corporate Governance.
 Corporate Governance

 Tata could acquire so many units outside

India, against stiff competition; due to good
corporate governance & strategic fit.

 Corporate governance is essential to acquire

a company and then make the acquisition
successful. In absence of good governance,
acquisition may fizzle out.
Interplay of following factors :
• Strategy
• Planning
• Personnel
• Legal
• Finance
• People
• Media
• Management Philosophy –
Corporate Governance
 M&A as a Business Strategy
Analysis Conclusion
- M&A is definitely a key
• Only 19% of the respondents
agenda for India Inc
state that they do not believe in
M&A and 81% look at it as a part
of strategy or will look at it
opportunistically.

M&A as a part of Business Strategy

No, We do not
believe in
inorganic
Stragegy
19%

Yes
49%
It is
Opportunistic
32%
 Enhancing Valuation
Analysis Conclusion
- The perceived quality of a
- The key drivers for valuation
management team a key driver.
according to India Inc are
To enhance valuation along with
Management quality,
transparency. Interestingly Press
Industry factors and
interaction is seen as another way
Financial performance.
to enhance valuation.

Key Drivers for enhancing valuation of a company

Regular
Management interaction with
Team analysts and
27% press
15%

Industry outlook
Governance 19%
Track record
8% Transparency in
Financial
Performance operations
16% 15%
 Competition Policies in EU and India- Is it
transparent and Non discriminatory? Lessons
for India & EU to work together
• Indian economy today is a competitive and
de-regulated open economic system.
• Various restraints to competition existed in
the pre-reform era such as :
• Investment restraints (licensing).
• Control over acquisition of economic power through
Monopolies & Restrictive Trade Practices Act (MRTP).
• Public sector reservation for infrastructure and other
industries creating monopolies in various areas.
• Product reservation for the small-scale sector.
• Government procurement policies favoring public and
small-scale sectors.
• Trade restrictions and high tariffs.
• Restrictions on foreign direct investment.
Contd….
• All these restraints (protective measures as
well as controls) have been or are being
relaxed now.
• One key issue in the current phase of
transition of India is of ensuring and
managing competition and to derive the most
out of liberalization.
• The task is all the more difficult because the
nation is not starting with a clean slate as
various institutional structures continue to be
in place.
• Although, decontrol, deregulation &
privatization initiatives are being taken,
global economic environment is also
undergoing a major change and hence the
economic system is becoming more complex.
 New Needs for Competition Policy
• The Indian corporate sector adopted a
variety of strategies in the post-reform
period to cope with the increasing
competitive pressures due to internal and
external liberalization.

• With the maturing of the Indian oligopolies,

the competition policy needs of the country
are also undergoing changes.
 Changing Indian corporate sector
Some salient aspects of the changes in the Indian
corporate sector :
• The Indian corporate sector is vigorously
restructuring itself.
• Restructuring is mainly geared towards consolidation
in few chosen areas to correct the inefficiencies
created by over-diversification in the pre-reform era.
• MNCs have actively participated in the merger and
acquisition process to get market entry or to
strengthen their presence.
• Acquisitions have been used by MNCs to quickly get
access to various complementary assets.
• MNCs are better placed vis-a-vis domestic firms in
the acquisition game because of their deep pockets
and relatively cheaper access to capital.
 Changing Indian corporate sector
• The intentions to invest in India by MNCs are
significantly influenced by differences in the cost of
capital and huge Indian market.
• The reliance of the Indian corporate sector on foreign
technology purchase has increased.
• More and more technology flows are now tied with
equity.
• Purchase of technology (especially foreign) is taking
precedence over R&D.
• In house technology generation has taken a backseat.
Besides, a large variety of inter-firm alliances are taking
place.
• Firms are making efforts to improve manufacturing
capability. This is being done through building alliances
as well as through initiatives within the firm.
• Quality upgradation seems to be an important priority.
• These efforts at improving manufacturing capability
may still prove to be inadequate to meet the
competitive challenges.
 Changing Indian corporate sector
• These inadequacies may also adversely affect India’s
chances of seeking FDI, the need for which has been
emphasized.
• Product differentiation strategy seems to be dominating
over strategies of building distribution and marketing
related assets.
• Such a strategy helps Indian firms to stand up to
transnational with their strong and internationally
recognized brands.
• Export based growth strategies are being adopted by some
of the corporate sector but such strategies are not
widespread.
• Export orientation increased appreciably.
• Overall, exposure to the international market is still
inadequate to put the Indian firms on higher growth and
learning trajectories.
Objective of our competition policy

Creating an active competitive

environment, and in aiding the
process of creating globally
competitive firms with enhanced
investment & technological
capabilities.
 Progress made in
Indian competitive Policy
• India has had a legislation to address competition issues
since 1969, when the Monopoly and Restrictive Trade
Practices Act, was enacted.
• This Act primarily dealt with Monopolistic Restrictive and
Unfair Trade Practices. A Statutory Commission, the
Monopoly and Restrictive Trade Practices Commission,
was set up under this act, with an adjudicatory role.
• With the changing economic environment , need was felt
to have a new law tuned to the needs of modern times,
and towards this end, a new Competition Act was
enacted in 2002.
• This Act deals with anti-competitive agreements
(including cartels), abuse of dominant position,
regulation of combination (including mergers and
acquisitions) and advocacy.
Contd…
 Progress made in
Indian competitive Policy

• The Act also envisages establishment of the

Competition Commission.

• However, the Commission set up under the Act is not

yet fully operational for the present.

• While some issues relating to its functioning are

being addressed, it is carrying out only advocacy
functions, as of now and thus competition issues
continue to be adjudicated by MRTPC.
 India Going Global
• India is at a stage of development where cross-border
activities are growing rapidly and are likely to grow
more in the near future.
• The level of cross-border activity between India and
EU is also significantly increasing.
• The EU is the leading investor in India and also a
major destination for Indian investors.
• The EU invested 1.1 billion euros in India in 2004. But
it's the reverse flow which is more interesting.
• In 2005-06, the EU was the main destination for
Indian investment. One in every four dollars invested
abroad by an Indian company went to the EU.
• Many of the major Indian IT companies such as
Infosys, TCS and Wipro have operations in Europe.
There have also been several high-profile acquisitions
of European companies by Indian corporates, the
famous being of course Tata's headline-grabbing
Corus deal.
Need for Convergence and Cooperation in
Competition Policies
• India is reviewing its competition policy apart from
trying to influence international agreements on
competition policy related issues.
• Cooperation can be closer and effective, if laws and
procedures of the countries involved are similar.
• Convergence and cooperation are needed in
competition policy on issues relating to :
• Cartelisation.
• Other horizontal restraints.
• Mergers and acquisitions.
• Price fixing.
• Voluntary export restraints and orderly marketing
arrangements.
• National treatment for foreign direct investors and
services.
Need for Convergence and Cooperation in Competition Policies

• Participation in such arrangements provides an opportunity

for learning and exchange of information that may be
critical for competition agencies in developing economies.

• The economies in transition may also want to participate in

order to influence the directions which cooperation
arrangements take.

• We are also of the view that more active steps need to be

taken to enable developing countries in dealing with
international cartels, and to ensure effective cooperation by
the developed countries in this task.

• The developed countries need to recognize the

pronouncements of competition authorities against
international cartels based in their own jurisdiction, and
help the prosecution of members of such cartels.
Contd….
Need for Convergence and Cooperation in Competition Policies

• In addition there should be more focus on abuse of

international dominance by transnational companies,
whether in terms of market behavior or intellectual
property.
• We may have to incorporate provisions preventing
multinationals from refusing to deal with countries as
a whole if the country’s competition authority has
moved against the company.
• There is a need of special dispensation for the
informal sector in these countries.
• Economies of developing countries have a large
contribution from the informal sector, in contrast to
the developed country economy.
• Any competition law would have to take into
cognizance of special needs of such sector, and the
need of Governments to support this sector.
Contd….
Need for Convergence and Cooperation in Competition Policies

• Hence, special preferences and incentives provided for

the informal sector for these economies, need to be
recognized and accepted in the competition law.
• Need of advocacy and capacity building on competition
issues is strong felt need in developing countries.
• However, the focus of capacity building need not be
limited to the competition authorities, but should have
a wider scope to include sub-national authorities,
economists, universities, jurists, etc. so that a large
pool of competition experts are available in the
country.
• Similarly advocacy efforts should focus on making
competition a way of life in these countries and not
something to be imposed by the State.
Contd..
Need for Convergence and Cooperation in Competition Policies

• Now we all know or feel that the “World is flat” and

“Knowledge is borderless”. As such, the economic
changes will be rapid. Complexity and disparity are
likely to be major factors worrying the world leaders
and global institutes. It is therefore very appropriate
and timely that such issues are being debated in this
Conference.
• I would like to wish the Conference to be a success,
with the deliberations being made today guiding the
competition law and policy internationally in a positive
manner for the next many years.
 Success Factors
Analysis Conclusion
• For success in M&A it is critical that
• The main factors for there be a good strategic fit and
succeeding in M&A are personnel or HR is a key factor apart
Strategic Fit, Personnel & from planning. India Inc is not looking
Proper Planning. at M&A to become conglomerate and
core competence is a key driver for
growth through M&A

Most important factors that contribute to the

success of a M&A Transaction.
25% 22%
20% 20%
20%
16%
15%
10%
10%
6% 6%
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M & A’s – Future economic outlook
for India
Indian Companies Set to go global : Study
Foreign Direct Investment by Indian Companies is all
set to increase by 15 per cent per annum over the next
five years.
India's share of global outward investment (FDI,
mergers and acquisitions) has trebled over four years
and outbound activity in 2006 alone increased by 26
per cent, 'Global Outbound FDI Potential of Indian
Companies 2007' a new study from Oxford Intelligence
points out.
The report forecasts continued growth averaging 15
per cent over the next five years adding that this year
will see growth of 19 per cent on activity on 2006.
North America, in particular, is expected to emerge as
a 'hot spot' for Indian outward investment, with levels
of activity trebling over the next five years, it says.
M&A’s – Future economic outlook for India…

• "Although discussion about India today tends to

focus on the growing tide of foreign companies
looking to establish operations in the country
through direct investment, joint ventures or through
outsourcing, today's Indian companies have a global
vision and are becoming an increasingly important
source of outbound investment," Michel Lemagnen,
Director, Oxford Intelligence research.

• The removal in 2005 of key restrictions on Indian

companies' ability to expand internationally triggered
a sharp increase in overseas expansion. The
country's top companies are now in an extremely
healthy position in terms of cash, profitability and
financing capacity and their potential for
international investment, through both M&As and
FDI, for the next few years is extremely favourable".
 M&A in Future
Analysis
• Over 70% expect to do a transaction in
the next 3-4 years with several of them
planning to do multiple transactions.
Conclusion
• We can expect greater activity in
M&A in the years to come.

Plans to acquire or merge in the next 3 to 4 years.

Out of the 73% of the respondents
who have said “Yes”
• 15% of the respondents say that
27%
their company plans to make at
least 1 acquisition in the next 3 to
4 years.
• 30% of them say more than 2
acquisitions
• About 28% of the respondents
73% believe that their company plans
to make numerous acquisitions in
the next 3 to 4 years
 Cross Border M&A in future
Analysis Conclusion
• Proper India Inc is transforming
• A resounding 94% expect to do a cross itself into MNC and the chosen
border acquisition out of those who path is M&A.
expect to do a deal in the next 3 years.

Plans for Cross Border Acquisitions in the next 3 to 4 years

50%
45%
44%
40%
35%
30%
25% 25%
25%
20%
15%
10%
5% 6%
0%
None One Two Three or more
 Conclusion
 Mergers & Acquisitions are a significant form of
business strategy today for Corporates.
 The two main objectives behind any M&A
Transaction, for corporates today is :
• to improve Revenues and Profitability
• Faster growth in scale and quicker access to
market
• Competition in Globalised Market
 The most important factors according to
corporate India that contribute to the success of
an M&A Transaction are :
 Timing
 Intrinsic Fit
 Personnel
 Advisors on legal, policy and financial strategies