Core and Infrastructure Sectors Dominate Deal Street in 2007; Garner Transactions Worth $40 billion with 78% Share

--- Core Sector Deal Street sets ground for 2008; Expected to lead the table in 2008 with deals worth $54 billion

--- Overall M&A highlight the India-Europe corridor that witnessed 63% share in cross-border deals at $30 billion

“India has a long way to go before Mumbai resembles Shanghai, or New Delhi rivals New York. India consistently under-spends on new infrastructure even as its existing patchwork of roads, railways, airports and power & energy providers struggle to cope with India’s burgeoning economy - and population.” says Bundeep Singh Rangar, Chairman of IndusView, the India-focused cross-border advisory firm.

The Year 2007 has gone down well as the year of ‘The Core and Infrastructure Sectors’ with the deal street transactions grossing about $40 billion from 89 deals, which is 10 times the value of deals in the sector in the whole of calendar year 2006. That represents 78% of the total value of $51 billion from 675 deals.

“The focus towards the sectors is buoyed by the growing demand for urban lifestyle and world class infrastructure facilities which have been under pressure to come up to global standards. This augmentation is expected to cost and attract investments to the tune of $500 billion over the next five years.” added Rangar

“The need for world class infrastructure to accelerate growth in the Indian economy to 10% will see the application of internationally applicable best practices, experienced global management expertise & technology and inflow of a resource base of incremental funds. A part of this capital resource is expected to find its way in to mergers & acquisitions (M&As) worth $54 billion in the core and infrastructure sectors in 2008, a growth of 35% compared to 2007.” said Rishi Sahai, Board Director, IndusView.

The combined spending on core and infrastructure sectors by both the public and private sectors accounted for about 5% of Gross Domestic Product (GDP). That pales in comparison with China that spends about 11% of its GDP for infrastructure development.

The Indian government has responded to an urgent demand for new infrastructure, announcing that 9% of the country’s GDP will be spent on infrastructure by 2012. Estimates suggest that a third of this investment will come from the private sector, presenting an unprecedented investment opportunity, with corresponding inorganic activity.

Among the core sectors, Metals & Alloys led M&As accounting for deals worth $22 billion and share of 43% in the total deal value, followed by Power and Oil & Gas sectors grossing $5 billion with a share of 9.8% of the deal value. Telecommunication sector emerged the second most consolidating sector with $11.3 billion and 22% of the total deal value. The other sectors which have significantly contributed to the M&A activity was Information Technology (IT) & IT enabled Services and pharmaceutical with deals worth $2.8 billion and $1.4 billion with 5.6% and 2.8% share in M&A deal values, respectively.

The key high value deals included Tata Steel’s acquisition of U.K.’s steel manufacturer Corus Group Plc for $12.2 billion, Hindalco’s acquisition of Novelis Inc for $6 billion and Vodafone’s acquisition of majority stake in Hutchisson Essar for a price of $10.8 billion topped the tables. These were followed by Suzlon Energy Ltd’s acquisition of German wind turbine company REpower Systems AG.; Algoma Steel Inc., Canada based an integrated primary steel producer, by India’s Essar Steel Ltd; and PT Kaltim Prima Coal, Indonesia's largest coal exporter by Tata Power Company Ltd, India’s largest private sector electricity generating company

Cross Border Deals

Significant aspect of the recent M&A activity has been India Inc.’s global ambitions which touched a new high with overseas acquisitions (outbound) worth more than $32 billion, which is twice the value of acquisition made by overseas companies in India (inbound). It also shows the exponential growth in cross-border deal activity at $48 billion in 2007, more than three times achieved in the whole of year 2006.

Trade between India and Europe is expected to multiply five times to $100 billion by 2010 from current level of $20 billion, according to industry estimates. Acquisitions by Indian companies in Europe accounted for 52% of the total acquisitions made overseas worth $16 billion, with the U.K. contributing about 39% of the overseas deal value, ahead of the U.S. at 32% amounting to about $12.5 billion and $10.5 billion, respectively.

Europe dominated the inbound deal activity as well, notching up a share of 89% of the inbound deal value of which the U.K. constituted about 80% of the deal value.

“Indian and the U.K. companies are seeking to unlock the potential in emerging economies on one hand and harnessing the size and scale of global operations on the other. The acquisition of Hutchison Essar Ltd by the U.K.’s Vodafone Group Plc and the acquisition of the U.K.’s largest steel maker Corus Group Plc by India’s Tata Steel Ltd are two such cases in point.” said Rangar

The investments by India Inc. in Britain during the fiscal year 2006-07 has created 5,130 jobs, second to the U.S., according to the U.K.’s Department of Trade and Industry. In terms of the number of new projects, India has been ranked third with 69 new projects, after 540 new projects of the U.S. and 95 new projects of France.

Indian investment in the U.K. had gone up 111% to 76 projects, creating almost 4,000 jobs during 2005-06. The Indian investment has contributed $67 million (£33 million) to the London economy in 2006-07, according to Think London, an agency promoting investment into the city.