May 2008
Online extra: India’s smaller companies go on a buying spree
High-ticket foreign purchases by Tata Steel and Hindalco have grabbed the headlines but India’s SMEs are also increasingly acquisitive. Cash-rich, or funded by enthusiastic local banks or foreign investors, they are taking advantage of turmoil in the US. Elliot Wilson reports.
SAPAT TEA IS a classic Indian growth story in the making. Privately run and awash with cash after a decade of strong domestic growth, the country’s third-largest tea maker and blender is on the hunt for foreign acquisitions. Armed with a war chest of more than $60 million, Mumbai-based Sapat wants to buy at least two high-end tea brands over the next 12 months – one in the US (its budget: $20 million) and one in the UK (budget: $40 million). Its management will finance the deals around 50% with cash, with the rest funded by a mixture of leveraged buyouts and, says Sapat’s managing director, Nikhil Joshi, "a sprinkling of private equity".
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"We have more capital to spend than the US firms we are looking to buy. We have good cashflow, and banks are happy to extend credit to us. Indian firms are more acquisitive than US firms, and we have a compulsion to go out and expand. We want to prove ourselves in the outside world"
Nikhil Joshi, Sapat Tea |
Sapat isn’t particularly large: Joshi declines to reveal the privately run, unlisted company’s finances, although he says that by 2010 he wants Sapat’s annual revenues to more than quadruple, to between $150 million and $200 million. But he personifies both the burning confidence of India’s family-run small and medium-sized enterprises (SMEs) – the local version of Germany’s Mittelstand – and their desire to grow rapidly and beyond their own borders. This is despite – and sometimes because of – the global credit crunch and fears of a US recession.
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