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Animal spirits are back on the deal street

Last updated on: November 29, 2012 09:26 IST

Animal spirits are back on the deal street

Dev Chatterjee and Nishanth Vasudevan

The deal street is abuzz with activity, again. After a lull, mergers and acquisitions (M&As) are back, with a host of Indian companies negotiating either to buy or sell assets. These deals, likely in the next few weeks, could be worth over $10 billion (Rs 55,000 crore).

This comes against the backdrop of some of the biggest M&A deals being signed by India Inc in recent weeks, both in India and abroad.

Investment bankers say the year-end deals signify the growing interest of foreign firms in Indian assets, despite an economic slowdown and concerns over a policy paralysis.

"The negotiations for many deals have been on for a long time. The valuations of many companies have gone up significantly on deal talks alone. We can expect some big-ticket announcements in the next few weeks," an investment banker said, asking not to be named as he was working on a "live" deal.

The markets are soon likely to see a host of deals. These include Videocon's sale of gas assets worth Rs 16,500 crore (Rs 165 billion) in Mozambique, sale of Agila speciality unit by Strides Arcolab for up to Rs 11,000 crore (Rs 110 billion), sale of Saudi lubricant unit Petromin (an equity value of Rs 3,850 crore (Rs 38.5 billion)) by the Hinduja brothers, Jet Airways' sale of 24 per cent stake to Etihad Airlines for up to Rs 2,200 crore (Rs 22 billion), and sale of a unit by Claris Lifesciences to a Japanese company for Rs 2,200 crore (Rs 22 billion).

Jaypee Cement is negotiating for sale of its Gujarat and Andhra Pradesh plants, while Cinemax yesterday announced it was in talks with PVR to sell its multiplex business. Cinemax expects a valuation of Rs 700 crore (Rs 7 billion) for the firm, even as private equity company Actis and rival Cinepolis have also shown interest in the company.

Tata Tele and Norway's Telenor are also in talks to merge their India operations, to create a telecom behemoth. As most of these deals are under negotiations and are market-sensitive information, the companies concerned have denied any M&A activity. Also, the Tata group is expected to increase its $1.8-billion bid to take over Bermuda-based Orient-Express Hotels after the latter's board recently rejected its bid, calling it "unsolicited".

As many of these deals were still under negotiations, bankers said the final price would depend on the structure of the deal, management control and tax implications. "Valuations have reached a stage comfortable for both buyers and sellers, unlike in the past, when it was biased towards one party. So, people are moving beyond the wait-and-watch mode," says Equirus Capital director Abhijeet Biswas. Bankers say buyers are more comfortable due to the perception the worst may be over for the global economy.

They add, instead of "trophy acquisitions", Indian companies should focus on those that can add value to their present businesses.

Photographs: Yuriko Nakao/Reuters