2007 12月 28

BDA Assistant Director Arun Bagchi article published in November 2007 issue of Paint India

December 28, 2007

Paintindia
Vol. LVII – No.11
November 2007

(Published on pages 103-104 of the print issue)

Mergers and Acquisitions

Chemicals M&A landscape in India
(Patience and understanding is key)

Arun Bagchi

General M&A Landscape

According to a recent report by Grant Thornton, the total tally of M&A deals announced so far this stands at 460, with an announced value of US$48.4 billion. The total tally of PE deals announced so far this year stands at 267, with a value of US$10.82 billion. The pace is picking up throwing opportunities for both in-bound and out-bound deals. The inorganic growth opportunities for Indian companies have never been so good and are set to continue.

India has now emerged as the prime business destination for many international chemical companies. They are actively pursuing opportunities for Mergers & Acquisitions, Joint Ventures, Alliances and Outsourcing. The Indian chemical industry is estimated to be US$40 billion, growing at 11 percent. Indian Chemical companies are generating significant free cash flows. However publicly listed small cap companies are falling into the “Micro-cap trap” and are unable to maximize shareholder value.

Major international companies such as BASF, Dow Chemical, Bayer, DuPont and Rohm and Haas already have operations in India and are growing their business very well. Some recent news:

• Reliance Industries Limited (RIL) and Rohm and Haas Company entered into a Memorandum of Understanding (MOU) to explore the joint construction of a world-scale acrylic-monomer complex in Jamnagar, India

• Essar Chemicals, part of the Essar Group, and French chemical company Arkema recently announced the signing of a MoU to study the feasibility of an equal joint venture in India for the production and commercialization of acrylic acid and esters

• Solvay acquired the polymers division of Gharda Chemicals

• Sherwin-Williams, a company listed on the New York Stock Exchange, recently acquired Nitco Paints at an undisclosed price

• Nippon Paints plans to invest US$40m (INR 160 crore) in India. The India operations will be called Nippon Paint India, a 50-50 joint venture between Nippon Paint Japan and Singapore-based Nipsea Holdings International. Nippon India will import a range of decorative paints until the manufacturing units are set up.

Key Issues: Chemicals M&A India

No immediate exit

The typical Indian entrepreneur is open to trade sale, private equity, initial public offers. He feels that M&A and joint ventures are a good way to grow. He does not want to sell out in a hurry as he feels he can manage the company better and enjoy the benefits of growth or even acquire medium sized companies in international territories.

Relationships count

Deep relationships with management helps build the trust leading to discussions on various form of alliances. It does not help to pick up the phone and directly speak of a deal opportunity. Ample amount of face-to-face time, focus and knowing the key people in the target company helps in good progress of a deal. Advisors who have the requisite industry expertise and focus could be one of the crucial factors in the M&A process. Local knowledge of markets is the key.

Structured M&A process – unfamiliar territory

Western concept of due diligence and structured M&A process is unfamiliar territory for Indian companies. The mentality that drives a Western investor when considering an acquisition or investment is not yet fully understood. The volume of information required by International companies may initially shock the target/partner. The target/partner’s expectations also need to be carefully managed.

Growth in Indian market throwing up new winners

You may have researched your close competitors few years back, but it’s now 2007 and some new company enters and grows with the market. It’s important to continually track alliance partners/ targets, understand their business and goals, and meet their management and shareholders on a regular basis.

The opportunities for inorganic growth are tremendous. Indian companies need to be clear on their long term-strategy for their businesses and take actions on the ground to achieve the goal. For local companies it is important to remember that some of the decisions with regard to Mergers & Acquisitions, Joint Ventures, Alliances and Outsourcing are irreversible and have long term impact on the business.

[Arun Bagchi currently works for Business Development Asia (BDA) an investment bank specializing in cross border chemical industry M&A and can be reached at abagchi@bdallc.com]

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