Wednesday, 3 June 2020

Indian Firms Mull Acquisition In Troubled Euro Zone

Updated: May 12, 2012 4:46 pm

Life seems to be coming to a full circle. Indian companies which traditionally suffered from paucity of resources to fund expansions and lack technical knowhow are now a resurgent phase.

Continued recession in the US, Europe and parts of the Asia has made Indian companies to stand apart from the rest and enhance their stature globally, both in terms of money and technology power.

Despite the current difficult economic conditions and liquidity problems in India which is an outcome of global factors, a small group of domestic companies are acquiring distressed assets in recession hit West to further enhance their technology base and expand their reach.

Many companies in the West have become bankrupt due to the meltdown of their economies and many are finding it difficult to maintain operations due to cash crunch and lack of buyers for their products and services.

And the owners of these companies have put their organisations for sale and cash rich Indian companies are coming forward to buy these assets at comparatively cheaper prices.

If big Indian industrial houses like the Tatas, Birlas, Essar and JSW had ventured into acquisition of large sized western sick companies during the later part of the last decade, this time around the acquisitions are mainly by small and medium sized companies with small budgets.

Experts who are tracking this new trend say that these acquisitions are mainly technology and customer centric.

While some companies are eyeing the advanced technologies of the units that have been put up for sale others are targeting the customer base of these once strong companies which have now flown into bad weather due to the faulty economic and financial policies of their governments.

These are small deals of around $25 million (Rs 125 crore) to $30 million (Rs 150 crore) in value, not very expensive. These type of acquisitions continue in the coming months because these can impact long term cost of the acquirer according to merger and acquisition experts.

A few months ago Delhi based JBM Cadmium Private Ltd acquired 51 per cent stake in TESCO GO, a leading engineering services provider based out of United Kingdom for an unspecified amount.

TESCO GO has global presence in Detroit, London, Munich, Stuttgart and Turin with a staff base of 300. It is into product development process for customers worldwide in automotive, railways and aerospace to name a few.

With this acquisition JBM, at one stroke has got access to reputed customers like Piaggio, Man, Mc Laren, Mercedes Benz/Daimler, JMC Ford, Iveco, Lamborghini, Scania, Bajaj, BMW, Chrysler, FIAT, Maseratti and TATA to name a few. According to JBM officials, the TESCO GO acquisition would enhance their overseas revenue by over $20 million (Rs 100 crore).

Now JBM Group is looking for more such international acquisition and technical expertise to excel in the Engineering and Technology domain.

Similarly, in early January BSE listed firm Dion Global Solutions had acquired controlling stake in Frankfurt-based Swissrisk Financial Systems. The company did not disclose the amount.

The stake buy was part of Dion’s strategy to become a leading provider of a comprehensive, diversified suite of solutions to financial markets worldwide.

Swissrisk has strength in continental Europe and this provides Dion with a platform for growth with presence and strong client base in Germany, Luxembourg, Spain and Switzerland, the company had said.

Swissrisk has supported dealing rooms and traders for over 25 years and also has the ability to provide client solutions in the payments, securities and funds industry.

This acquisition has added to Dion’s strength which can now offer an integrated, global suite of products across the financial services industry. Not to be left behind, some leading Indian businesses houses are also coming forward to acquire companies in Europe.

The Hinduja Group for example is picking up distressed assets in Europe. Their Chennai based automobile company Ashok Leyland recently became majority stakeholder in UK bus manufacturer Optare Plc by investing more money in the marquee automobile manufacturer. Now Ashok Leyland has enhanced its stake to 75.1 per cent and in the process of acquiring more.

Optare was struggling to stay afloat and got a life line from Ashok Leyland which will substantially benefit by accessing Optare’s unique engineering skills and auto designs to enhance its product portfolio.

Fifteen months ago Lucknow based Sahara India Pariwar led by Subrata Roy had acquired the iconic Grosvenor House hotel in London for 470 million pounds (around Rs 3,250 crore). Marking its first international acquisition in the hospitality business, Sahara had bought the 420 room, 74 suits hotel, located at Park Lane in Mayfair, London from the Royal Bank of Scotland (RBS) that was holding on to this prime property.

Sahara had bought the hotel dirt cheap. Three years ago it was valued at 1 billion pounds (approximately Rs 7000 crore) but bleak economic scenario in Europe and at absence of cash rich buyers, the value had eroded sharply making it attractive for Sahara to pocket it. Since then Sahara has made additional investment at this hotel to provide best facilities. Sahara is also looking for such acquisitions both in Europe and USA.

These apart, smaller deals are taking place frequently. Experts believe that over a dozen such deals might have taken place in the past months and their number would grow in the future as more western companies find the going tougher day by day.

However, experts have a word of caution for Indian companies. They say that there has to be a rationale behind the acquisition and no company should act under pressure are get carried away while deciding to buy any overseas company.

Indian companies should stay away from acquiring plant and machinery because they come with their own challenges. And while dealing with the post acquisition challenges, the actual deal could be too expensive to digest. Even mighty giants like Tata Steel and Tata Motors had to struggle for years to get out of the mess at Corus and Jaguar and Land Rover in UK.

To encourage more Indian companies to enhance their technology edge by such overseas acquisitions, the Indian government, more specifically the Industry Ministry, is mulling over to create a fund that would help small entrepreneurs to take the plunge.

By Jully Acharya from Mumbai

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