About the India M&A Market

Industry Overview

The sustained growth of the Indian economy and persistent optimism displayed by business leaders, both at middle market companies and large industrial houses, drove the pace of Indian mergers and acquisitions to another record year in 2006. Corporate M&A activity in India included almost 700 deals worth Rs 865 billion ($19 billion) in 2006, a rise of 18% in deal value over the prior year. The average deal size in 2006 was around Rs 1,241 million ($28 million). Strategic acquirers accounted for 60% of this activity in terms of deal value, with private equity firms contributing the rest.

 Strategic investments in and out of India are complemented by increasing interest from financial buyers in assets in the country, as evidenced by:

• Volume and value of private equity investments in Indian companies
• Rate at which new and larger funds are being raised by Indian private equity firms
• Number of U.S. funds establishing a base in India with large corpuses

 2006 concluded with 276 private equity transactions worth Rs 345 billion ($7.6 billion), 40% of the total deal value. This, compared with Rs 93 billion ($2 billion) in 2005, represents 270% year-over-year growth. Foreign financial acquirers of Indian companies comprised 71% of total deal value, up from 56% in 2005. The average deal value for acquisitions conducted by these acquirers was Rs 1,992 million ($44 million) versus Rs 649 million ($14 million) for domestic financial acquirers.

Cross border M&A between India and the western world is a relatively recent trend but one that is growing at an even higher rate than the overall merger activity in the country. 2006 witnessed an in­crease in both inbound and outbound transactions, driven by the desire for entry into new markets, consolidation, a focus on infrastructure, and acquisition of domain know-how.

The Indian government is increasingly enabling an active cross-border M&A environment. The com­prehensive foreign holding reforms in 2005 and the real estate industry reforms at the end of 2006 opened a record number of industries to foreign investment and are a testament to the Indian govern­ment’s changing outlook. The deal activity observed during the first two months of 2007 and the increasing appetite of Indian and foreign companies for global assets suggests that 2007 and the foreseeable future beyond will be a productive time for M&A activity in India, both domestically and cross-border.

	Reported Indian Corporate M&A Activity By number of deals (2006) LEGEND:    GREEN: Indian Acquisitions of Foreign Companies, 60%    GRAY: Foreign Acquisitions of Indian Companies, 26%    BURGUNDY: Domestic Transactions, 14%
* Source: Business Line, Corporate India Goes Shopping, January 14, 2007, January 2007

Outbound acquisitions (Indian buyers acquiring non-Indian businesses) accounted for roughly 60% of total corporate cross-border M&A. In 2006, Indian buyers conducted 140 non-Indian acquisitions worth $8 billion compared to 100 deals worth $2.4 billion in 2005, representing 233% year-over-year growth in terms of deal value. This is before factoring in the much talked about $10 billion bid for Corus from Tata and Hindalco’s $6 billion offer for Canada’s Novelis.

Outbound acquisitions make sense for many Indian businesses, as they provide an base of customers in an established market (such as the U.S.) to which products or services developed in India at competitive costs can be sold. Other reasons behind the growth in outbound activity include:

• The need to provide local customer support
• Ability to leverage new technology often more readily available to companies in the West
• Ability to leverage the partnerships and vendor relationships developed by western firms

* Source: Indata Report, The Party Continues, January 2007

As more such acquisitions are successful and wealth within India accumulates, the volume of outbound cross-border acquisitions is expected to continue growing at a rapid pace. Aleutian, with its core strength in U.S. acquisi­tion deal sourcing, is in a superb position to assist such buyers in India.