Merger and acquisition activity in India surged in 2016 with total announced deal value rising 83% to $44.1 billion from $24 billion last year. The Indian M&A market accounted for 12.1% of total Asia-Pacific market, which indicates strong investor optimism in the Indian markets.
The success of a M&A deal depends on the strategic benefits that the acquisition brings to the buyer. These benefits depend on the strategic fit the buyer has with the acquired business. These benefits could be in the form of increased turnover, reduction in costs, access to customers, products, technology, goodwill, geographical reach and could even be eliminating competition. All these result in increased profitability and improved market share for the buyer. If all the benefits that accrue to a buyer exceed the cost of acquisition, then the transaction is considered successful and accretive to earnings per share.
In our experience, four large themes played on the strategic M&A front to create value.
The Mumbai-based company is a category A Internet service provider and offers high-speed Internet and voice services to home users, small businesses and corporate customers across 12 cities, including Hyderabad, Bengaluru, Chennai, Pune and Surat. It is among the top five wired broadband service providers in India. The acquisition will provide strategic benefits to Vodafone, accelerate its entry into a new business and help it become a dominant player in the segment.
Another of our recently advised transaction is where Fuji Electric from Japan acquired Indian electrical company Gemco Controls to get an access to a well-established domestic distribution network that can be used for selling their global products in India. Similarly, b4S Solutions’ acquisition of Swaraj Automotives provided them an entry opportunity in the manufacturing space, as they were primarily a services oriented group until then. Mahindra group was the seller.
One of the key roles of advisors is to highlight the strategic benefits to the buyer and ensure that they have been captured in the valuations. Since every buyer expects to reap a different set of benefits from the asset it offers a different bid price for the asset. The highest bidder is the one that sees the maximum strategic benefit from the acquisition.
Ashwani Khare is executive vice president, ICICI Securities Ltd.
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