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We will acquire to grow our business, but only with our own cash

Acquisitions will continue in 2009, but don’t be surprised if bankers aren’t pushing leveraged buyouts any more.

Print Edition: January 11, 2009

Our hunch was that businessmen in India would stay away from acquisitions now. With finances drying up and equity valuations dropping, it is tough for companies to raise money for acquisitions.

C.G. Srividya, Partner and Specialist Advisory Services, Grant Thornton
C.G. Srividya
However, low valuations cut both ways and for people with ready cash this is a good opportunity. Today, acquisition opportunities do exist, both in India and the world, across sectors and product and service lines, and at more reasonable prices. Says Sudip Bandyopadhyay, Chief Executive Officer, Reliance Money: “This is a great time for acquisitions.

If you have the money you can acquire assets now at great valuations.” There has been a significant drop in mergers and acquisition (M&A) activity in India in 2008 compared to a year ago. Yet, it is still higher than the total volume of 2006. However, one must remember that the acquisition of Jaguar-Land Rover by Tata Motors accounted for a lot of the value. Grant Thornton released its annual report on deals related to India on December 18.

C.G. Srividya, Grant Thornton’s Partner and Specialist Advisory Services, says: “Corporate India has done a significant number of M&A transactions in 2008 with a value of over $30 billion. It is creditable to note that this has been achieved irrespective of the global economic slowdown and dwindling stock prices. It is also noteworthy that the deal traction on M&A has been good and stable in all quarters, irrespective of the volatility in economy and markets.”

However, as we saw with Satyam’s attempted acquisition of the two real estate and construction companies owned by the same promoter family, there is little tolerance for acquisitions backed by frivolous logic. In this case the company had its own cash and did not need to borrow either. At the same time, there was an almost coordinated backlash from analysts and market players to punish the stock.

Leveraged buyouts are also out, surely. Neither companies nor banks have any appetite for these any more and the ones that have been done earlier are having a tough time grappling with high debt rates.

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