Deal Street On Fire

Make no mistake, from the old economy to the new, from steel to telecoms and infotech, companies are being grabbed up by venture capitalists and competitors as bullish stock markets are helping promoters book hefty profits.

Last week, for example, Oracle signed a Rs 3,954-crore deal to take over i-Flex from Citicorp, one of the biggest buyouts till date. Within a day, Reliance announced a demerger of its group companies, which will eventually create a new Rs 43,000 crore empire — to be headed by Anil Ambani — based on market capitalisation. The week closed with BK Birla announcing a Rs 300-crore deal to buy out other Birlas in their investment vehicle, Pilani Investments.

The previous week, the Birlas and Tatas ended months of negotiations to pick up Cingular’s stake in Idea Cellular for $300 million. And not to be left behind, Anil Ambani says he will buy AMP Sanmar for Rs 300 crore from its Australian promoter AMP even as he asks reporters to name a bank up for sale so that he can pick it up!

So, what’s up next week? The next deal, if the buzz on Deal Street is to be believed, is the sale of Barings’ 35 per cent stake in MphasiS BFL, whose stock is now trading at a high of Rs 270.80. Barings, say bankers, will receive a controlling premium from the potential bidder (probably a large IT service vendor) which would mean higher upside over the fundamental value of the share.

‘‘Investors should always watch out in the short term, there could be a risk in case of any disappointment on the stake sale rumours,’’ cautions an analyst with Motilal Oswal Securities.

So, what is fuelling the M&A boom in the country? Apart from good corporate results, cheap valuations and lack of alternate investments avenues, foreign investors are pouring in money into Indian companies, either via the stock markets and also by picking up direct holdings.

With big-ticket opportunites in the global arena drying up, investors are looking at BRIC (Brazil, Russia, India, China) countries and, for now, India looks the best bet. ‘‘Today, every corporate wants a presence in India. A corporate cannot be called an MNC if they do not invest in India and M&A is the fastest way to get into any market. I will not be surprised if we see more deals in future,” says D R Dogra, Executive Director of independent corporate rating firm Care.

Others agree. ‘‘Investors are attracted by the strong macro-economic growth prospects driven by both consumption and investment demand, good traction in services exports and also the quality of Indian corporates,’’ says Kannan Venkataramani of Prudential from Hong Kong. ‘‘We believe in the India story and think that it can offer good returns for long-term investors.”

Not only foreign investors, Indian companies know they must use M&A to stay in the lead. For one, Tata Teleservices is looking at an option of investing close to Rs 20,000 crore in the telecom sector, including M&As. Investment bankes are not ruling out a merger among all Tata group telecom companies so that they can get synergistic benefits.

The future, investment bankers say, belongs to those who see it before others and more clearly than their competitors. Certainly, the way M&A deals are being signed, a lot of investors want to take advantage of foresight rather than hindsight. And Deal Street continues to rock.