"Project on Idbi Capital Market Service - PowerPoint"
1 14:00/15:15- Panel 2 Mergers & Acquisitions between India and Europe 2 14:00/15:15- Panel 2 Mergers & Acquisitions between India and Europe Chairperson: R. SANKARAN, Advisor, Rothschild India Sanjay BHANDARKAR, Managing Director, N M Rothschild & Sons (India) Kalpesh KIKANI, Senior General Manager, ICICI Bank Tim THOMAS, Chief Operating Officer, Bharti AXA Life Insurance Co. 3 India – Europe Connexion Sanjay BHANDARKAR Managing Director N M Rothschild & Sons (India) 4 India – An Overview GDP Growth rate amongst the highest in the world Clocked at 8.4% last year and estimated c.9 % for the current year 5th largest nation in the world in PPP terms (€ 3tn)* Per Capita GDP (PPP) : € 2,720* Growth spurt led by manufacturing and service sectors Highest FII inflow amongst emerging Asian economies in CY06 (€ 6.2bn) FDI Inflows at € 5.5bn in FY 06 (40% YoY growth) Among the four fastest developing BRIC economies in the world Population of over 1bn with 54% less than 25 years old Note * - As of 2006 est 5 India – Developed Capital Market Capital markets Has one of the most developed capital markets among emerging countries Only BRIC country with Market Cap. higher than GDP 115 companies with a Market Cap. greater than €1bn (As of 15th May 2007) Substantial PE interest Indian corporates have made Source Rothschild analysis Note Indices rebased to 100 aggressive cross-border acquisitions backed by Foreign attractiveness Funding from investors, hedge funds and banks Government pursuing progressive liberalization and easing of FDI norms 100% FDI allowed in most infrastructure sectors Source A T Kearney Study 2005 6 Indian Companies Going Abroad “The Indian Multinational” A steel company in UK, an oil & gas explorer in Norway, a generic drug manufacturer in Germany; all have one thing in common - they are all flying the Indian tricolor Value of outbound deals larger than inbound In Jan-March 2007, 40 out-bound deals with a total value of € 15bn Led by Tata-Corus, Hindalco- Novelis, Aban-Sinvest Companies looking to expand their product portfolio, access new markets, technologies From regional to global player 7 Indian Acquirers – European Targets Indian companies on a massive acquisition spree in past 2 years Led by Iron and Steel, Energy and Pharmaceutical sectors More outbound deals than inbound deals in 2006 in value terms Largest portion of outbound acquisitions in Europe (42%) followed by North America (24%) Tata – Corus deal represents largest ever acquisition by an Indian company Source: Thomson Financial Note:1) 2007 figures are YTD 2) All completed Deals only 8 Indian Acquirers – European Targets Sectoral Split Iron & Steel Tata’s € 9.5bn acquisition of Corus Group PLC Energy Aban Offshore’s € 1.1bn acquisition of Sinvest ASA, an oil & gas E&P company Suzlon Energy is currently in the process of acquiring German based REpower Systems Has placed a competitive bid of € 710m Pharma & Biotech Dr. Reddy’s € 577m acquisition of German pharma major betapharm GmbH Ranbaxy Laboratories acquired Source: Merger Market, Rothschild analysis Romanian based Terapia SA for € 270m Note:1) Includes all announced deals from 2004 till 2007 YTD 2) Excludes Tata – Corus deal 9 Indian Acquirers – European Targets Top 10 Deals (2005 – 2007YTD) Source: SDC, Merger Market, Rothschild analysis 10 European Acquirers – Indian Targets European investment in India constantly on the rise Majority of inbound investments seen in Telecom, IT and Financial Services sectors Vodafone’s recent acquisition of Hutch’s 67% stake in Hutchison Essar Largest ever acquisition by a foreign company in India Source: Thomson Financial Note:1) 2007 figures are YTD 2) All completed Deals only 11 European Acquirers – Indian Targets Sectoral Split Telecom Vodafone’s € 10.5bn announced acquisition of Hutch’s 67% stake in Hutchison Essar In 2005, Vodafone also picked up 6% stake in Bharti Airtel for € 686m Mining UK based Vedanta Resources’ recent announced acquisition of 71% stake in Sesa Goa for € 972m Cement Swiss cement major, Holcim picked up 20% stake in Gujarat Ambuja Cement for € 466m Source: Merger Market, Rothschild analysis Note:1) Includes all announced deals from 2004 till 2007 YTD 2) Excludes Vodafone – Hutchison Essar deal 12 European Acquirers – Indian Targets Top 10 Deals (2005 – 2007YTD) Source: SDC, Merger Market, Rothschild analysis Note *- Through its Indian Subsidiary, Mysore Breweries 13 In Conclusion Cross border activity on a continuous rise Number of cross border deals increased from 60 in 2004 to 266 in 2006 A significant proportion of M&A activity (in terms of volume) was done by mid cap companies Number of Indian companies that are able to do major acquisitions abroad is growing constantly In the first few months of 2007, Indian M&A crossed € 26bn led by large cap companies like Tata, Suzlon, Hindalco (Birla group) Easy availability of debt for acquisition financing Inbound acquisitions constrained by limited availability of high quality companies 14 Rothschild India Office Advised Tata Steel on € 9.3bn Tata Steel Dr. Reddy s Laboratories Azure Solutions acquisition of Corus Group Advised on the US$576m Advised controlling Advised Dr Reddy’s € 577m acquisition acquisition of Betapharm, shareholders on their US$ Advised on US$ 11.9bn Germany 140m disposal of shareholding to Subex acquisition of Corus Group Systems through a GDR of betapharm plc 2007 2006 issuance 2006 Advised Azure on € 113m sale to Subex Systems ICICI, IDBI, SBI ICICI IDBI EXIM Air Deccan € 1.4bn Dabhol power project Advised Indian Lenders to Daewoo automobile plant in India US$1.9bn disposal of Daewoo Motors (India) on Raising US$40m private assets of Dabhol Power the monetisation of assets equity from ICICI Ventures Company to Ratnagiri Gas and Capital International & Power Pvt Ltd (a JV between NTPC and GAIL) Air Deccan, first Indian LCC 2005 2005 2005 Radio Mirchi, first private FM channel Entertainment Foodland Lanco Group Network (I) Ltd. Radha Krishna Foodland, first food distribution deal Financial Adviser on fund US$25m private equity Advised on induction of raising infusion from Warburg financial partners in 600 Pincus MW coal based Lanco Amarkantak power project, first Amarkantak Power Project coal based IPP in India 2002 2004 2006 15 14:00/15:15- Panel 2 Mergers & Acquisitions between India and Europe 16 India-Europe M&A Kalpesh KIKANI Senior General Manager ICICI Bank 17 Agenda M&A activity in India Trends in Indian outbound M&A Considerations in European deals 18 Increased corporate activity Indian corporates aspiring to become market leaders in their business segments not only in India but also globally Growth drivers Strong growth in demand leading to increased utilisation of existing capacity Product portfolio and service offering enhancement Access to new technology and markets Derisking the business …aided by easier access to capital supply… 19 Increased access to capital Private Equity Domestic Public issue ADR/ GDR issue ECB/ FCCB issue …reflecting in the sharp increase in M&A activity in the recent past… 20 M&A activity in India Share of India in global market USD billion * 2007 figure is estimated Source : Bloomberg • Value of Indian deals grew at a CAGR of 140 % from USD 8.3 bn in CY04 to USD 47.4 bn in CY06 • ICICI Bank was involved in USD 16.5 billion worth of deals in CY06 • Outbound M&A deals till March was USD 8.8 billion in 2007 • Estimated total outbound M&A projected to be more than USD 35.0 bn in 2007 • This appears to be just the beginning of the M&A wave in India 21 India-Europe M&A • Europe represents the region with the largest number of acquisitions from India • India’s share of outbound deals originating from Western Europe has increased from 5.0% to 8.5% between CY04 and CY06 • In value terms it has increased from USD 0.7 billion (CY04) to USD 3.1 billion (CY06) 22 Agenda M&A activity in India Trends in Indian outbound M&A Considerations in European deals 23 Explosive growth India's M&A has grown by 150%, next only to France and Hong Kong, each of which achieved more than 200% growth More than 80% of large Indian companies are exploring the M&A option to grow India is second largest investor in the UK, with investments of around USD 2.0 billion (2005 - 2006) Notable Deals in Europe Aban Offshore acquires Sinvest, Norway for USD 1.3 billion (2007) Tata Steel acquires Corus for USD 12.8 billion (2006) Ranbaxy acquires Terapia for USD 324.0 million Suzlon acquires Hansen, Belgium for USD 565.0 million (2006) Dr Reddy's Lab. acquires Betapharm for Euro 480.0 million (2006) Reliance acquires Flag Telecom for USD 207.0 million (2003) Tata Tea acquires Tetley Tea for USD 430.0 million (2000) 24 Increasing leverage Target Debt/EBITDA levels in Western Europe Debt/EBITDA Total Debt on target/EBITDA levels increased from 4.93 (2005) to 5.28 (2006) Senior Debt/EBITDA levels also increased from 3.92 (2005) to 4.21 (2006) 25 Pricing Trends (W Europe) Downward trend in Average Margins Average Margins in 2006 : 238 bps (247 bps in 2005) Source : LoanConnector 26 Agenda M&A activity in India Trends in Indian outbound M&A Considerations in European deals 27 Key considerations in deal structuring From a lender’s perspective Key challenge is to get direct access to cashflows/assets of target (based in Europe) Regulations differ across countries in Europe UK has a whitewash procedure Such is not available in other geographies 28 Financial Assistance in Europe Country Belgium France Germany Italy Netherlands Spain Financial Assistance No No No No No No Permitted? Very limited, None None for AG None None for NV or None none & relevant subsidiaries relevant Exceptions? relevant subsidiaries BV can give Refinancing Other Merger with loans up to may be OK if common target may distributable entirely forms of be allowed reserves separate entity (e.g. GmbH) not covered 29 Key messages Indian clients are increasingly looking at acquisitions for growth The confidence level has increased and these companies are not shying away from acquisitions of much larger companies Requirements of Indian clients are not necessarily same as for corporates in other geographies Hence, solutions need to be tailored for Indian requirements All key decision makers in ICICI Bank are based in Mumbai, thereby enabling quicker turn around in case of last minute changes in structure/ quantum of financing ICICI Bank knows the people who are driving the acquisitions in India and thus in critical situations has the ability to look beyond numbers 30 Recent Transactions Acquisition of Acquisition of Acquisition of 30% stake Acquisition of in Energy Brands Inc. Thomson SA’s CPT Pinewood West Asia Drilling N.V. plants USD 712 million USD 118 million USD 33 million USD 283 million Structuring and Lead Arranger Sole advisor and arranger Structuring & Financing Structuring & financing Acquisition of Acquisition Hansen Acquisition of Acquisition of Carbogen Amcis Technologies Amann Holdings Sinvest A.S.A USD 75 million USD 565 million Euro 35 million USD 800 million Structuring & Financing Structuring & Lead Arranger Financing Structuring & Financing 31 Recent Transactions Acquisition of 20.2% Acquisition of spirits Acquisition of stake in Great Lakes Acquisition of business of Typhoo Tea Shaw Wallace Carbon, US Keyline Brands GBP 80 million GBP 18 million USD 300 million USD 101 million Sole advisor and arranger Advisor Sole advisor and arranger Sole Arranger Employee buyout of Acquisition of Tashkent Acquisition of a Acquisition of DCS Tata Tea plantations South African tyre Software Toytepa Textiles manufacturer USD 13 million USD 103 million GBP 12 million USD 62 million Advisor Sole Arranger Structuring & Financing Guarantee facility 32 Thank You 33 14:00/15:15- Panel 2 Mergers & Acquisitions between India and Europe 34 Indian Market Entry Experience Tim Thomas Chief Operating Officer Bharti AXA Life Mumbai Wednesday, May 16, 2007 35 1.0 Market entry - a phased approach Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Desk top analysis Strategy & business case Partner selection JV execution and operational Implementation Apr-Jul 2004 Aug-Dec 2004 Launch & planning design Jan-May 2005 Sep 05-Mar 06 Oct ‘05-Aug 06 Aug ‘06 • Establish the • Strategy • Establish a • Finalise partner • Pre- launch viability of formulation for project team on the negotiations, JV and the 'start- commencing a market entry into ground in India, structuring and up' phase project to detail India and detailed consisting of AXA preparation of preparation India market business case secondee, advance legal agreements • Regulatory entry examining viable hire, implementation • Detailed license • Confirm scope, entry options partners and operational design approvals plan, and • Assess critical external resources (partner specific) • Launch comms deliverables success factors • Finalise partner • Marketing plan • Manpower • Draft critical for entry options selection for • Implementation recruitment success factors • Evaluate potential Management Board planning covers: • Sales force • Agree project partners interest endorsement process, systems, • Develop regulatory training, governance and suitability and infrastructure and compensation define preferred relations back office, branch • Desk top data and research partner list • Develop high level roll-out recruitment • Initial view of • Joint Venture and target operational • Business planning • Launch sales structuring options model and financials potential in • Finalise advance incentive market • Evaluation of entry • Reporting and programs/KPI model options and hires short list • First filter of governance tracking potential optimal business • Appoint key • Lead strategic model executives generation partners recommendation management • Financial • Establish JV modelling and committees high level business case 36 Thank you 37 14:00/15:15- Panel 2 Mergers & Acquisitions between India and Europe