Fast forward to the current era. We have learnt a lot over the decades and governed by our own experience , are now focusing more on the technology quotient, growth potential and management expertise of the target, rather than the traditional levers of cash-rich and synergy benefits. Yet, despite access to a far more efficient investment banking network and the numerous sources of information that are available today, it is still not easy to find the right company to acquire. The number of cases we end up rejecting at stage one are phenomenal! More often than not, we are left with only one or two suitable projects to pursue. And I find myself still relying on instinct to some degree and still doing my back-of-the-envelope estimations.
...There is a pattern that I sense emerging as far as Indian companies are concerned. M&As are likely to be limited to certain sectors in the next3-5 years as cheap and easy finance will be hard to come by, whether through private equity or by leveraging. One is more likely to witness mid-size IT firms buying out selectively ; manufacturing companies taking over quality manufacturing operations in Europe, as they are available cheap due to competition and depreciation of the euro. These will be in capital goods, power equipment, engineering and auto ancillaries sectors.
There will also be a rush for mining rights in Africa for its zinc, copper and coal, and Africa will be the big hunting ground for companies around the world with its huge market opportunities and its massive land bank. Power companies will be eager to secure coal linkages wherever they are available for cheap. Companies such as Godrej, Dabur and Marico will be very active in their respective sectors like haircare, ayurvedic and personal care respectively. Pharma companies, the traditional outward-looking and M&A centric lot, will become more inward-looking and may look to manufacturing plants in China in order to gain access to local markets.
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 email@example.com