Us Bound Acquisition By Indian Companies March 2009

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

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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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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


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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


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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.


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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


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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 [email protected]@[email protected]@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


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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.


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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

Us Bound Acquisition By Indian Companies March 2009

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Transcript of Us Bound Acquisition By Indian Companies March 2009