Year 2006 will probably known as the year when Indian businesses & Indian businessmen emerged on the global map. India’s emergence in the global business arena has been driven mainly by acquisitions and mergers. In January 2006, Lakshmi Mittal CEO of Mittal Steel launched a hostile takeover bid for Arcelor - which was completed by July 2006. On similar lines, Tata Steel went abroad with acquisition of NatSteel in Singapore and Corus Steel in the UK.
Notable cross-border acquisitions
Some of the Notable cross-border acquisitions in the year 2006 are:
1. Videocon Industries buying Daewoo Electronics - $731 Million 2. Dr Reddy Labs acquires Betapharm Arzneimittel - $572 Million 3. Ballarpur Industries buys Sabah Forest Industries - $261 Million 4. Ranbaxy Labs acquisition of Terapia - $324 Million
5. Suzlon Energy buys Hansen Transmission - $565 Million
In total, Indian firms spent $15.72 billion in 192 overseas acquisitions. While this number may not be significant when compared on a global scale, this number is significant in the global context. The real significance of this should be seen from the fact that next year this number could double or even triple, making India as Asia’s largest acquirer abroad.
India Plays with Global Expansion
Indian companies are using all the tricks of the trade to go global: Mergers & Acquisitions, Organic expansions, Green field investments, and Joint Ventures. The scale and the business share may not be significant today, but Indian businesses are slowly but surely establishing themselves abroad.
Tata Motor’s successful acquisition of Daewoo’s truck unit in 2002 in S. Korea has become a classic business case study. Tata acquired a loss making unit - and without any layoffs, turned the loss making unit around. This built enormous goodwill and reputation for Indian companies in S. Korea. This helped Videocon acquire Daewoo Electronics and is aiming to acquire LG-Philips LCD Co. In S. Korea. Success of one acquisition in a particular country/market has prompted other Indian companies to look for acquisition in the same country. Given this mentality, one should not be surprised if Indian companies make a major acquisitions in S. Korea in 2007.
Similarly, Tata’s successful acquisition of Tetly Tea in UK prompted several Indian companies to look for acquisitions in the UK and European markets. Tata-Corus deal (if it succeeds) will mark a new beginning for mega deals involving Indian companies.
Why opt for Acquisitions
Indian companies have long practiced conservative business practices, have maintained almost zero debt and are in very good financial health. This when coupled with access to significant pools of capital - either foreign debt or stock markets - creates an ideal situation for acquisition abroad. Another potent power which Indian companies can leverage is its vast pool of highly talented human resources. All this when combined together creates an ideal conditions for Indian companies to expand abroad.
The reasons for cross border acquisitions by Indian companies stems from their traditional thinking: Reduce risk and build global competencies. Cross-border acquisitions make natural sense for Indian firms. The five main reasons (pretty much in the same order) why Indian companies opt for acquisitions are:
* The lure of access to global markets.
* Leveraging the synergy with the existing businesses
* Strengthening the acquired company - via better management * Reduce competitive threats and vulnerability to other global giants * Create a Global Company.
To understand, consider the example of Dr Reddy Labs acquisition of Betapharm Arzneimittel. This acquisition gives Reddy Labs access to German and high grown Central & Eastern European markets. Betapharm Arzneimittel’s business has a good synergy with Dr. Reddy’s existing business, and give the company a significant presence in Germany....