The fact that 35% of foreign companies conducting M&As in India were ‘very satisfied’ with their deal compared to only 25% globally—according to KPMG India’s head of transactions, restructuring and private equity, Vikram Uttamsingh—certainly does paint a rosy picture of M&As in India. But a KPMG report on M&As in India points to some endemic problems that are hindering such deals. According to the report, companies looking to acquire Indian firms over the last five years on average paid higher Ebitda multiples than in other countries—15.5x in India, compared to 11.1x in China, 10x in the US and 10.9x in the UK. Valuation expectations are driven by Indian equity markets, which, the report says, command a higher premium compared to global equity markets. While the report also acknowledges the simply demand-supply factor at play here—that the capital chasing such transactions has historically outstripped the number of viable companies for sale—it also says that most Indian companies remain controlled by promoter or promoter families, who often ask for higher prices for their companies.
Even once a company is targeted for acquisition, foreign companies find it hard to complete the deal in a timely manner for a host of reasons. Apart from the long-known reasons of delays due to governmental red tape, the report said 29% of the companies surveyed faced challenges due to corporate governance and compliance. Recent legislation like the UK Bribery Act and the US Foreign Corrupt Practices Act make life more difficult for foreign companies looking to deal with Indian firms. Thus, due diligence takes a long time. Almost 60% of the companies surveyed in the report said their deal took more than a year to complete; many said it took as long as five years. Compare this to the UK, where a recent Ernst & Young report has said the time taken to complete such deals has risen to 40 days(!), and we have a problem.