The unprecedented growth of Indian economy is spurring Indian companies to
scale their operations to inorganic overseas acquisitions with some of them
larger than the Indian operation. Tata Coffee buyout of 3rd largest coffee
chain in the US which was 2 times its size, Aban Loyd’s acquisition of 33.76%
interest in Norwegian drilling company valued at 4 times its worth, Punj Lloyd
Ltd acquisition of Singapore based engineering company valued at 1.75 times its
worth, or Subex’s acquisition of a UK-based firm valued at 3.5 times its worth
are cases in point.
KPMG's Chief Operating Officer Richard Rekhy says that "This is not a one off
thing” but “is a trend.” He says that the acquiring company that is bringing in
the management skills and technology and “paying a premium for acquiring the
market share of the target firm.” Tata Coffee’s strategy is to buy US market
share through the acquisition of a 100 year old retail brand. Punj Lloyd’s
strategy is to integrate the end-to-end engineering capabilities of its
acquisition with off-shoring capabilities of home to grow rapidly. Aban Lloyd’s
strategy is to gain control of 26 drilling assets which makes it Asia’s largest
drilling company and the 9th biggest in the world.
Rekhy says that funding acquisitions is increasingly being done through a
combination of internal and external means and companies do not restrict
themselves to mere internal accruals displaying “confidence in the Indian
promoter.”
From USD 1.7 billion in 2004, Indian overseas acquisitions have grown to $1.7
billion in 2004 and USD 4.5 billion in 2005. In the last six months, Indian
companies have spent USD 5 billion in 75-odd deals. This year, the Indian
corporate seem to prefer European companies with nearly 50% of the total
acquisition activity involves EU companies.