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May 15, 2009

Masters of 'tuck in' deals

At a time when giant busieness groups are struggling with their global acquisitions, Business Today has a cover story on a group of 10 mid-sized firms who have successfully pulled of several outbound deals.
Now cut to a company like the over Rs 3,500-crore agrochemicals firm United Phosphorus Ltd (UPL). It hasn’t made any billion-dollar deals, but the 26 acquisitions (including products) it has pulled off since 1994—a decade in which going global was considered extreme rather than the norm— would easily cross that number. UPL is unlikely to figure in consultants’ case studies of bigbang acquisitions. But consider what UPL has achieved: A global footprint that covers 23 countries (which in turn allows it to address customers in 86 countries), a broad range of operations that includes agrochemicals, seeds and biotechnology and significant entry barriers in countries that it has entered. And yes, most of its buyouts are working well. Reason? UPL doesn’t wait for more than three years for them to yield results. They usually do.

Like UPL, a host of Indian companies have over the years made sub-billion-dollar acquisitions that have begun yielding benefits that go beyond size and scale. A few have found assured supplies of raw materials, some have been able to lay their hands on high-end talent, and others have been able to ride on new opportunities that would have taken years to start from scratch. Many of these companies operating in niche areas have gone on to become world leaders in their respective areas via the buyout route. Rain Commodities, for instance, has become the world’s largest maker of calcined petroleum coke, a raw material that’s needed to make aluminium and titanium dioxide.

The companies BT has looked at have made acquisitions in the $10 million-$600 million range. The smaller ticket sizes have ensured that they haven’t burnt holes in their balance sheets. However, many of these firms have used foreign currency convertible bonds (FCCBs) to fund their buyouts and a few of them will be challenged at conversion time if the stock markets continue to stay bearish.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at