Indian conglomerates have set their eyes on outbound merger and acquisition (M&A) deals, making 72 acquisitions worth $11 billion in 2012. This trend is likely to gather further momentum in the near future.
According to Kroll Advisory Solutions, Indian firms made a considerable improvement compared to 2011’s deal value of a meagre $6 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, Kroll Advisory Solutions.
According to a report recently released by the firm, the new deals have been driven largely by the need to satisfy India’s growing consumer class and meet the country’s growing demand for oil and coal. Notable buys included ONGC Videsh’s purchase of an 8.4 per cent stake in a major ConocoPhillips oilfield in Kazakhstan for $5 billion, the largest natural resource deal ever for an Indian business.
Indian firms have reportedly preferred the U.S. and the U.K. as the top two investment destinations. In terms of geographical region, Indian companies have typically targeted Western jurisdictions, taking advantage of attractive valuations in distressed markets. Emerging markets too have become coveted destinations as Indian companies are utilising their best practices learnt domestically to acquire assets in markets in Central and Southeast Asia.
“The policy paralysis in India has encouraged domestic companies to look abroad. It is extremely difficult and discouraging to deal with flip flops in terms of policy. This is making India a bad environment for foreign and domestic investment,” Ms. Khurana told The Hindu.