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Many European firms battling sluggish economic growth, especially those in France and Germany, are scouting for partners and potential buyers from India who could access the rich intellectual property rights owned by businesses in EU's two largest economies, say transaction advisers. Indian economy, now growing at only half the pace it did in the boom years of 2004-08, may have toned down the euphoria about Indian businesses but they are attractive partners even in the changed scenario, they say.
“We have seen interest from Indian companies to expand to France and Germany in last 24 months. What Indian firms are looking for is intellectual property rights in areas like manufacturing and engineering processes,” said Marita Maier, who heads consultancy firm EY's recently opened French and German business desk here.
Some EU firms that have run into financial difficulties would consider divesting some of their assets to Indian investors, she said, adding Indian firms are showing interest despite the high tax rates and labour costs in France.
“India is a still an interesting country. I think the growth rate has cooled down from the euphoric levels seen earlier. But there is no way Europe can do without India,” she said. Infrastructure, energy, nuclear energy, engineering, aerospace and defence are the areas where French firms are interested in partnerships, while German firms look for associations and investments in areas like life science, automotive and manufacturing. While the French economy grew 0.3% in the last three months of 2013, the German economy expanded at 0.4%.
Valuation, however, is one area where expectations do not match easily. “Indian companies are not ready to pay the price that is expected. The gap in expectations need to narrow down,” she said. The other challenge of investments in EU is the cost involved in workforce reduction, which mostly is not a funded liability.
Most EU nations have become more economical and are opening up their economies for foreign participation and investment to reduce internal and external imbalances, said Rakesh Nangia, the managing partner, advisory firm Nangia & Co.
“Higher unemployment, wage corrections and lower cost of infrastructure due to a significant fall in property prices have made investments cheaper for cost-sensitive investors. Over the past few years, the targets in EU, especially in Western Europe, in auto components and engineering sector, have been offered at highly discounted values which provided value arbitrage for US, Chinese and Indian acquirers, said Nangia.