The continuing recessionary fears in the world's largest economy, has dented India Inc's US-bound merger and acquisition activities, which dropped 30 per cent to $5.1 billion in the first six months of 2008, according to an investment bank and advisory firm.
In the first half of 2008, Indian companies accounted for a total of 34 US-bound acquisitions worth over $5.1 billion, US-based Virtus Global Partners said in its latest report on US bound acquisition by Indian companies.
However, the volume of deals dropped 15 per cent to 34, from 40 in the H1 of 2007.
The mega size M&A deal in the first half of 2008, include Tata Chemicals acquisition of General Chemicals for $1 billion, GMR Energys purchase of 50 per cent equity in Intergen for $1.1 billion and Sterlite Industries announced bid for Asarco valued at $2.6 billion.
Over 70 per cent of the transactions involved acquisition of 100 per cent stock for cash consideration.
Despite a slowdown in the M&A volume, IT/ITES remained the most acquisitive sector capturing over 50 per cent share of the total US-bound transactions by volume, the report stated.
"The high rate of US-bound acquisition activity is being propelled by the need to gain scale in terms of size, product offerings and geography. The first six months of 2008 also demonstrate an underlying business model change -- from a cost-centric approach to a profit-margin focus," the report pointed out.
As per the report, the acquisition of Regulus Group by 3i Infotech for $100 million, Caterpillar Inc by Satyam Computer for $60 million and Jass & Associates Inc and SDG Corporation by Mascon Global for $55 million are among the top US-bound M&A deals.
However, other industries accounted for less than 3 per cent each, with life sciences contributing (10 per cent), metals & mining (6 per cent) and agriculture (6 per cent).
According to the report, the Indian IT and ITES companies have climbed up the value chain by focusing on software development, project management, technology consulting and enterprise software implementation.
Although the number of deals have come down, global economic turmoil has increased the small value outbound merger and acquisition deals as the Indian companies are well funded to buy companies abroad.
While last year witnessed only one M&A deal of over $1 billion, but the first half of 2008 alone witnessed three such transactions, the report stated.
"Mega-size deals, each over $1 billion in size, accounted for 90 per cent of the total transaction value.
Besides, the report demonstrated the dichotomy faced by India Inc. "Large-size Indian companies with cash reserves and good balance sheets are scaling up and buying value assets in the US to achieve global leadership. In contrast, small to mid-size companies in India are adopting a cautious approach to the US," it said.
It added that deals less than $100 million in value accounted for 90 per cent of the total transaction volume.
Besides the IT and ITES sector, Life Sciences accounted for 11 per cent of the total transaction volume with four M&A deals in the first six months. Further, in the field of telecommunication, Essar Communications has acquired a strategic stake in US-based Obopay, a service provider for payments via mobile phones.
The report points out that the global slowdown has strengthened the credit ratings and acquisition funds raising ability of the Indian corporate which is now focusing on the US firms with a broader clientele.
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