Personalized | Reliable | Innovative 1 Overseas Acquisitions by Indian firms- A Study November 2009

Personalized | Reliable | Innovative 1

Overseas Acquisitions by Indian firms-

A Study

November 2009


Indian Companies’ Forays in the International Arena

• Since the beginning of this decade several Indian companies have made overseas acquisitions and are continuing to do so.

• It would be interesting to review the financial performance of such acquisitions since then.

• Obviously the success of non-financial objectives such as sourcing of technology/ raw materials/ manpower ,etc. is also equally important, but may not be visible.

• Hence this study to take a look at the P&L performance of the acquisitions.


Outbound Acquisitions by Indian firms

Indian overseas acquisitons (Year-wise Figures)

5

2

4

18

12

2

0

4

8

12

16

20

2003 2004 2005 2006 2007 2008


Reasons for Overseas Acquisitions by Indian firms

• Liberalization by RBI;

• Appetite for growth;

• Hunger to make an international footprint;

• Technology acquisition;

• Access to Foreign markets & raw material

sources.


Overseas Acquisitions by Indian firmsIndian Acquiring Company Company Acquired Country Acq. Value Year

USD Mn

Business Advisory

Crisil EconoMatters Ltd & subsidiaries UK 2.60 2003Chemicals

Rain Commodities Ltd. CII Carbon USA 595.00 2007Wipro Ltd Unza Holdings Ltd Singapore 246.00 2007The Sanmar Group Trust Chemical Inds Chemical Business Egypt 200.00 2006Tata Chemicals General Chemical Industrial Products USA 1,005.00 2008Tata Chemicals Bruner Mond Kenya-Europe 65.00 2006Electrical Machinery

Suzlon Energy Repower Germany 1,815.70 2007D S Constructions Ltd Globeleq America power assets S. America 542.00 2007Havell's India Ltd SLI Sylvania's lighting business Netherlands 300.00 2007Fabricated Metal Products

Bharat Forge Carl Dan Peddinghaus GmbH Germany 32.70 2003Sundram Fasteners Ltd precision forgings biz. of Dana Spicer Europe UK 2.60 2003El Forge Ltd Shakespeare Forgings Ltd UK 0.20 2006Food & Beverages

United Spirits Whyte & Mackay UK 1,178.20 2007Tata Tea Ltd Energy Brands Inc. USA 677.00 2006Gems & Jewellery

Gitanjali Gems Limited Samuels Jewellers USA 44.44 2006Shrenuj & Company Ltd Simon Golub & Sons Inc USA 22.70 2007IT & ITES

Wipro Tech Infocrossing Inc. USA 600.00 2007Firstsource Solutions MedAssist Holdings USA 330.00 2007Tricom Pacific Data Centres USA 2.25 2008Infotech Enterprises VARGIS USA 2.65 2004


Overseas Acquisitions by Indian firmsIndian Acquiring Company Company Acquired Country Acq. Value Year

USD Mn

Non-Electrical Machinery

Suzlon Energy Ltd. Hansen Transmissions International NV Belgium 558.00 2006Wipro Ltd Hydrauto Group AB Sweden 31.00 2006Non-metallic mineral products

Carborundum Universal Ltd Abrasives Enterprise Canada 1.95 2006Paper & Pulp

Ballarpur Industries Limited Sabah Forest Industries Malaysia 261.00 2007Grasim Industries St Anne Nackawic Pulp Mill Canada 7.00 2005Pharmaceuticals

Dr Reddy's Laboratories Betapharm Arzneimittel GmbH Germany 597.33 2006Sun Pharmaceutical Industries Taro Pharma Israel 454.00 2007Ranbaxy Laboratories Ltd Terapia S.A. Romania 321.11 2006Plastic & products

Reliance Industries Ltd Trevira GmbH Germany 96.00 2004Jindal Polyester Ltd Rexor, S.A., France 9.90 2003Telecommunication Equipment

Crompton Greaves Ganz Transelektro Villamossagi Zrt & Transverticum Kft Hungary 43.56 2006Telecommunication Services

VSNL Teleglobe International Holdings Ltd USA 239.00 2005Reliance Communication FLAG Telecom UK 207.00 2003Textiles & Apparels

Skumar's American Pacific USA 90.00 2006Spentex Industries Ltd. Tashkent‐ Toʹ yetpa Tekstil Ltd Uzbekistan 81.00 2006GHCL Rosebys UK 40.00 2006Transport equipment

Sakthi Auto Component Intermet Europe Germany 130.00 2007Mahindra & Mahindra Ltd Jeco Holding AG Germany 125.24 2006Others

Sical Logistics Limited Bergen Offshore Logistics Pte Limited Singapore 96.90 2006Punj Lloyd Limited SembCorp Engineers and Constructors Singapore 22.22 2006


Performance of Acquisitions

– Percentage of acquisitions that have lost money:

81.25%

– Percentage of acquisitions that have made money:

18.75%

– Average R.O.I. across all the outbound acquisitions:

6.83%


Acquisitions that have yielded positive return

I ndian Acquiring Co. Company Acquired Acq. Value Year Total Returns M-Cap

[I NR CRS] Pre-Acq.

Crisil EconoMatters Ltd & subsidiaries UK 11.89 2003 17.87 37.57 156.31 7.61

Bharat Forge Carl Dan Peddinghaus GmbH Germany 142.89 2003 153.79 17.94 908.09 15.74

Tata Tea Ltd Tetley UK 1,868.66 2000 2,756.16 16.39 2,158.85 86.56

Acq. Cost as % of M-cap

CountryAvg. ROI since acquisition [% ]


Acquisitions that have yielded sub-optimal return

I ndian Acquiring Co. Company Acquired Acq. Value Year Total Returns M-Cap

[I NR CRS] Pre-Acq.

Rain Commodities Ltd. CI I Carbon USA 2,424.03 2007 243.67 5.03 384.20 630.93

Wipro Ltd Unza Holdings Ltd Singapore 1,002.20 2007 5.80 0.29 80,740.20 1.24

Tata Chemicals General Chemical Industrial Products USA 3,961.71 2008 225.15 2.84 4,451.49 89.00

Tata Chemicals Bruner Mond Kenya-Europe 785.88 2006 63.35 2.02 3,261.05 24.10

Suzlon Energy Repower Germany 7,314.00 2007 (0.01) (0.00) 28,832.11 25.37

Havell's India Ltd SLI Sylvania's lighting business Netherlands 1,326.90 2007 (18.71) (0.71) 1,354.31 97.98

Sundram Fasteners Ltd precision forgings biz. of Dana Spicer Europe UK 11.47 2003 (1.53) (2.67) 327.04 3.51

United Spirits Whyte & Mackay UK 5,118.10 2007 230.21 2.25 7,819.16 65.46

Ballarpur Industries Limited Sabah Forest Industries Malaysia 1,155.97 2007 57.76 5.00 1,722.89 67.09

Dr Reddy's Laboratories Betapharm Arzneimittel GmbH Germany 2,636.02 2006 414.90 3.93 5,655.59 46.61

Crompton Greaves Ganz Transelektro Villamossagi Zrt & Tr. Kft Hungary 200.94 2006 4.42 0.73 5,495.71 3.66

GHCL Rosebys UK 185.52 2006 13.75 3.71 1,140.60 16.27

Acq. Cost as % of M-cap

CountryAvg. ROI since acquisition [% ]


Takeaways from the results

• Overwhelming majority of Indian companies have failed to manage overseas acquisitions well;

• “Me-too” and unrelated acquisitions have failed;• In the boom years, excessive prices have been paid for the

takeovers;• Lack of managerial depth in mid-size Indian companies that

have acquired overseas companies has been instrumental in failures;

• Irrespective of the area of business, cost of acquisition and ability to integrate operations are the two critical parameters for success in acquisitions abroad.


Thank You

Disclaimer:This product is distributed for information purposes only. The information in this report does not constitute an offer to sell or a solicitation of an offer to buy any of the securities mentioned in the report. The readers may note that neither the company, its Directors, Officers or employees take any responsibility, financial or otherwise, due to any transaction undertaken or any action based on the information contained herein. The Company, its Directors, Officers or Employees may have a position or may otherwise be interested in the investment referred to in this document.

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Personalized | Reliable | Innovative 1 Overseas Acquisitions by Indian firms- A Study November 2009