Indian corporates have
historically looked towards Europe for acquisitions.
IFLRs India Outbound
explained how they can exploit the euro
The current environment
in both India and Europe has rendered large M&A deals
unlikely. However, Indian corporates are well-placed to make
strategic acquisitions throughout Europe.
executive vice president and global head of legal, governance
and risk at Indian multinational, Crompton Greaves, advised not
to dismiss countries perceived not to be ideal for investment,
because there are opportunities everywhere. A crisis
always presents an opportunity, he said. Its
an approach of cautious optimism, based on whether you can
extract value from the target and whether its relevant to
your business portfolio.
distressed companies to be up for sale, and predicted
undervalued companies would lure Indian investors. Sudipta
Routh, partner at Luthra & Luthra said this was the best
time to look out for fire sales. As Indians, we love fire
sales, he said. Were good at it and know how
to judge value.
This is a trend
unlikely to end in the near future. Mark Poulton, partner of
Clifford Chance London, said that European banks are under
increasing regulatory capital burdens and are going to be
increasingly reluctant to extend and pretend in
stressed situations. He predicted more restructurings and more
businesses coming onto the market, and expected a relatively
sustained period where there are going to be opportunities at
colleague, Dusseldorf-based Clifford Chance partner Cristophe
Witte, noted warning signs about difficult assets. If
assets are more difficult, auctions will be more
flexible, he said. The first time a bid deadline is
postponed, you can take a bet on whether this asset will be
For those looking for
safer investments, Witte outlined several options. He said that
uncertainty makes private equity players more likely to sell
businesses, and at acceptable prices. He also noted that there
are number of opportunities where major corporates are spinning
off or carving out non-core activities that may be good
additions to businesses that Indian corporates already
However Witte noted
that European family-owned businesses would be a cultural fit
for Indian family-owned businesses. He said that the European
market, particularly the German market is dominated by
family-owned businesses set up in the 1950s and 1960s. Their
owner-operators are coming to retirement age and some have no
real succession plans.
Though private equity
funds are eager to pick up these businesses, the business model
that foresees an onward sale or IPOs often does not fit with
the values of owner families, who are looking for a long-term
solution. Instead, Witte said that Indian corporates with
family-owned backgrounds have shared backgrounds with
family-owned businesses and may be good buyers. It takes
preparation, trust-building and pre-deal investment, but if it
works, it works very well, he added.
But Witte added that
deal certainty is integral. Financing and antitrust are
the most important issues and you need to have your ducks in a
row, he said.
Witte also advised
investors not to rely on their purchase agreements, and instead
be comfortable with their due diligence. He said if there are
uncertainties, try to price them in somehow, especially if
there is a lot of risk. Corporates are very restricted in
indemnities, he emphasised.
But investing in the
Eurozone also involves risk, especially in countries that leave
the Euro and must redenominate their currency. Routh explained
that if currency is redenominated with capital and exchange
controls, the repayment of acquisition financing could get
distorted unless a good hedging strategy was in place.
The risk changes with every passing week, he said.
After Greek elections, it became a medium probability
high-impact risk. This makes a deal expensive, and sometimes
there is no hedging product out there that can cover this
For more from IFLRs India
Outbound Investment Forum:
Indian natural resources M&A: what lawyers want to
India outbound M&A financing: Why corporates should look
India M&A: how to handle the aftermath of an outbound