India Intelligence Report

   Indian Companies Make Large Global Buys



  • Indian companies are buying foreign companies much larger than themselves

  • They use internal and external resources to finance acquisition

  • Acquisitions are targeted at gaining market share

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.

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