US-Bound M&A slows down

By Shrija Agrawal (VCCircle.com)

Only two US-bound transactions in the first two months of 2009 as compared to 10 in the same period last year.

It was just two years ago when corporate India went on a borrowing overdrive to fund capacity acquisitions and costly overseas acquisitions; it actually seemed like a right thing to do so, as global markets were awash with liquidity at extremely low interest rates.

Cut to the present, there have been only two US-bound transactions in the first two months of 2009 as compared to 10 transactions in the same period last year.

So what has really changed? It is the lack of acquisition financing.

With capital in short supply the world over and the rupee reeling, that same easy money of the past is turning out to be an expensive liability now. Add to it is a sharp decline in growth projections, lack of acquisition financing, and a decrease in overseas trade with the global economic recession, which has caused Indian companies to put a halt on their global growth plans.

In 2008, Indian companies accounted for a total of 62 US-bound acquisitions with a cumulative transaction value of over $3.4 billion. This represents a 25% decrease over the 83 transactions in 2007 and a 66% decline in terms of transaction value, says a report prepared by Virtus Global Partners.

There have only been two US bound acquisitions in 2009 till date: Piramal Healthcare’s acquisition of Inhalation Anesthetic Gas Allocation Division of RxElite and Cosmo Film’s acquisition of GB Commercial Print Finishing Business.

Gone are the days of billion- dollar or the mega deals. Mega-size deals of 2008 included Tata Chemicals’ acquisition of General Chemicals for $1 billion and GMR Energy’s purchase of 50% equity in Intergen for $1.1 billion.