Indian companies are engaging in ambitious outbound merger and acquisition (M&A) deals and have made 72 acquisitions abroad worth $11 billion in 2012, a trend which is likely to gather pace in the years to come.
According to global advisory firm Kroll Advisory Solutions and mergermarket, an independent M&A intelligence service provider, corporate India announced 72 acquisitions abroad worth $11 billion, a significant improvement over 2011, when the deal value stood at USD 6.7 billion.
"Outbound deals are likely to see an uptrend going forward as Indian companies have strong balance sheets, they understand international markets, and are thus engaging in
ambitious outbound M&As," said Reshmi Khurana, Associate Managing Director at Kroll Advisory Solutions.
Sectorwise, besides IT and pharma, manufacturing is also going to see good number of deals going forward, she added.
Indian companies made major acquisitions into energy, mining and utilities, with total reaching USD 6 billion, more than half (55 per cent) of deal activity for the year.
Notable buys included ONGC Videsh's purchase of an 8.4 per cent stake in a major ConocoPhillips oilfield in Kazakhstan for USD 5 billion, which was the largest natural resource deal ever for an Indian business.
The outbound wave has seen a notable shift over the past 10 years, changing from deals centred on IT and pharma to acquisitions in the consumer and energy space. These new deals have been driven largely by the need to satisfy the growing
consumer class and meet its growing need for oil and coal.
In terms of geographical region, Indian companies have typically targeted Western jurisdictions taking advantage of attractive valuations in distressed markets.
According to mergermarket data, since 2003, the US and the UK have ranked as the top two investment destinations for Indian capital.
Emerging market economies are also a hot favourite for Indian companies and they are utilising best practices learnt domestically to acquire assets in markets in Central and Southeast Asia.
However, Indian corporates need to tread softly before committing resources to unfamiliar markets as understanding the risks - political, economic and labour-related - is crucial to successfully investing abroad.
"For Indian companies looking at the US or UK, they need to be aware of their responsibility under the Foreign Corrupt Practices Act and UK Bribery Act, respectively. Targeted due diligence in advance can help mitigate an investor's risk in
these markets," Khurana said.