1. Vol. 3.2 July ‘10
US-BOUND ACQUISITIONS BY
INDIAN COMPANIES
Analysis of Transactions in the first half of 2010
July 2010
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2. US-BOUND ACQUISITIONS BY INDIAN COMPANIES
US- July 2010
Strong Surge in US-
US-bound
Acquisitions by Indian Companies
Acquisitions KEY HIGHLIGHTS AND TRENDS
Robust economic growth and a surge in demand
With twice the deal volume and eight times the deal for natural resources in India combined with
high debt-to-equity ratio and lower earnings
value of 2009 first half transactions, US-bound
potential of US companies is creating value-
acquisitions by Indian companies in the first half of buying opportunities for Indian companies in
2010 have surpassed all expectations. There were the US.
23 US-bound acquisitions by Indian companies with In the first half of 2010, Indian companies
an aggregate value of over $3.8 billion in the first accounted for a total of 23 US-bound
acquisitions with a cumulative transaction value
half of 2010. Robust economic growth and a surge of over $3.8 billion. This represents twice the
in demand for natural resources in India combined deal volume and eight times the deal value
with high debt-to-equity ratio and lower earnings compared to the same period in 2009.
potential of US companies is creating value-buying IT/ITES remains the most acquisitive industry
opportunities for Indian companies in the US. In capturing over 65% share of the total US-bound
transactions by volume, followed by oil & gas
addition, increasing domestic competitive pressures, and mining (10% each). Other industries such as
changing economic realities and improved US-India pharmaceutical, finance, media accounted for
political relations are encouraging Indian companies less than 5% each in terms of volume.
to seek acquisitions in the US. This also reflects how Compared to the small-size and distress related
transactions of last year, this year’s transaction
Indian companies adapted to the new economic
sizes were significantly larger and growth
realities and are opportunistic about global growth. focused. Six acquisitions in the first half of 2010
were over $100 million in size compared to
none during 2009H1.
One of the key aspects of this year’s transactions
was the focus on natural resources such as A majority of the 2010H1 transactions had an
earn-out structure, where a portion of the deal
Reliance’s acquisition of stake in shale natural-gas value is paid on future milestones. This is
assets of Atlas Energy and Pioneer Natural Resources evident in Reliance’s acquisition of its shale
with a total commitment of over $2.8 billion and assets and Mphasis’s acquisition of Fortify.
Essar Group’s acquisition of Trinity Coal for $600
million.
Pharma Chemicals 30
Oil & Gas 4% 5% 27
Finance
9% 23 23
4%
Mining
9%
Media
4% 8
7
IT/ITES
65%
2005 H1 2006 H1 2007 H1 2008 H1 2009 H1 2010 H1
Industry Breakdown of US-bound Acquisitions by Indian US-bound Transactions 2005H1 to 20010H1
Companies in 2010H1 by Volume
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3. US-BOUND ACQUISITIONS BY INDIAN COMPANIES
US- July 2010
Factors Fueling US-
US-bound
Acquisitions
A robust economy fueling the demand for natural
resources, increasing domestic competitive
pressures, and changing economic realities are
encouraging Indian companies to seek acquisitions
in the US. Developed economies like the US are
attractive for Indian companies because of their
natural resources, large consumer markets,
transparent business processes, robust legal
environment, advanced technologies, skills, and
knowledge capital. Moreover, as the markets in
these economies tend to be mature and saturated, it
often proves difficult for Indian companies to gain
market share without acquisitions. Low interest rates and tariffs coupled with easy
access to external commercial borrowings
While the strategic rationale for US-based provide Indian companies sufficient liquidity for
acquisitions varies by industry and the individual global acquisitions. Sustained growth in
company, there are a few common drivers: corporate earnings has improved the profitability
and strengthened the balance sheets of Indian
US-based acquisitions provide easy access to the companies.
world’s largest market and customer base
through marketing and distribution channels of Many Indian companies are seeking to expand
the acquired company. Indian companies are their distinctive capabilities by acquiring specific
able to acquire well-established brands, a wider skills, knowledge, and technology abroad that
product portfolio, and readymade distribution are either unavailable or of inadequate quality at
networks, thus, globalizing and augmenting their home. Indian companies are able to identify
competitive asset base. An organic approach to foreign firms with value-added offerings, which
building customer base and gaining market complement their own low-cost products and
access in the US could otherwise take many services to create an efficient integrated global
years. business model.
With lowering of import tariffs, Indian companies Regulatory changes in India have made it easier
are facing increased competition within the for Indian firms to become more global in their
domestic markets. In order to compete operations. As foreign exchange reserves have
effectively, these companies are under pressure grown, the Reserve Bank of India has
to access global markets and operating progressively relaxed the controls on outbound
synergies. US companies provide one of the best investments making it easier for Indian
global platforms in the world. companies to acquire or invest abroad.
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4. US-BOUND ACQUISITIONS BY INDIAN COMPANIES
US- July 2010
as leading service providers in these high end
Analysis of Transactions by Industry
segments.
Information Technology
With 15 US-bound acquisitions in the first half of
2010, information technology was the most
acquisitive industry in India accounting for 65% of
the US-bound transactions by volume. Within this
industry, healthcare related information technology,
remote infrastructure management, specialized
business process solutions, and enterprise resource
planning sub-segments were attractive for 2010H1 Key Transactions in IT
acquisitions, given their untapped offshore Date Buyer Seller
opportunities and relatively higher margins. While Bureau of Collection
2-Jun Aditya Birla Minacs Recovery
mid-size companies, such as Prithvi Info Solutions,
19-May Avantha Group Pyramid Healthcare
Integra Software Solutions, Educomp and Cambridge
18-May Aegis Ltd SLM Corp-Back Office
Technologies sought to add new service capabilities
10-May Prithvi Info Solutions Percentix Inc
through US-bound acquisitions, large-size
27-Apr Integra Software Svcs Silver Editions Inc
companies, such as Aegis, Aditya Birla Minacs, Rolta,
16-Apr Glodyne Technoserve DecisionOne Inc
and Glodyne sought to strengthen their current 12-Apr Rolta India Ltd OneGIS Inc
capabilities. 8-Apr MphasiS Ltd Fortify Infrastructure
27-Jan Educomp Solutions StudyPlaces Inc
12-Jan Cambridge Tech Ent Vox Holdings Inc
Aegis’s acquisition of Sallie Mae’s customer service
center
Aegis acquisition of US-based education finance
service provider Sallie Mae’s customer service center
enables it to expand its service offerings with highly
skilled customer service professionals. In addition,
Aegis will leverage Sallie Mae's expertise in quality
Indian IT & ITES (Information Technology Enabled and performance improvement as it integrates their
Services) industry has come a long way from being operation into its global delivery platform.
providers of lower margin services, such as
software maintenance, payroll processing, and call Glodyne Technoserve Ltd’s acquisition of
centre management to providers of high end DecisionOne
services like software development, project Glodyne’s acquisition of DecisionOne for $104
management, technology strategy consulting, and million allows it to add more than 2,000 employees
enterprise software implementation. This has been broaden its portfolio, including offering data centre,
achieved through a focused approach of moving networking, server, workstation, storage services,
up the value chain. Now, Indian IT and ITES application management, and remote technology
companies are looking to establish their position infrastructure management services.
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5. US-BOUND ACQUISITIONS BY INDIAN COMPANIES
US- July 2010
Avantha's acquisition of Pyramid Healthcare developed as much as some other regions. The
Solutions Marcellus is also attractive because it lies close to
Avantha Group’s acquisition of Pyramid Healthcare major consumption centers in the northeastern U.S.
Solutions for $20 million strengthens its global
presence in the niche healthcare solutions sector,
and provides a key platform to scale up domain
expertise in the US healthcare market.
Mphasis’ acquisition of Fortify Infrastructure
Services, Inc.
Mphasis’ acquisition of Fortify Infrastructure Services
Inc, for $15 million and earnouts enables it to
diversify into the offshore-based remote monitoring
and operations marketplace, which is currently
valued at about $4 billion globally and growing at
more than 30% every year.
Oil & Gas Mining
Reliance’s acquisition of stakes in Atlas' Marcellus Essar Group's acquisition of U.S. coal producer
Shale operations for $1.7 billion and in Pioneer Trinity Coal for $600 million, gives the global
Natural Resources for $1.2 billion underscores the steelmaker direct access to a key raw material that
potential that large Indian companies see in the has seen a recovery in demand. The deal gives Essar,
prospects for U.S. shale fields, which have an international conglomerate with interests in steel,
produced significant natural-gas reserves for North energy, construction, and shipping, ownership of
American independent energy companies. Indian 200 million tons in coal reserves in the Central
companies are also eager to learn how to extract Appalachian region. The reserves are split between
gas from shale formations, and transfer those metallurgical coal used in steel production and
techniques to similar formations around the globe. thermal coal used to fuel power plants.
Shale gas accounts for between 15% and 20% of US The deal, in addition to JSW's acquisition of a coking
gas production but is expected to quadruple in coal mine in the US is a sign that Indian steelmakers
coming years, touching off a scramble among are shopping for raw materials in a bid to own more
producers large and small for access to resources. pieces of their supply chain. Essar has steel-making
Pioneer’s Eagle Ford shale is seen as an especially operations in North America, with a steelworks in
attractive prospect as it is believed to be rich in Ontario, Canada, and a plant planned in Minnesota.
natural gas liquids and condensates, which Essar also is developing and operates power
command higher prices than regular natural gas. generation in India, which has not been a traditional
The Marcellus Shale is among the larger shale market for U.S. thermal coal.
formations, containing vast amounts of natural-gas
resources, though the area hasn't yet been
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6. US-BOUND ACQUISITIONS BY INDIAN COMPANIES
US- July 2010
Cross Border Acquisitions in the US: Key Considerations
Quantitative M&A Considerations Qualitative M&A Considerations
As the acquisition strategy is being developed, Several qualitative issues can influence the success
consideration should be given to the financial impact or failure rate of the acquired company within the
that a poorly constructed and integrated deal can organization and should be taken into consideration
have on the acquiring company. during the early planning phase.
Valuation – Market comparables, free cash flow Developing Acquisition Criteria – Having a clear
analysis, synergy valuation, and earning power strategic need and acquisition criteria, as well as
should all be considered when valuing an analyzing the likely impact of an acquisition will
acquisition target. help set a robust selection process.
Integration Costs – Depending on the level of Selecting Advisors – Advisors with prior
alignment, integration costs can be substantial. experience in US-based acquisitions and an
Sales/revenue dis-synergies can occur as the understanding of the market will ensure a
overall deal process tends to distract key smooth navigation through the acquisition
stakeholders during the due diligence and M&A process.
integration process. Legal
Legal & Regulatory – A major aspect in cross
Due Diligence – Comprehensive due diligence border acquisitions is the thorough legal and
determines synergy value and uncovers potential regulatory analysis of a transaction. A well
issues. US-based companies generally have good planned approach to managing contingent
management information systems, which create liabilities and contract issues is essential.
fast information flow.
Financing – Having financing in place during the
acquisition process increases the chance of a
successful transaction. Financing can be through
a combination of internal accruals and debt/
equity financing.
Acquisition Structure – While multiple factors
need to be considered for determining the
acquisition structure, jurisdiction, tax incidence,
accounting, access to funds and local regulations
are the most important factors. Generally, US-
bound acquisition structures include an earn-out
clause where a portion of the value is to be paid
over a period of time based on milestones.
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7. US-BOUND ACQUISITIONS BY INDIAN COMPANIES
US- July 2010
US- Acquisitions 2010
List of US-bound Acquisitions by Indian Companies in 2010 H1
Date Industry Target Name Acquiror Name Tx Val ($m) % share
Jun-10 Oil & Gas Pioneer Natural Resources Reliance Industries Ltd 1,150.00 45
Jun-10 Pharma Karalex Pharma LLC Orchid Chem & Pharm Ltd - -
EI du Pont de Nemours's
non-mixture mancozeb
Jun-10 Chemical fungicide business United Phosphorus Ltd - 100
Jun-10 IT/ITES Bureau of Collection Recovery Aditya Birla Minacs - 100
May-10 IT/ITES Pyramid Healthcare Solutions Avantha Group 20.00 100
May-10 IT/ITES SLM Corp-Back Office Unit,TX Aegis Ltd - -
May-10 IT/ITES Percentix Inc Prithvi Info Solutions Ltd 3.00 100
May-10 Media IM Global LLC Reliance Big Ent Pvt Ltd - -
May-10 IT/ITES TLC Technologies Inc Prism Informatics Ltd - 51
Undisclosed Coking Coal
May-10 Mining Mine, JSW Steel Ltd 100.00 100
Apr-10 IT/ITES Silver Editions Inc Integra Software Svcs Ltd 4.00 100
Apr-10 IT/ITES Pacific Crest Technology Prodapt Solutions Pvt Ltd - 100
Apr-10 IT/ITES DecisionOne Inc Glodyne Technoserve Ltd 104.00 -
Apr-10 IT/ITES Dynamic Test Solutions Inc Tessolve Services Pvt Ltd - 100
Apr-10 IT/ITES OneGIS Inc Rolta India Ltd - 100
Apr-10 Oil & Gas Atlas Energy Inc-Marcellus Reliance Industries Ltd 1,700.00 40
Apr-10 IT/ITES Fortify Infrastructure Svcs MphasiS Ltd - -
American Solutions Inc and
Mar-10 IT/ITES United Consultancy Services Spectacle Industries Ltd - 55
Mar-10 Mining Trinity Coal Corp Essar Group 600 100
Feb-10 Finance Northgate Capital Group LLC Religare Enterprises Ltd 200.00 -
Comp-U-Learn Tech India
Feb-10 IT/ITES Astus Technologies Inc Ltd - -
Jan-10 IT/ITES StudyPlaces Inc Educomp Solutions Ltd 1.30 -
Jan-10 IT/ITES Vox Holdings Inc Cambridge Tech Ent Ltd - -
*Source: Thomson Database
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8. US-BOUND ACQUISITIONS BY INDIAN COMPANIES
US- July 2010
About IMaCS Virtus Global Partners
IMaCS Virtus Global Partners, Inc. is a New York based advisory firm that offers services to North American
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