India's cash-rich firms will keep up their hunt for overseas targets in 2011 and may top this year's record outbound activity as they look for new overseas markets and to secure natural resources to feed surging demand.
Deal volume in India surged three-fold to $67.2 billion this year from $21.3 billion last year, just missing the record $69.4 billion in activity in 2007, according to Thomson Reuters data.
Globally, mergers and acquisitions rose for the first year since 2007, potentially marking the start of a new, multiyear M&A cycle in which emerging economies account for a bigger share of global dealmaking.
Overseas acquisitions accounted for nearly half of the Indian M&A volume in 2010, the biggest year for outbound deals from Asia's third-largest economy, data showed.
Bankers expect 2011 to be another bumper year.
"The availability of assets that synergize with Indian businesses with access to financing and Indian corporates' desire to grow across other emerging markets are positive drivers," said Ravi Kapoor, head of global banking for Citigroup in India.
In this year's biggest deal, India's top mobile operator Bharti Airtel paid $10.7 billion for the African telecom assets of Kuwaiti group Zain. Indian makers of consumer goods have also made a string of much-smaller purchases in Africa.
Access to cheap and easy finance for large buyers, a need to expand in new markets, and the rush to tap natural resources are expected to be the main triggers for driving deal volume.
"You will have a much bigger increase in the sub-billion euro deal category where mid-cap industrial companies start looking at buying overseas looking at the benefits of R&D, technology, and distribution," said Amrit Singh, head of India M&A at Deutsche Bank.
The resources sector will drive dealmaking once again, with companies looking for assets from Africa to Australia, after energy and power firms dominated the M&A table this year, accounting for a third of the total volume at $22 billion as they snapped up coal mines to fuel a spate of new power plants.
"There is a huge requirement to buy raw material security for people who are doing business in commodity, whether it is oil, gas, coking coal, iron ore and those kinds of things," said Kapoor.
A consortium of five state-run Indian firms is considering a bid for Africa-focused Riversdale Mining, sparking a potential takeover battle for the Australian firm, already being courted by Rio Tinto.
Locally, the biggest opportunity may be consolidation in India's crowded telecoms sector, where 15 cellular players slug it out and deal-making lately has occurred mostly among owners of telecoms towers.
"One of the key themes sectorally is telecoms consolidation which depends on the changes to the M&A guidelines, which we anticipate taking place in the first quarter," said Frank Hancock, managing director, advisory for Barclays in India.
"Second is energy security - particularly in areas such as coal. We are expecting a lot of outbound coal transactions."
Bankers expect overseas companies to look aggressively for opportunities in India in 2011, as they sharpen their focus on fast-growing emerging markets with sectors such as consumer goods and pharmaceutical likely to be in focus.
The challenge in India has long been a lack of willing sellers, although there have been recent exceptions.
This week, British firm Reckitt Benckiser agreed to buy privately-held Indian ointments and personal care company Paras Pharmaceuticals for about $726 million.
That followed Laboratories' $3.72 billion purchase of the branded generics business of India's Piramal Healthcare in May.
"International players are realising that slowing growth in their home markets absolutely requires them to be in markets like India," said Topsy Mathew, managing director, M&A, at Standard Chartered in India.
"I think next year is going to be a big year in inbound activity by international majors to increase their foothold in India or establish their foothold in India," he said.