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Us Bound Acquisition By Indian Companies March 2009
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March 09 Vol. 2.1
US-BOUND ACQUISITIONS BY
INDIAN COMPANIES
Analysis of 2009 and 2008 Transactions
The Graybar Building, 420 Lexington Avenue, Suite 300, New York, NY 10170 www.virtusglobal.com
March 9, 2009
VIRTUS GLOBAL P ARTNERS
V G
USUSUSUS----BOUND BOUND BOUND BOUND AAAACQUISITIONS BY CQUISITIONS BY CQUISITIONS BY CQUISITIONS BY IIIINDIAN NDIAN NDIAN NDIAN CCCCOMPANIES OMPANIES OMPANIES OMPANIES March 2009
PAGE 1
Pace of Pace of Pace of Pace of USUSUSUS----bound bound bound bound DDDDealealealeals s s s Slows Slows Slows Slows
DownDownDownDown A sharp decline in growth projections, lack of
acquisition financing, and a decrease in overseas
demand with the global economic recession has
caused Indian companies to put brakes on their
global growth plans. Even with Sterlite’s acquisition
of Asarco for $1.7 billion announced on March 8th,
there were only three US-bound transactions year-
to-date as compared to 12 transactions in the same
period last year. Sterlite’s acquisition represents a
discount of $1 billion over the initial offer in May
2008, and was driven by devaluation of mining
assets and a sharp fall in copper prices. The other
transactions in 2009 were Piramal Healthcare’s
acquisition of Inhalation Anesthetic Gas Allocation
Division of RxElite and Cosmo Film’s acquisition of
GB Commercial Print Finishing Business.
Summary of 2Summary of 2Summary of 2Summary of 2008008008008 TransactionsTransactionsTransactionsTransactions With 62 transactions in 2008 totaling over $3.4
billion in value, US-bound acquisitions by Indian
companies decreased 25% in volume and 65% in
transaction value over the year 2007. Deep recession
in the US, lack of acquisition funding and an
uncertain economic environment had a major impact
on Indian companies acquiring US-based companies.
Agricultural
3%
Chemicals
3% Education
1%Energy
1% Engineering
2%
Finance
2%
Healthcare
14%
Jewelry
2%
Manufacturing
5%
Media
5%Packaging
2%Real Estate
5%
Technology
55%
23
48
83
62
0
10
20
30
40
50
60
70
80
90
2005 2006 2007 2008
KKKKEY EY EY EY HHHHIGHLIGHTSIGHLIGHTSIGHLIGHTSIGHLIGHTS
A sharp decline in growth projections, lack of acquisition financing, and a decrease in overseas demand with the global economic recession has caused Indian companies to put brakes on their global growth plans. There were only three US-bound transactions year-to-date as compared to 12 transactions in the same period last year. This included Sterlite’s acquisition of Asarco for $1.7 billion.
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.
Mega-size deals in 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.
IT/ITES remains the most acquisitive industry capturing over 55% share of the total US-bound transactions by volume, followed by healthcare (15%); manufacturing, media and real estate (5% each); and agriculture and mining (3% each). Other industries accounted for less than 2% each in terms of volume.
Deal sizes of less than $25 million accounted for 76% of the 2008 US-bound acquisitions by volume, followed by transactions in the $25 to $50 million range (12%). This reflects the increasing pressure to gain scale amongst smaller companies.
Most transactions involved acquisition of 100% stock for cash consideration. These transactions generally had an earn-out structure, where a portion of the deal value is paid on future milestones.
US-bound Transactions 2005 - 2008 Industry Breakdown of US-bound Transactions in 2008
USUSUSUS----BOUND BOUND BOUND BOUND AAAACQUISITIONS BY CQUISITIONS BY CQUISITIONS BY CQUISITIONS BY IIIINDIAN NDIAN NDIAN NDIAN CCCCOMPANIES OMPANIES OMPANIES OMPANIES March 2009
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Breakdown of TransactionsBreakdown of TransactionsBreakdown of TransactionsBreakdown of Transactions by by by by
Key IndustriesKey IndustriesKey IndustriesKey Industries
Information Technology/ ITESInformation Technology/ ITESInformation Technology/ ITESInformation Technology/ ITES
With 34 US-bound acquisitions in 2008, information
technology was the most acquisitive industry in
India. The IT industry accounted for over 55% of the
US-bound transactions by volume. Within this
industry, healthcare, enterprise resource planning,
and analytics sub-segments were attractive for
acquisitions, given their untapped opportunities in
the US market. While mid-size companies, such as
Mascon Global and Rolta sought to add new service
capabilities through US-bound acquisitions, large-
size companies, such as Aegis BPO and 3i Infotech
sought to strengthen their current capabilities.
The high rate of US-bound acquisition activity was
propelled by the need to gain scale in terms of
size, product offerings, and geography. The 2008
US-bound acquisitions also demonstrated an
underlying business model change - from a cost-
centric approach to a profit-margin focus.
Indian services providers have established
themselves as competent providers of lower
margin services, such as software maintenance,
payroll processing, and call center management.
Indian IT and ITES companies are climbing up the
value chain by focusing on software development,
project management, technology consulting, and
enterprise software implementation.
This is evident in HCL’s acquisition of
CapitalStream for $40 million. Similarly, Mascon’s
acquisitions are targeted at getting entry into
clients, such as Cisco and General Electric, as well
as developing their financial services capabilities.
Acquisitions of Regulus by 3i Infotech and TUSC by
Rolta highlight the increased attractiveness of
financial services and enterprise resource planning
sub-segments in the US.
2008 - Key Transactions in IT/ITES ($mm)
Buyer Seller Size Aegis BPO Services, Ltd. PeopleSupport, Inc.
249.59
3i Infotech, Ltd. Regulus Group, LLC 100.0
Satyam Computer Services, Ltd.
Caterpillar- Market Research and Analytics Operations
60.0
Mascon Global, Ltd. Jass & Associates, Inc. and SDG Corporation
55.0
Rolta India, Ltd. Rolta TUSC, Inc. 45.0
HCL Technologies, Ltd. CapitalStream, Inc. 40.0
Satyam Computer Services, Ltd.
Bridge Strategy Group, LLC
35.0
Mascon Global, Ltd. MGL Finance 35.0
HealthcareHealthcareHealthcareHealthcare TransactioTransactioTransactioTransactions:ns:ns:ns:
The life sciences industry captured 15% of the
transaction volume with nine US-bound acquisitions
in 2008. Dr. Reddy’s Laboratories’ acquisition of
BASF’s contract manufacturing facilities and
Maneesh Life Science’s acquisition of Synovics Life
Sciences was not only about gaining market access
USUSUSUS----BOUND BOUND BOUND BOUND AAAACQUISITIONS BY CQUISITIONS BY CQUISITIONS BY CQUISITIONS BY IIIINDIAN NDIAN NDIAN NDIAN CCCCOMPANIES OMPANIES OMPANIES OMPANIES March 2009
PAGE 3
in the US but also accessing firm-specific strategic
assets, such as internationally certified
manufacturing facilities, new products, research
capabilities, brands, and benefiting from operating
synergies.
As a target location, the US has traditionally lagged
behind Europe in pharmaceutical outbound
acquisitions from India. This could change based on
the upcoming generic opportunities and size of the
US market. Relying on third party marketing agents
may not be a good strategy in the long run, thus,
Indian companies are expected to acquire export-
supporting networks in the US.
2008 - Key Transactions in Healthcare ($mm)
Buyer Seller Size Dr. Reddy's Laboratories, Ltd.
BASF Chemicals Company, Ltd., Pharmaceutical Contract Manufacturing Business and Related Facility
39.8
Piramal Healthcare, Ltd. Minrad International, Inc. (AMEX:BUF)
38.53
EID – Parry, Ltd. Valensa International 9.0
ChemicalsChemicalsChemicalsChemicals
While mid-size companies in India were taking a
cautious approach to the global slowdown, well-
capitalized large-size Indian companies, such as
Tata Chemicals and RFCL took advantage of
relatively low valuations in the US market to
strengthen their global positions. The acquisition of
General Chemicals for $1 billion makes Tata
Chemicals one of the largest soda ash producers
worldwide. This acquisition provides a global
footprint to Tata Chemicals through access to North
America, Latin America, and the Far East. It also
lowers the cost of production and creates a hedge
against the commodity cycle given that over 50% of
its combined capacity is derived through natural
process.
2008 - Key Transactions in Chemicals ($mm)
Buyer Seller Size Tata Chemicals, Ltd. General Chemical
Industrial Products Inc.
1,005.0
RFCL Limited Mallinckrodt Baker, Inc. 340.0
Other IndustriesOther IndustriesOther IndustriesOther Industries
With two US-bound acquisitions in the last six
months, Advanta has positioned itself as a global
agricultural products company. These acquisitions
enhanced Advanta's capability to service customers
in the US and Canadian markets, as well as provide a
broader product base such as sunflower seeds and
sorghum-based products.
In the field of manufacturing, Everest Kanto acquired
CP Industries, a manufacturer of large seamless
pressure vessels for the containment and
transportation of pressurized gases while Crompton
Greaves acquired a provider of electrical substation,
transmission line, collection system engineering,
equipment packages, and construction services.
USUSUSUS----BOUND BOUND BOUND BOUND AAAACQUISITIONS BY CQUISITIONS BY CQUISITIONS BY CQUISITIONS BY IIIINDIAN NDIAN NDIAN NDIAN CCCCOMPANIES OMPANIES OMPANIES OMPANIES March 2009
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QuantitativQuantitativQuantitativQuantitative M&A Considerationse M&A Considerationse M&A Considerationse M&A Considerations
As the acquisition strategy is being developed,
consideration should be given to the financial impact
that a poorly constructed and integrated deal can
have on the acquiring company.
Valuation Valuation Valuation Valuation –––– Market comparables, Free Cash Flow
analysis, Synergy Valuation, and Earning Power
should all be considered when valuing an
acquisition target.
Integration CostsIntegration CostsIntegration CostsIntegration Costs – Depending on the level of
alignment, integration costs can be substantial.
Sales/Revenue dis-synergies can occur as the
overall deal process tends to distract key
stakeholders during the due diligence and M&A
integration process.
Due DiligenceDue DiligenceDue DiligenceDue Diligence – Comprehensive due diligence
determines synergy value and uncovers potential
issues. US-based companies generally have good
management information systems, which create
fast information flow.
Financing Financing Financing Financing –––– Having financing in place during the
acquisition process increases the chance of a
successful transaction. Financing can be through
a combination of internal accruals and debt/
equity financing.
Acquisition Structure Acquisition Structure Acquisition Structure Acquisition Structure –––– While multiple factors
need to be considered for determining the
acquisition structure, jurisdiction, tax incidence,
accounting, access to funds and local regulations
are the most important factors. Generally, US-
bound acquisition structures include an earn-out
clause where a portion of the value is to be paid
over a period of time based on milestones.
Qualitative M&A ConsiderationsQualitative M&A ConsiderationsQualitative M&A ConsiderationsQualitative M&A Considerations
Several qualitative issues can influence the success
or failure rate of the acquired company within the
organization and should be taken into consideration
during the early planning phase.
Developing Developing Developing Developing Acquisition Criteria Acquisition Criteria Acquisition Criteria Acquisition Criteria – Having a clear
strategic need and acquisition criteria, as well as
analyzing the likely impact of an acquisition will
help set a robust selection process.
Selecting AdvisorsSelecting AdvisorsSelecting AdvisorsSelecting Advisors – Advisors with prior
experience in US-based acquisitions and an
understanding of the market will ensure a
smooth navigation through the acquisition
process.
LeLeLeLegal & Regulatorygal & Regulatorygal & Regulatorygal & Regulatory – A major aspect in cross-
border acquisitions is the thorough legal and
regulatory analysis of a transaction. A well-
planned approach to managing contingent
liabilities and contract issues is essential.
Cross Border Acquisitions in the US: Key ConsiderationsCross Border Acquisitions in the US: Key ConsiderationsCross Border Acquisitions in the US: Key ConsiderationsCross Border Acquisitions in the US: Key Considerations
USUSUSUS----BOUND BOUND BOUND BOUND AAAACQUISITIONS BY CQUISITIONS BY CQUISITIONS BY CQUISITIONS BY IIIINDIAN NDIAN NDIAN NDIAN CCCCOMPANIES OMPANIES OMPANIES OMPANIES March 2009
PAGE 5
About Virtus Global Partners About Virtus Global Partners About Virtus Global Partners About Virtus Global Partners
Virtus Global Partners is a cross-border investment
and advisory firm with focus on US and India-based
transactions. We have expertise in several core
industries, including Information Technology, IT-
Enabled Services, Pharmaceuticals, Industrials, Auto
Ancillary, and Textile. We help Indian companies
with US-based business development and strategic
alliances and US companies with India entry
strategies. Our clients include mid to large-size
companies and private equity firms.
We provide a full range of investment banking
services, including:
� Cross Border Mergers & Acquisitions
� Fund Advisory
� Strategic Partnerships & Joint Ventures
� India and US Entry Strategy Consulting
For more information, visit our website
wwwwww.virtusglobal.comww.virtusglobal.comww.virtusglobal.comww.virtusglobal.com or contact Anil Kumar,
Managing Director at akumar@virtusglobal.comakumar@virtusglobal.comakumar@virtusglobal.comakumar@virtusglobal.com.
DisclaiDisclaiDisclaiDisclaimermermermer
The information contained in this document is a compilation of public domain data and internal research. Our findings are based on
information available as of March 9, 2009. Virtus Global Partners does not guarantee the accuracy or completeness of any
information contained in this document. Recommendations rendered in this report are not binding. Any decision or action taken by
the recipient based on this report shall be solely and entirely at the risk of the recipient.
Key Transactions:Key Transactions:Key Transactions:Key Transactions:
Advisor to Ultra
has secured senior credit and second-lien financing
USUSUSUS----BOUND BOUND BOUND BOUND AAAACQUISITIONS BY CQUISITIONS BY CQUISITIONS BY CQUISITIONS BY IIIINDIAN NDIAN NDIAN NDIAN CCCCOMPANIES OMPANIES OMPANIES OMPANIES March 2009
PAGE 6
List of US-bound Acquisitions by US Companies in 2008
Date Industry Buyer Target Tx Value
($m) 9-Jan-08 Technology IQMS Software Ltd (BSE:532379) Tractel Solutions Inc. -
21-Jan-08 Technology Satyam Computer Services Ltd. (BSE:500376)
Bridge Strategy Group LLC 35.0
22-Jan-08 Technology Rolta India Ltd. (BSE:500366) Rolta TUSC, Inc. 45.0
31-Jan-08 Chemicals Tata Chemicals Ltd. (BSE:500770) General Chemical Industrial Products Inc. 1,005.0
31-Jan-08 Technology Pradot Technologies Private Limited GROUPONE Healthsource -
18-Feb-08 Manufacturing Everest Kanto Cylinder Ltd. (BSE:532684) CP Industries, Inc. 66.3
20-Feb-08 Technology HCL Technologies Ltd. (BSE:532281) CapitalStream, Inc. 40.0
3-Mar-08 Agricultural Advanta India Ltd. (BSE:532840) Garrison & Townsend, L.P. 10.5
3-Mar-08 Technology Aurionpro Solutions Limited (BSE:532668) SENA Systems, Inc. 2.81
11-Mar-08 Technology Mascon Global Ltd (BSE:531131) Jass & Associates, Inc. and SDG Corporation 55.0
13-Mar-08 Media Cyber Media (India) Ltd. (BSE:532640) The TDA Group -
18-Mar-08 Technology PreMedia Global, Inc. GGS Book Services -
27-Mar-08 Technology IBS Software Services (P) Ltd. Hotel Booking Solutions Incorporated -
1-Apr-08 Technology Accentia Technologies, Ltd. (BSE:531897) Oak Technologies Inc. 4.0
1-Apr-08 Manufacturing The Sanmar Group Matrix Metals LLC -
4-Apr-08 Media Reliance BIG Entertainment Private Limited DTS Digital Images 7.5
4-Apr-08 Technology Cyber Media (India) Ltd. (BSE:532640) CMP-CyberMedia LLC -
14-Apr-08 Media Valuable Technologies Pvt. Ltd. MovieBeam Inc. 2.3
21-Apr-08 Technology Satyam Computer Services Ltd. (BSE:500376)
Caterpillar- Market Research and Analytics Operations
60.0
28-Apr-08 Technology 3i Infotech, Ltd. (BSE:532628) Regulus Group, LLC 100.0
29-Apr-08 Healthcare Dr. Reddy's Laboratories Ltd. (BSE:500124) BASF Chemicals Company Ltd., Pharmaceutical Contract Manufacturing Business and Related Facility
39.8
14-May-08 Technology Mascon Global Ltd (BSE:531131) MGL Finance 35.0
20-May-08 Technology Educomp Solutions Limited (BSE:532696) The Learning Internet, Inc. 24.5
26-May-08 Finance o3 Capital Advisors Pvt. Ltd. Wolet Capital Corporation -
9-Jun-08 Healthcare Protech Biosystems Pvt. Ltd. SFH I Acquisition Corp. -
17-Jun-08 Technology MosChip Semiconductor (BSE:532407) Indigita Corporation -
18-Jun-08 Healthcare Maneesh Pharmaceuticals Pvt. Ltd. Synovics Pharmaceuticals, Inc. (OTCBB:SYVC) -
19-Jun-08 Healthcare Intas Biopharmaceuticals Ltd. Biologics Process Development, Inc. -
20-Jun-08 Agricultural Advanta India Ltd. (BSE:532840) Limagrain Verneuil Holding, US Sunflower Business -
24-Jun-08 Energy GMR Energy Limited InterGen, Inc. 1,100.0
2-Jul-08 Technology Wipro Technologies Ltd. Wipro Gallagher Solutions, Inc. -
8-Jul-08 Technology Allied Digital Services Ltd. (BSE:532875) Premier BPO, Inc. 24.24
8-Jul-08 Engineering Foster Wheeler Quotient Engineering, Inc. -
17-Jul-08 Technology Kaashyap Technologies Limited (BSE:532283)
NexAge Technologies USA Inc. 3.0
17-Jul-08 Technology Kaashyap Technologies Limited (BSE:532283)
Enterprise Consulting Services, Inc. 1.0
18-Jul-08 Packaging Bilcare Ltd. (BSE:526853) International Labs, Inc. -
30-Jul-08 Technology Ontrack Systems Ltd. (BSE:532607) IQ Technologies LLC -
3-Aug-08 Technology Aegis BPO Services Ltd. PeopleSupport Inc.
USUSUSUS----BOUND BOUND BOUND BOUND AAAACQUISITIONS BY CQUISITIONS BY CQUISITIONS BY CQUISITIONS BY IIIINDIAN NDIAN NDIAN NDIAN CCCCOMPANIES OMPANIES OMPANIES OMPANIES March 2009
PAGE 7
249.59
22-Aug-08 Technology Take Solutions Ltd. (BSE:532890) Applied Clinical Intelligence, LLC -
22-Aug-08 Technology N.S Infotech Pvt. Ltd. Telfonix Medical Consulting, Inc. -
25-Aug-08 Technology HCL Technologies Ltd. (BSE:532281) Control Point Solutions, Inc. -
31-Aug-08 Healthcare Actis Biologics Private Ltd. CellPoint Diagnostics Cancer Drug Discovery Assets -
2-Sep-08 Chemicals RFCL Limited Mallinckrodt Baker, Inc. 340.0
7-Sep-08 Technology Reliance BIG Entertainment Private Limited Willow TV, Inc. -
11-Sep-08 Technology QAI Global Institute The Quality Assurance Institute, Inc. -
15-Sep-08 Manufacturing Crompton Greaves Ltd. (BSE:500093) MSE Power Systems, Inc. 16.0
15-Sep-08 Technology Ranklin Solutions Ltd. (BSE:590077) Cigniti, Inc. -
19-Sep-08 Jewelry Dynamix Jewelry Group JewelAmerica, Inc. -
30-Sep-08 Technology Polaris Software Lab Ltd. (BSE:532254) SEEC, Inc. (OTCPK:SEEC) -
21-Oct-08 Technology Neilsoft Limited CADFORCE LLC -
28-Oct-08 Real Estate Embassy Group Ltd. The Lakes Apartments 24.43
28-Oct-08 Real Estate Embassy Group Ltd. The Loft Apartments 9.33
31-Oct-08 Real Estate Khanna Enterprises Ltd. Hotel Montgomery 12.4
3-Nov-08 Technology Zylog Systems Ltd. (BSE:532883) Fairfax Consulting Inc. 7.5
3-Nov-08 Technology Zylog Systems Ltd. (BSE:532883) PEQ Consulting Inc. -
10-Nov-08 Technology Ebix Software India Private Limited ConfirmNet Corporation 7.35
21-Nov-08 Healthcare EID - Parry Ltd. (BSE:500125) Valensa International 9.0
5-Dec-08 Education Manipal Education and Medical Group American University of Antigua -
17-Dec-08 Healthcare Cadila Healthcare Limited (BSE:532321) Zydus Pharmaceuticals (USA) Inc. -
22-Dec-08 Healthcare Vivimed Labs Ltd. (BSE:532660) Har-met International, Inc. -
22-Dec-08 Healthcare Piramal Healthcare Ltd. (BSE:500302) Minrad International Inc. (AMEX:BUF) 38.53
29-Dec-08 Technology Rolta India Ltd. (BSE:500366) PIOCON Technologies, Inc. -
*Source: CapitalIQ Database
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