The Hindu Business Line : India Inc goes shopping in Europe

What do German towns of Bobingen, Augsburg, Guben, Peine, Ennepetal and Duan have in common? Apart from the cold beer and warm hospitality, the largest employers in all six towns, are Indian companies!

The Hyderabad-based Dr Reddy's paid € 480m for Augsburg-based Betapharm — the fourth-largest generic drugs business in Germany — making it the biggest acquisition by an Indian pharmaceutical company, to date. The deal sees Dr Reddy's move a step closer to its goal of becoming a mid-size global pharmaceutical company.

With Ennepetal and Duan-based Carl Dan Peddinghaus GmbH (CDP), Bharat Forge, which is Asia's largest, becomes the world's second biggest forging company, after Thyssen Krupp.Sundram Fasteners acquired 100 per cent in ner Umformtechnik GmbH, which produces special fasteners catering to automobile, industrial and construction sectors.

The grim face of inhabitants of 2000-year-old German towns such as Augsburg, with fine broad streets, monumental fountains and distinctive public buildings, now wear a blissful smile. Why? Because, Indians are saving their jobs. Evidently, India is the buzzword, in Europe. Later this month, Hannover Messe will be presenting India — one of the world's strongest growth markets — as its partner country for 2006. Those expected to attend include the Federal Chancellor, Mrs Angela Merkel, and the Prime Minister, Dr Manmohan Singh. Words such as `hair-pulling', `horrific' and `challenging' come to mind for many of India's strategic investors, when they look back at 2004-2005.

DOING DEALS WAS TOUGH

But, like most fairy tale stories, there was a happy ending with a rise in deal completions and market confidence.

And, as for 2006, though it seemed like a nervous beginning when the Indian-born billionaire, Mr Lakshmi Mittal, made an {euro}18.6-billion hostile bid for Europe's largest steelmaker Arcelor, the year promises to be full of excitement for strategic acquisitions, in Europe.

The resilience of the European buy-out market never ceases to amaze. It is heyday for strategic investors, and there are no obvious clouds on the horizon. I can't remember a time in the past decade when the economic landscape for acquisitions deals was so good.

ALARM BELLS

Italy seems to be tormented from pre-election fever, while Germany is suffering from post-election paralysis and continued lacklustre growth. The UK's mounting trading dearth and household debt are possible bases for anxiety.

Eurozone interest rates may be edging up, but most economists foretell stable or even falling rates over the coming year. High oil prices remain nerve-wracking.

Even if the break does come later than expected, a mature and flexible market will be able to adapt to a changing economic environment, and continue to reap the rewards. Here is a peek into the key markets:

FRANCE

You could be forgiven for thinking that there are no new opportunities left for strategic acquisitions, in France. France has proved a popular target for Indian buyers. Ranbaxy acquired French generic pharmaceutical firm RPG Aventis, for {euro}60m in 2004.

At the time, RPG was ranked fifth in the French generic drugs market, with annual sales of around {euro}52m. The generics market in France is the world's fifth largest, after the US, Japan, Germany and the UK. It has annual sales of more than {euro}1bn.

GERMANY

Corporate divestment provided around 45 per cent of total deal flow. Germany is an evident target for Indian investors in quest of buying pharmaceutical companies, because it is domicile to the biggest generics drugs market outside the US, with a turnover of around {euro}5bn a year.

Germany's propinquity to Central and Eastern Europe means that companies are able to look to the area for growth programmes and lower-cost manufacturing opportunities.

BENELUX

The value of investments in the Benelux region has surged over the past 12 months. The largest deal in 2005 was Shell and BASF's sale of chemical distribution company Basell to a consortium led by Access Industries and Chatterjee Group for {euro}4.4 billion.

Ranbaxy acquired Ethimed in Belgium where the market is largely branded and, high priced with increasing generic penetration.

THE NORDIC REGION

Healthy economies and very strong deal flow spiced with abundant financing were key drivers in the Nordic area, which last year stood out as one of the busiest in Europe. Many of the largest deals came from Denmark, one of the European Union's smallest economies.

In Sweden, the level of activity is expected to be high. A large number of family businesses are on the market thanks not only to attractive prices, but also to the ongoing process of succession at the companies. The fact that Sweden scrapped both its Inheritance Tax and Gift Tax a year ago has probably speeded up ownership changes in the sector. In Finland, the market was slow compared with the rest of the Nordic region.

IBERIA

Spain was home to some of Europe's largest deals and bidding wars in 2005.

CENTRAL/EASTERN EUROPE

Emerging economies are starting to attract Western money as opportunities increase in scope and size. New EU member-states aside, 2006 is expected to see the first signs of sustained private equity interest in south-east Europe, with Bulgaria and Romania set to join the EU in January 2007. As the region develops, opportunities will come from the consumer sector as disposable incomes rise. Ranbaxy now has a 97.5 per cent stake in Terapia, Romania's largest independent generic drug company which had sales of about $80 million, last year.

ITALY

Unlike other parts of Continental Europe, Italy's family managers are becoming increasingly hospitable towards strategic acquisitions by foreign companies Food deals are popular in Italy because these companies have strong brands. The economy has slowly pulled itself out of recession and 2006 looks set to see some much-needed growth, after a recent unexpected rise in consumer spending. Also, 2006 is an election year in Italy.

THE UNITED KINGDOM

The promising opportunities this year will be in healthcare, IT, pharmaceuticals and leisure sectors, as well as some areas of financial services.

(The author is a former Europe Director, CII, and lives in Cologne, Germany. Feedback may be sent to mohan.murti@t-online.de)

More Stories on : Mergers & Acquisitions | Insight | Overseas Investments | Euroscape

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Supplementing the goals

Reinventing Government

Managing the knowledge workers

Be warned, employee training can cause attrition

Doha Round: Onus on India?

Pay Commission: The challenges in an era of liberalisation

India Inc goes shopping in Europe

IT woes

Compounding troubles