US & UK remain the biggest target destinations for Indian companies in absolute terms
A potential surge in M&A deals between India and Europe is on the cards, according to a PwC report. It concludes that India remains at the top of investors’ lists of target markets, and Indian investors are leaders among emerging market buyers for western companies.
The report – India deals: taking stock of the tiger – focuses on the two-way M&A flows between India and Europe, drawing on an analysis of the deals from the last seven years. It looks at factors driving M&A choices by Indian and European buyers and sellers, such as often contradictory forces on valuations in the Indian market, and implications of India’s regulatory and tax reforms.
India’s growth has raised tens of millions out of poverty and given rise to an affluent middle class. The new spending power is opening numerous opportunities, from education and leisure to personal care, loans, transport, communications and travel. In fact, total consumer spending is expected to quadruple by 2020.
To date, the majority of the very high value transactions have been in the telecom, automotive and industrial products sectors. And a large proportion of all deals fall under the €100m mark. When it comes to location, the UK leads its fellow European states for M&A to and from India – but nearly all European countries have seen an increase in Indian investment, and increased their investment into India over the past years.
The PwC report shows that in the years 2006 - 2012 there were about 875 cross-border deals between Europe and India worth about €90 billion. After a drop in 2009, M&A volume from Europe to India remained at about 65 deals a year from 2009-2011. The figure fell to 51 in 2012, as the Eurozone problems dented investor confidence.
N V Sivakumar, leader – deals, PwC India, said,
"Indian companies do not shy away from mega deals. Their agility combined with experience in operating both in emerging and developed markets, make them robust competitors in the global deal arena. Deal demand by private sector should increase as the need to secure technology, brand and resources to move to the high end of product chain becomes critical."
According to the report – India deals: taking stock of the tiger, generally, the valuation multiples paid for Indian business are significantly higher than those for comparable mature market operations and, indeed, higher than those in other BRIC countries.
Sanjeev Krishan, leader - private equity, PwC India, said,
"The valuation premium attached to growth in India is undeniable - it highlights the quest for investors in sluggish developed markets to seek out growth where they can find it. Whilst India has not evaded the drag on growth exerted by the global economic slowdown, potentially exacerbated by local issues, the fundamental drivers of growth still remain".
Though Indian M&A has followed the global trend and shown signs of slowing, Indian investors appear more ready to mobilize resources when a good opportunity arises. Indian investors in mature markets have a focused, two-fold strategy for pursuing deals: a potential transaction will either allow them to adapt new technologies or help them establish a business reputation that will allow them to operate in other large developed markets. The US and the UK remain the biggest target destinations for Indian companies in absolute terms, however, Indian investors are showing increasing interest in deals in other emerging markets.
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