MERGERS AND ACQUISITIONS

IN
BRIC COUNTRIES
PRESENTED BY
NAME ROLL NO.
 Avani Brahmbhatt 07
 Siddhi Hatkar 15
 Nidhi Shah 51
Outline
 Objective
 Introduction of ‘BRIC’
 Importance of BRIC countries
 Opportunities
 Threats
 Revolution
 What is M&A?
 Purpose of M&A
 Example
 Conclusion
 Objective

 To understand the objective of M&A in BRIC countries

 Exploring the emerging opportunities and issues of BRIC

counties
Introduction
BRIC Countries
 BRIC or BRICs-the combination of Brazil, Russia, India, and China,
Key Emerging Markets

 Acronym was first coined in 2001 and prominently used in a thesis

of the Goldman Sachs investment Bank.

 China and India account for apprx.33% of world population of 6

billion

 Both countries have huge middle class with

high purchasing power

 GDP growth rates in BRIC countries are much higher than in

developed markets

 India is also the biggest foreign investor in the UK, outpacing even
the US.
Short term outlook:
GDP growth rate
Body of the subjects

GDP Growth rates

country 2008
Brazil 6.2

Russia 8.1

India 8.2

China 10.6
Why are the BRIC countries
important?
 In 2008 the emerging economies has overcome developed
economies by their share in the World GDP calculated at
purchasing power parity.
 The BRIC countries were the main driving force for GDP
growth of the emerging economies.
 Fast growing economies with the biggest source of labor
 They are changing the consumption and production pattern
in the world economy;
 As their influence on the global economy grows so do the
risks for the sustainable world development;
 Their role in the global policy is increasing as well the
geopolitical importance for their regions and the world.
Emerging Markets-
Opportunities
 High growth rates
 Increased foreign direct investments
 Huge investments in infrastructure
 Huge middle class boosting demand
 Abundant supply of educated cheap workforce
 High potential for outsourcing work specially India
 Disinvestments of PSUs
 Domestic/global mergers/acquisitions
 Technology up gradations
 Abundant agri/mineral resources
 Commodity markets expanding fast
Threats
 Volatile markets
 Rising Inflation
 Natural disasters
 Setback in rain dependent agri sector bring down
GDP growth rates
 Currency appreciation for export led economies
 Weak infrastructure
 Slowdown in FDI/increasing int rates in USA
 Steep increase in energy cost
Revolution in BRIC countries
 IBR survey reveals that business owners in the fast
growing BRIC economies are now enthusiastically
embracing M&A, and are often more likely to grow through
acquisition than businesses in more mature markets.
 the BRIC countries appear more focused on building value
rather than looking to realise it at this stage and are
excited about following their own growth strategies through
domestic and cross-border acquisitions. This is clearly
visible, with mainland China (67 per cent) and Brazil (64
per cent) polling the highest percentage of participants
planning an acquisition, a much higher proportion than in
the United States (48 per cent).
What is M&A
A general term used to refer to the consolidation of
companies. A merger is a combination of two companies to
form a new company, while an acquisition is the purchase of
one company by another with no new company being formed.
Mergers and Acquisitions

Merger and acquisition volume on foreign shores by

companies from the world’s top four emerging nations –
Brazil, Russia, India and China (BRIC) - has touched a
record $54.6 billion so far in 2007, with the two Asian
countries
India & China accounting for two-thirds of the total deals.
 The Main Purpose Of M&A
The company -
 foresees a new target market
 is able to develop new products through new available
technical know-how
 is able to increase product range
 foresees new business opportunities
 is able to streamline staff
 is able to eliminate redundant technology
 enjoys an increase in bargaining power
 acquiring visibility and international brands
 buying cutting-edge technology rather than importing it
 improving operating margins and efficiencies,
and taking on the global competition
Tata Corus
 Impact
 The price of steel in India is Rs15,000 to
Rs20,000 lower than international steel
prices. They are also expected to remain firm
for the next five to ten years on the back of
demand from BRIC
 After successfully acquiring Corus, Tata Steel
became the fifth largest producer of steel in
the world, up from fifty-sixth position.
 There were many likely synergies between
Tata Steel, the lowest-cost producer of steel
in the world, and Corus, a large player with a
significant presence in value-added steel
segment and a strong distribution network in
Europe. Among the benefits to Tata Steel
was the fact that it would be able to supply
semi-finished steel to Corus for finishing at
its plants, which were located closer to the
high-value markets...
 Tata Steel acquired Corus in 2007 as part of
a strategy of international expansion.
Pitfalls in Corus Acquisitions
Though the potential benefits
of the Corus deal were widely
appreciated, some analysts
had doubts about the
outcome and effects on Tata
Steel's performance. They
pointed out that Corus'
EBITDA (earnings before
interest, tax, depreciation and
amortization) at 8 percent
was much lower than that of
Tata Steel which was at 30
percent in the financial year
2006-07...
Conclusions
 In the short term, strong overall macroeconomic fundamentals sustained
in China, India and Russia and improvements reached in Brazil. This will
continue to attract substantial flows of foreign investment, further boosting
potentials for the future output growth.
 Risks related to global economic imbalances will continue to weight on the
outlook for BRIC countries and especially Brazil.
 Country specific risks and challenges include:
 ¨ Russia - sustained upward pressure on the exchange rate and inflation;
potential fiscal easing, further aggravation of competitiveness in
manufacturing industries.
 ¨ China - potential for increased protectionism at Chinese exports.
 ¨ India - high level of off-budget subsidies for petroleum products.
 ¨ Brazil - expansionary fiscal policy.
 "Emerging markets are likely to overtake developed countries in terms of
international acquisitions in the next two to three years, while India has
emerged as the most acquisitive among the emerging nations
 Suggestions
 The BRICs should maintain their comparative advantages
in the long term. This will help to ensure relatively high
growth rates and therefore increasing share of these
economies in the world market. But the sustainability of
high growth will depend on the several crucial factors:
¨ sound and stable macroeconomic and development policies;
¨ development of strong and capable institutions (including
political);
¨ human development (improved healthcare and education);
¨ increasing degree of openness.
Continue……
 The main comparative advantages of Russia are related to
macroeconomic stability and rich natural resources
 To diversify away from its growing dependence on natural

resources and to maintain its comparative advantage, the

Russian economy will need to boost the productivity and
international competitiveness of its manufacturing sector.
 Russia can do this by:

¨ creating incentives for greater firm-level innovation,

¨ by improving the skill base of its labor force,
¨ by creating a stable policy environment that is conducive to
competition.
Continue……
 Although improved in recent years, the Russian investment
climate
 is still characterized by significant instability, as well as a tendency
to punish its most dynamic and innovative firms.
 Creating better investment climate and promoting environment for
fair competition is crucial for competitiveness and innovation in
Russia.
 Countries successful in creating an innovation economy are
characterized by a high level of competition and competitive
pressures. ICA data confirm the importance of competition for
innovation in Russia.
 This problem is related to key areas of structural reform in Russia:
administrative reform, fiscal federalism, local self-government,
competition policy, administrative barriers to business, land
reform.
Happy
Independence Day