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Cover Story

“PE is The Best Way to Raise Capital for M&As.”
Harish HV, Partner, India Leadership Team, Grant Thornton India
Issue Date - 18/08/2011
B&E: Indicators across sectors point out to a possible slowdown for the Indian economy in the near future. Considering this truth, how is the current environment for M&As in India?
Harish HV (HHV): I am not certain that we are facing threat of slowdown as there are still adequate positive signals that we are growing fast. We cannot expect a secular and steady growth in any economy and there will be bumps on the road as we go along. With this as a background, I believe that the environment is positive for M&As and we have already seen a good growth in domestic and inbound M&A, and presently, we are seeing the beginning of a significant spurt in outbound deals as well.

B&E: IT and ITeS have always been the favourite hunting ground for dealmakers. Which sectors according to you are particularly ripe for M&A deal-making in the present scheme of things?
HHV: Of the sectors where consolidations can happen, IT and ITeS are definitely on the top of the list. In these two spaces, after a period of lull, we are witnessing a significant increase in deal activity, especially amongst the mid-sized companies, which are looking to grow fast. We believe the large ones will also be soon looking at acquisitions. The other sectors that one could think in this respect are healthcare, education, metals and mining and automotive – all of which have firms that are looking to grow and consolidate.

B&E: Currently, lending rates are at a decade-long-high. Does this affect deal activity significantly?
HHV: Yes. Higher interest rates will have some impact on the deal activity temporarily, but at the same time, it may even encourage mergers in some sectors. Combining these two factors, I think the attitude towards deal-making should remain neutral in the short-term.

B&E: The Competition Commission of India (CCI) has agreed to accelerate the process of clearance of deals. But is the overall regulatory environment in India suited to M&As where so many regulatory hurdles still exist?
HHV: The regulatory environment needs more clarity and there are areas of confusion presently. Large deals which involve specific government approvals are getting delayed due to the need for policy issues to be examined. Otherwise there needs to be some more clarity, which will come over a period of time as rules laid out by CCI get implemented. Some coordination and harmonisation with SEBI Rules are also required to make the process smoother than it already is.

B&E: How should an acquirer value targets at a time when the stock market is losing momentum?
HHV: Valuation is a longer term issue of how important the deal is for generating value. Depending on deal circumstances, valuation will be impacted if the market falls. But a more long-term perspective is taken at an acquisition.

B&E: What are the best ways to raise capital for deals at the moment?
HHV: PE is the best way to raise capital for M&As, given the significant number of funds that are looking at India. IPOs are difficult in the current environment and in India, debt is expensive. The other option is overseas debt, but one needs to take into account RBI regulations for ECBs if the funds are being used in India.



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