With the new government, there is optimism in the market. But, India Inc believes, big-ticket mergers and acquisitions will take another couple of years
Market sentiment and business mood have been buoyant since the Narendra Modi-led government took charge in May 2014. Deal Street has been abuzz with optimism as big-ticket acquisitions hit the headlines. In July, Reliance Power said it would buy the hydropower business of Jaiprakash Power Ventures for an undisclosed sum. Last month, Adani Power, controlled by billionaire Gautam Adani, announced that it will acquire Lanco Infratech’s power plant in Karnataka for Rs 6,000 crore. Earlier, India’s largest e-tailer Flipkart acquired leading fashion portal Myntra for Rs 2,000 crore.
A recent KPMG study found India to be one of the strongest performers globally. The country’s mergers and acquisitions (M&A) activity rose by an impressive 10 percent between January and June 2014. But do the recent deals indicate a smooth road ahead for the corporate world? What do promoters and acquirers need to understand before taking crucial decisions in these highly competitive times?
For the third session of the Forbes India CEO Dialogues: The Leadership Agenda, we invited top business leaders to discuss the path ahead for India Inc in the M&A space. Anil Singhvi, chairman of iCAN Advisors and former CEO of Ambuja Cements, Tarang Jain, managing director of auto component maker Varroc Group, Michael J Surface, advisory leader with PricewaterhouseCoopers and Vishal Tulsyan, CEO at Motilal Oswal Private Equity Advisors, gave insights into the ways of boosting deal activity.
Excerpts from the discussion, moderated by R Jagannathan, editor-in-chief, Forbes India:
R Jagannathan: Is it a good time for business?
Anil Singhvi: A lot has been spoken about policy paralysis previously, so from that point of view, things are easing up a bit. But that’s only in terms of mindset… change is yet to be seen on the ground. Also, on the M&A front, there are only acquisitions in India, not mergers. There should be more mergers.
Jagannathan: Is there a climate developing for more M&As, divestitures?
Michael Surface: We are doing better than last year in the deal business, but significant headwinds still remain. India is among the more difficult countries to do business with. There is a lot of trepidation among clients and companies about whether the government can bring about a change. Things are definitely getting positive, but we are only 100 days into the new government.
Jagannathan: Mr Jain, when you make an acquisition, do you do it when times are good or when they are bad?
Tarang Jain: When times are bad. Valuations are important going forward but, from our experience, they [acquisitions] are better during bad times. You also have to consider other factors such as global customer base, technology and talent. We got into a cycle when valuations were good and that helped us turn around companies faster than we could have otherwise.
Jagannathan: Mr Tulsyan, do you find the same attitude in India? That people are more willing to sell when in distress? In India, I think people have always waited for better days to sell.
Vishal Tulsyan: Indians have largely been value buyers. When they want to buy, they want to do it at one cent to a dollar. But while selling, they expect a dollar to a cent. That’s why we have not seen more of domestic M&As in India. I have rarely seen two Indian entrepreneurs coming together and agreeing on a valuation. This is because the buyer wants to pay less and the seller wants more. In India, historically, the owner and manager of the business are the same, unlike much of the developed world. That could be the reason why we do not see many mergers in India... because both parties want to run the business.
Singhvi: India is a difficult place. Period. In such a situation, it will always be challenging to look at an M&A.
(This story appears in the 03 October, 2014 issue of Forbes India. To visit our Archives, click here.)