Mergers &

Acquisitions
Current Scenario and Way Ahead

Gautam Doshi

June 2010
Current Scenario
 Revival in deal activity in the country
 More than double the transactions in first five months as
compared to same period last year

Jan – May ‘10 Jan – May ‘09

No of deals 439 179

Value of deals USD 30 bn USD 8 bn

 Rebound linked to recovery of Indian and global economy

 Active sectors – Telecom, Pharma, Cement, FMCG

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 Mergers & Acquisitions…

Deal Summary 2008 2009

Deal Summary Volume Value (USD bn)

Total 2008 2009 2008 2009
Inbound 86 74 12.55 3.88
Outbound 196 82 13.19 1.38
Total Cross Border 282 156 25.74 5.26
Domestic 172 174 5.21 6.70
Total M&A 454 330 30.95 11.96

Source: Grant Thornton Deal Tracker

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…Mergers & Acquisitions…
Top 5 M&A Deals - 2009

Top 5 M&A Deals - 2008

Source: Grant Thornton Deal Tracker

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…Mergers & Acquisitions…
Deal Summary - Jan-May 2010

Deal Summary Volume Value (USD bn)

Total 2010 2010
Inbound 34 4.88
Outbound 85 17.70
Total Cross Border 119 22.58
Domestic 198 3.46
Total M&A 317 26.04

M&A Deal Value - Volume 5 Month Trend

13
14 100
12 89
80

Number of deals
Value (USD bn)

10 68 8
8 56 60 60
6 44 40
4 3
1 1 20
2
0 0
Jan-10 Feb-10 Mar-10 Apr-10 May-10

Value Volume

Source: Grant Thornton Deal Tracker

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…Mergers & Acquisitions
Top 5 M&A Sectors - 2010

Sector Volume USD mn %

Telecom 6 13,518 52
Pharma & 21 4,854 19
Metals, Ores & 6 2,524 10
Banking & Financial
Services 18 2,192 8
FMCG, Foods &
Beverages 9 541 2

Top 5 M&A Deals - 2010

Acquirer Target % Stake USD mn

Bharti Airtel Zain Africa 100% 10,700
Abbott Labs Domestic 100% 3,720
Formulations
Business of Piramal
Healthcare
Hinduja Group Solutions
KBL European 100% 1,863
Private Bankers
GTL Infrastructure Aircel's 17500 100% 1,787
telecom towers
Vedanta Resources Zinc business of 100% 1,340
Anglo American Plc
Source: Grant Thornton Deal Tracker
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Private Equity…
Deal Summary - 2008, 2009

Deal Summary Volume Value (USD bn)

Total 2008 2009 2008 2009
Private Equity 312 260 10.59 12.05

Source: Grant Thornton Deal Tracker

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…Private Equity…
Top 5 PE Deals - 2009

Top 5 PE Deals - 2008

Source: Grant Thornton Deal Tracker 8

…Private Equity…
Deal Summary - Jan - May 2010

Deal Summary Volume Value (USD bn)

Total 2010 2010
Private Equity 122 4.02

PE Deal Value - Volume 5 Month Trend

50 1.60
40 1.40
1.37
40

Number of deals
Value (USD bn)

1.25 1.20
29
30 1.00
20 18 0.80
20 15 0.60
10 0.58 0.57 0.40
0.26 0.20
0 0.00
Jan-10 Feb-10 Mar-10 Apr-10 May-10

Value Volume

Source: Grant Thornton Deal Tracker

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…Private Equity
Top 5 PE Sectors

Sector Volume USD mn %

Real Estate &
Infrastructure
Management 14 519 13
Banking & 20 720 18
Power & Energy 4 318 8
Telecom 1 300 7
Cement 2 222 6

Top 5 PE Deals

Acquirer Investee % Stake USD mn

Quadrangle Capital Tower Vision India NA 300

Unnamed Investors GMR NA 298

Infrastructure Ltd
Unnamed Investors Yes Bank NA 225
Temasek Holdings GMR Energy Ltd NA 200
GNVF, IDBI, IFCI, Gujarat State 5% 211
etc Petroleum Co

Source: Grant Thornton Deal Tracker

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Positive Trends…
 Market in favour of consolidation
 Higher degree of homogeneity across markets due to globalization –
Marginal costs of set up in new markets
 Brand identity recognizable across markets
 Market dynamics favour fewer players – economies of size and
scale
 Recent examples – Bharti – Zain, GTL Tower deal

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…Positive Trends…
 Flexibility and pragmatism demonstrated by Indian Promoters
 Promoters recognise strengths and weaknesses and willing to adapt
 No stigma attached to alienation of stake in companies
 Ability to gauge time to encash vs carry on
 Recent examples – Ranbaxy, Piramal, Wockhardt, Tata Docomo

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…Positive Trends…
 Availability of credible information
 Reliable standards of accounting – transition to IFRS
 Higher levels of transparency and corporate governance

 Breadth and depth in the financial sector

 Increase in number of players in the financial intermediary market
 Emergence of investor classes with different risk appetites
 Angel investors, VC, PE, FIIs, Domestic cos, Foreign cos, Retail investors

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…Positive Trends
 Certainty in regulatory framework
 Clarity in tax provisions relating to slump sale
 Incorporation of M&A provisions in direct and indirect taxes

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Roadblocks…
 Positive trends yet to achieve full potential
 Greater flexibility to be shown by Indian promoters
 Need for consolidation not fully recognized

 Grey areas in regulatory framework

 Lack of clarity on stamp duty liability
 80IA provisions not conducive to mergers and acquisitions

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…Roadblocks…
 Restrictive foreign exchange controls and listing norms
 Direct listing of Indian shares on foreign exchanges not allowed
 Indian companies not allowed to merge with foreign companies
 Foreigners individually not permitted to invest in Indian shares
 Restricts usage of Indian shares as currency for deals

 Increasing protectionism
 Governments keen on retaining national identity of iconic companies
 Increasing use of capital controls to regulate flow of foreign capital

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…Roadblocks
 Accounting for M&A under IFRS
 Appointed date of merger vs actual date of merger
 Purchase method of accounting – valuation of intangibles and off
balance sheet items and residuary goodwill
 Marked departure from Indian GAAP – no comparability pre and post IFRS
 Capital Reserve vs Credit to P&L A/c – MAT impact
 Demergers to be treated as non-cash dividend – change in
accounting for transferor
 IFRS to apply to top 50 companies – different norms applicable to
different companies at same time

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Wishlist…
 Certain shortcomings in IFRS to be addressed
 Few norms contribute to volatility and subjectivity in fin statements
 Accounting for FCCBs
 Lease Equalization vs Inflation
 Fair degree of subjectivity in fair valuation norms

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…Wishlist…
 Regulations to encourage cross border M&A
 Indian companies to be allowed to merge with foreign companies
 Capital controls to be lifted on the Indian rupee
 Listing on foreign exchanges to be allowed and vice versa
 Permit accounting and reporting in functional currency

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…Wishlist…
 Rationalization of tax provisions
 Tax liability only on encashment - not on exchange or conversion
 Tax benefits to continue in case of mergers
 Clarity on treatment of depreciation post transaction
 Introduction of group relief
 Introduction of anti-abuse provisions like CFC and thin
capitalization rules
 As opposed to current anti-abuse norms prescribed in DTC

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…Wishlist
 Better protection of minority rights in corporate law
 Strengthen norms on independent directors and corp governance
 Suitable amendments in listing agreement
 Provisions to eliminate conflicts of interest in cases where
management also holds majority shares

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Thank You

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