"HUNGRY FOR MORE"

Deal or no deal, India Inc is in the news
M&M, RIL,Tata, Infosys & ADAG go shopping for big-ticket M&As
Dheeraj Tiwari & Shantanu Nandan Sharma NEW DELHI

HATS off to that seer who said it’s participation, and not competition, that matters. India Inc, never lacking in sportsman spirit, seems to have taken this adage quite seriously. Any big ticket acquisition, to hell with the results, and India Inc is in the ring. And when the dust settles on the deal, it may not even come a close third, but it does hog the limelight until the ink is on the paper. So, it’s not only Sunil Bharti Mittal, whose African safari went horribly wrong for acquiring MTN, the list of companies which have been in news because they were said to be sitting on a pile of cash and ready to shop around, includes all the top notch corporate houses such as Mahindra & Mahindra, Reliance Industries, Tata group, Infosys and ADAG. However, when these barons go window shopping it not only hits the headlines but also inflates their brand balloon.

Sample this: during FY08, there were at least nine deals in which the Mahindra group either lost the bid or was rumoured to be in the fray. For ADAG, there were eight such deals. An analysis of data from Thomson Reuters, a leading research and analysis firm, and various media reports of the last fiscal, shows that the strike rate in clinching deals was 30% for Mahindra group and 33% for Bajaj group (Rahul Bajaj camp). The strike rate, as calculated by SundayET, is based on the number of successful deals out of the total attempts that a company made. For example, software major Infosys was rumoured to be in fray for three deals during the last fiscal, but no deal was finally clinched, registering a zero percent strike rate.

Take the case of Mahindra group, which in the last fiscal, made 13 attempts to seal various M&A deals, but the rate of failure was as high as 70%. The company which failed to impress the management of Jaguar and Land Rover, was also rumoured to be planning to acquire Volvo Car Sint-Truiden, a Belgium-based manufacturer and wholesaler of automotive parts and engines, and an undisclosed minority stake in Kinetic Motor, according to Thomson Reuters data.

Even the Tata group, which has been the trail-blazer of Indian Inc’s global pursuits, failed to clinch some major deals. However, it did get a lot of hits as well. The Group’s success rate in finalising deals during the last fiscal, however, stood at a robust 68%, the highest among major Indian companies, according to SundayET’s analysis.

Among deals announced or rumoured during FY08, 316 are still pending. There were another 54 cases during the last fiscal where Indian companies evinced interest to acquire companies, but then these were only restricted to newspaper columns and TV bytes. Under pressure from investors
THE SundayET analysis took into account as many as 1,250 companies but only crunched data of the top Indian corporate houses.

The Anil Dhirubhai Ambani Group (ADAG), which struck at least 12 major deals during the last fiscal, however, failed in nine attempts, registering a healthy 57% strike rate. According to media reports, ADAG evinced interest in acquiring PT Berau Coal, one of the largest thermal coal firms in Indonesia, home video major ULTRA, and US-based Sony Online Entertainment, but there were no headways in those.

Same for the big brother. Reliance Industries has been in advanced talks with France’s retail major Carrefour. The company was also interested in a Kenyan refinery, but the deal was finally clinched by Essar Energy Overseas. The latest buzz doing the rounds is its ongoing negotiations with the US oil major Chevron Corp.

The theme of Sunil Bharti Mittal’s inorganic growth is no different. MTN is not the only deal which never happened. Similar roadblocks emerged when they attempted to acquire a stake in Big Apple — the Delhi-based supermarket chain and Telkom Kenya. Their success rate is a low 40%.

Rohit Kapur, head, corporate finance, KPMG said that sometimes companies are under immense pressure not only from their investors but also because their rival companies have made some big ticket acquisitions. “The investors may like to know what is the future growth plan. Remember that some of these companies are sitting on a lot of cash and they try to convince their investors that they are open to both organic and inorganic growth. With names of their company floated, it provides their investors a comfort that their company is also doing well,” he said.

However, at times, some companies try to gather competitive intelligence by floating their names and this happens more so whenever there is a trophy collection on the blocks. “It’s more of a curiosity factor, trying to get a sense of what a certain asset valuation is and other dynamics involved,” Mr Kapur said.

Sunil Sinha, senior economist, CRISIL argued that the names of all companies shouldn’t be taken as serious contenders unless there’s any formal announcement. But some companies do the same to test waters. “Take the case of Tata, they were rebuffed by Four Seasons, so companies would like to a dip test whether the current management is not averse to them or will it be a hostile takeover. As we’ve seen in the case of Arcelor Mittal. Look at the Yahoo, Microsoft talks, when Google name did the rounds, the equations changed,” he said.

Sinha further said that the name of more companies would do the rounds, because Indian corporate have global ambitions and high liquidity. “Even if your name figures whenever there is a big ticket acquisition, it shows that you’ve arrived on global scene,” he adds.

CG Srividya, partner, specialist advisory services, Grant Thornton said that it is not just about clinching the deal, but to find the right fit at the right price. “The fit and the price have to be right for the parties on both sides of the table and are based on synergies, matching of mindsets, work culture and several other factors besides the purchase consideration (which could be cash or stock),” he said.