India is in the middle of an M&A boom. An increasingly open economy, a slowdown in manufacturing, a new company takeover law and the maturing of Indian capital markets where minority, mostly foreign institutional shareholders now have clout, have combined to make deals happen. A new breed of young, dynamic and self-confident Indian companies, mostly in the services sector, has emerged to change the face of corporate India.
The stock market capitalization of new companies in information technology, software services, media and telecom businesses has now far surpassed the old, family-owned manufacturing conglomerates. Driven by falling market valuations, the lumbering giants have begun shedding weight while the high-flyers, buoyed by fancy stock prices, are in an acquisitive mood. A spate of M&A deals has ensued broked largely by three Indian investment banks that are joint ventures with American banks. They are DSP-Merrill Lynch, JM Morgan Stanley and Kotak Mahindra Capital, a Goldman Sachs affiliate.
But Indian M&A has not followed the same route as deal frenzies in some western markets. High interest rates in India mean that companies are rarely being bought using debt. A notable exception is the leveraged buyout of Tetley, the British tea company, by Tata Tea, part of one of the oldest Indian conglomerates, for $434 million, which is being financed by foreign debt.