Introduction

Until the 1990s, not many Indian companies had contemplated

spreading their wings abroad. An Indian corporate or group
company acquiring a business in Europe or the U.K. seemed
possible only in the realm of fantasy. The reasons why overseas
acquisitions are becoming more common are many. The reform era
and the march of globalization have obviously made the
environment more conducive. Globalization forever changed the
rules of the game. Indian entrepreneurs had gained confidence to
compete with well-established multinationals from abroad in the
domestic market place. It was only a matter of time before some of
them would shift their focus beyond the Indian shores, not just in
selling their products but in setting up manufacturing facilities as
well. A whole range of companies in fields such as pharmaceuticals,
automobile ancillaries, IT, banking and steel have ventured abroad.
In general, the factors favoring foreign forays in most cases are the
availability of affordable human resources, willing to adapt to the
global scenario. The contribution of economic reform at home to the
outward focus of companies can hardly be overstated. For instance,
the rupee's exchange rate is market determined and all current
account transactions have been freed from controls. Indian
companies enjoy substantial freedom to invest abroad even though
there is no full convertibility of the rupee as yet. Indian businessmen
too have, albeit more slowly than those in the West, chosen to
invest abroad through acquisitions. The good news is that what
started as a trickle in the 1990s has been growing in size. Today
outward fund flows from India almost match those coming in from
abroad.

Mergers and Acquisitions in Indian Industry

In Indian industry, the pace for mergers and acquisitions activity
picked up in response to various economic reforms introduced by
the Government of India since 1991, in its move towards
liberalization and globalization. The Indian economy has undergone
a major transformation and structural change following the
economic reforms, and “size and competence" have become the
focus of business enterprises in India. Indian companies realized the
need to grow and expand in businesses that they understood well,
to face growing competition; several leading corporate have
undertaken restructuring exercises to sell off non-core businesses,
and to create stronger presence in their core areas of business
interest. Mergers and acquisitions emerged as one of the most
effective methods of such corporate restructuring, and became an
integral part of the long-term business strategy of corporate in
India. Over the last decade, mergers and acquisitions in the Indian
industry have continuously increased in terms of number of deals
and deal value. A survey among Indian corporate managers in 2006
found that Mergers &Acquisitions are a significant form of business

1
strategy today for Indian Corporate. The three main objectives
behind any M&A transaction, for corporate today were found to be:

 Improving Revenues and Profitability

 Faster growth in scale and quicker time to market
 Acquisition of new technology or competence

Objectives of Indian Corporate for M&As (as per

survey of corporate)

Objective behind the M & A %

To improve revenues & Profitability 33
Faster growth in sale & quicker time to market 28
Acquisition of new technology or commerce 22
To eliminate competition & increase market share 11
Tax shields & Investment savings 3

35

30

25

20

15

10

0
To Faster Acquisitio To Tax
improve growth in n of new eliminate shields &
Series1 33 28 22 11 3

2
 Indian Investments Abroad

Indian companies (big or small) are reaching overseas destinations

to tap new markets and acquire technologies. While some of the
investment went into Greenfield projects, a major portion of Indian
overseas investment went into acquiring companies abroad.
Acquisitions bring with them major benefits - existing customers, a
foothold in the destination market and also niche technologies they
require.

Indian outbound deals:

 US$ 0.7 billion in 2000-01.

 US$ 4.3 billion in 2005.
 US$ 15 billion in 2006. [This comprised 60 per cent of the total
mergers and acquisitions (M&A) activity in India in 2006].
 The total M&A deals for the year during January-May 2007
have been 287 with a value of US$ 47.37 billion. Of these, the
total outbound cross border deals have been 102 with a value of
US$ 28.19 billion, representing 59.5 per cent of the total M&A
activity in India.
 The total M&A deals for the period January-February 2007
have been 102 with a value of US$ 36.8 billion. Of these, the
total outbound cross border deals have been 40 with a value of
US$ 21 billion.
 There were 111 M&A deals with a total value of about US$
6.12 billion in March and April 2007. Of these, the number of
outbound cross border deals was 32 with a value of US$ 3.41
billion.
 There were 74 M&A deals with a total value of about US$ 4.37
billion in May 2007. Of these, the number of outbound cross
border deals was 30 with a value of US$ 3.79 billion.

Few Acquisitions (Abroad) made by Indian companies:

 Tata Power has acquired significant stake in PT Kaltim

Prima Coal and PT Arutmin Indonesia (US$ 1.1 billion).
 The acquisition of Algoma Steel Inc by Essar Global at a
valuation of US$ 1.58 billion.
 Acquisition of Novelis for US$ 6 billion by Hindalco, Suzlon
Energy's controlling stake in REpower for US$ 1.7 billion.
 Acquisition of Paris-based Negma Laboratories for US$ 265
million by Wockhardt Ltd.
 Acquisition of Taro by Sun Pharma at US$ 454 million
 Acquisition of Globeleq America's power assets for US$ 542
million through a 50:50 joint venture between Infrastructure
Company D S Constructions and Israel Corporation.

3
  Acquisition of Hollister-Stier Laboratories for US$ 122
million by Jubilant Organosys Ltd.

What are the positive factors / opportunities are in front of

Indian companies?

 The main factors fuelling the growing hunger for M&As among
Indian companies are huge fund supply, globally competitive
business practices and a favorable regulatory environment,
besides higher margins, revenue, volumes and growth prospects.
 The Reserve Bank of India has liberalized overseas investment
norms.

1) Hiked the overseas investment limit from 200 per cent of the net
worth to 300 per cent of the net worth;
2) Hiked the limit on overseas portfolio investment from 25 per cent
of their net worth to 35 per cent of their net worth;
3) Allowed Indian residents to remit up to US$ 1, 00,000 per
financial year, from US$ 50,000 previously, for any current or
capital account transaction or a combination of both.
4) Allowed mutual funds to invest funds to the tune of US$ 4 billion
in overseas avenues, from an earlier cap of US$ 3 billion.

 India has become the second-biggest source of new foreign

investment into London, behind only the United States. India has
accounted for 16% of all new foreign investment into London
between 2003 and 2007, with a cumulative investment of US$
103.4 billion.

Reacting to the changed policy structure, a number of financial

services providers and brokerages are drawing plans to provide
offshore investment products to Indian customers: -

 Reliance Money has tied up with UK-based online

trading platform provider CMC Markets.
 UTI has tied up with global investment advisors Select
Street Global Advisory, (SSgA).
 KOTAK has joined hands with the US-based T Rowe
Price.

4
 The top 10 acquisitions made by Indian companies
worldwide

Acquirer Target Company Country Deal Industry

targeted value ($
ml)
Tata Steel Corus Group plc UK 12,000 Steel
Hindalco Novelis Canada 5,982 Steel
Videocon Daewoo Electronics Korea 729 Electronics
Corp.
Dr. Betapharm Germany 597 Pharmaceutical
Reddy's
Labs
Suzlon Hansen Group Belgium 565 Energy
Energy
HPCL Kenya Petroleum Kenya 500 Oil and Gas
Refinery Ltd.
Ranbaxy Terapia SA Romania 324 Pharmaceutical
Labs
Tata Steel Natsteel Singapor 293 Steel
e
Videocon Thomson SA France 290 Electronics
VSNL Teleglobe Canada 239 Telecom

Analysis: -
Deal value ($ ml)

12,000
11,000
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Tat Hin Vid Dr. Suz HP Ran Tat Vid VS
a dalc eoc Red lon CL bax a eoc NL
Deal value ($ ml) 12,0 5,98 729 597 565 500 324 293 290 239

5
Interpretation: -
If we calculate top 10 deals it account for nearly US $ 21,519
million. This is more than double the amount involved in US
companies' acquisition of Indian counterparts. Indian outbound
deals, which were valued at US$ 0.7 billion in 2000-01, increased
to US$ 4.3 billion in 2005, and further crossed US$ 15 billion-
mark in 2006. In fact, 2006 will be remembered in India's corporate
history as a year when Indian companies covered a lot of new
ground. They went shopping across the globe and acquired a
number of strategically significant companies. This comprised 60
per cent of the total mergers and acquisitions (M&A) activity in India
in 2006. And almost 99 per cent of acquisitions were made
with cash payments. When it comes to mergers and acquisitions
deals in India, the total number was 287 from the month of January
to May in 2007. It has involved monetary transaction of US $47.37
billion. Out of these 287 merger and acquisition deals, there have
been 102 cross country deals with a total valuation of US $28.19
billion.

6
 Mergers and Acquisitions (M&As) in the IT and BPO Sector

Despite general slowdown in M&A activities, the M&As in the IT and

BPO sector have continued in 2008 at full strength. During the
calendar year 2008, domestic IT and BPO companies were involved
in as many as 28 M&A deals in the cross-border category. The total
value of cross-border M&A deals has stood at over US$ 287 million.
According to Nasscom, Indian companies are using cross-border
M&A route to enhance their global service delivery capabilities,
recognizing the advantage it offers in better managing evolving
customer requirements and providing end-to-end services. Notable
amongst the deals was Mascon Global’s $55 million acquisition of
two US-based companies – Jass & Associates and SDG Corporation.
Recently, HCL Technologies have acquired US-based Capital Stream,
a specialist in banking software.

Slowdown halves IT/BPO mergers

In 2009: In 2009, it seems that IT and BPO companies have stayed

away from blockbuster merger and acquisition (M&A) deals.
According to the data tracked by Grant Thornton, an accounting and
consulting firm, against the total deals value of $1.3 billion in
January-July 2008, the M&A space grossed only $616 million this
year.

7
While the Tech Mahindra-Satyam deal bolstered the domestic
numbers, the total value of cross-border deals (outbound and
inbound combined) fell 83 percent to $156.5 million during January-
July this year. The cross-border deal volume at 13 deals was a
fraction of last year's level (47 deals).

A total of 16 Private Equity transactions in the IT and BPO space

grossed $108.6 million in January-July 2009 compared with 39 deals
that yielded $258.3 million in the corresponding period last year.

Revenues earned by IT & BPO sector: - Data as per survey by

NASSCOM (2009).

Revenues earned by IT & BPO sector ($ billion)

2008 2009
IT sector 18 23.1
BPO sector 8.4 10.9

Analysis: -

25 IT sector, 23.1

20 IT sector, 18

15 BPO sector,
BPO sector, 10.9
10 8.4

0
2008 2009
IT sector 18 23.1
BPO sector 8.4 10.9

Interpretation: -

As per above chart it has being clearly seen that in both IT as well
as BPO sector, the revenues are increased. The IT services have
grown by 28 per cent and have posted revenues of $23.1 billion.
The BPO services have grown by 29 per cent and have posted
revenues of $10.9 billion.

ANOVA Analysis: -

2008 2009

8
 IT sector 18 23.1
BPO sector 8.4 10.9

2008 2009 Total

IT sector 18 23.1 41.1
BPO sector 8.4 10.9 19.3
Total 26.4 34 60.4

Correlation factor (CF) = Total (T) ²

Number of Observation

= 60.4 χ 60.4

= 912.04

Total sum of the square (SST)= (18)² + (23.1)² + (8.4)² + (10.9)² -

CF

= 1046.98 – 912.04

= 134.94

Total sum of the square between rows (SSR)

= (41.1)² + (19.3) – CF

= 2061.7 – 912.04

= 118.81

Due to error = SST – SSR

= 134.94 – 118.81

= 16.13

9
ANOVA table: -

Source of Sum of Degree of Mean sum Fcal

Variation Square freedom of square
sum of the SSR 2-1=1 X = 118.81 F = 118.81
square
between rows 1 8.065
Due to error SSE 4-2=2 Y = 16.13 F = 14.73

2
Total SST 4-1=3

Ho: there is no significance difference between the two years.

H1: there is a significance difference between the two years.

F cal = X/Y

= 118.81/8.065

= 14.73

F tab = 4.23 [5% level of significance, degree of freedom = (h-1) &

(N-h)]

F cal > F tab

So, Ho is rejected.

So, there is a significance difference between the two years.

The IT services have grown by 28% & the BPO services have grown
by 29%, so it has clearly seen that there is a significance difference
between the two years.

Key strategies as per TCS for earning profits: -

Key strategies are driving sustainable long term growth
– Key account focus
– Geographical diversification: new growth markets
– Non-linear growth models

In the short term, focused on streamlining operations

– Utilization
– Offshore Shift
– Cost Management
– Employee Cost Management
– Maturing of Strategic Initiatives

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 Sales & Profit of few IT/BPO companies – 2009: -

Sales & Profit of IT/BPO companies – 2009

Company 2009
Sales (Cr) Profit (Cr)
TCS 27812 5256.4
Infosys Technologies Ltd. 21693 5988
Wipro Ltd. 25544.2 3899.9
HCL Technologies Ltd. 22681 4320

Analysis: -

30000

25000

20000

15000

10000

5000

0
Infosys HCL
TCS Wipro Ltd.
Technologi Technologi
Sales (X) 27812 21693 25544 22681
Profit (Y) 5256 5988 3900 4320

Interpretation: -

From the above chart & graph, it has clearly seen that the sales of
TCS are much higher, but profit earned by Infosys is higher as
compared to others. The sales of Wipro is also higher than average,

11
 but in terms of profit, it is much lower. Let us find the correlation-
coefficient between sales & profits, it help to understand the co-
relation between them.

Co-relation Co-efficient Analysis: -

Sales Profit
Company (X) (Y) x = M-X y = M-Y x² y² xy
1141764
TCS 27812 5256 -3379 -390 1 152100 1317810
Infosys 125888
Technologies Ltd. 21693 5988 2740 -1122 7507600 4 -3074280
Wipro Ltd. 25544 3900 -1111 966 1234321 933156 -1073226
HCL Technologies
Ltd. 22681 4320 1752 546 3069504 298116 956592
2322906 264225
Total 97730 19464 0 0 6 6 -1873104
Mean 24433 4866

r = 4 (-1873104)

9639.31 x 3251

r = - 7492416

31337397

r = (-0.24)

The value of r = (-0.24), so there is party negative correlation-

coefficient between sales & profit of IT/BPO companies because the
sales of Wipro is higher than average sales, but in terms of profit, it
is much lower than the average profit.

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Co-relation analysis gives the idea of prevailing relationship natured
between two or more variables but it never gives idea of expected
change in one variable corresponding to some change in other
variable. The statistical tool which overcomes this problem is called
Regression Analysis.

Regression Analysis: -

Regression of ‘y’ (profit) on ‘x’ (sales).

byx = n (∑xy)

n (∑x²)

= 4 (-1873104)

4 (23229066)

= (-0.08)

Regression of ‘x’ (sales) on ‘y’ (profit).

bxy = n (∑xy)

n (∑y²)

= 4 (-1873104)

4 (2642256)

= (-0.71)

Regression line equation of profit on sales:

(y-Y) = byx (x-X)

y-4866 = (-0.08) (x-24433)

y-4866 = (-0.08x) + 1954.64

y = (-0.08x) + 1954.64 + 4866

13
y = (-0.08x) + 6820.64

Regression line equation of sales on profit:

(x-X) = bxy (y-Y)

(x-24433) = (-0.71) (y-4866)

(x-24433) = (-0.71y) +

x = (-0.71y) +3454.86 + 24433

x = (-0.71y) + 27887.86

Now, let us take estimation of profit & sales and apply on both
regressions line equations: -

Regression line equation of profit on sales:

If sales are Rs 30000 Cr then what would be the profit?

y = (-0.08x) + 6820.64

y = (-0.08) (30000) + 6820.64

y = (-2400) + 6820.64

y = 4420.64

If average sales are Rs 30000 Cr then the average profit would be

Rs 4420.64 Cr. The profit is lower that the average because there is
a growth of sales of Wipro Company but the growth of profit as
compared to others is much lower.

Regression line equation of sales on profit:

If profits are Rs 5000 Cr then what would be the sales?

x = (-0.71y) + 27887.86

x = (-0.71) (5000) + 27887.86

x = 3550 + 27887.86

x = 31437.86

If average profits are Rs 5000 Cr then would be the average sales

would be Rs 31437.86 Cr.

14
 Conclusion
1. The biggest takeover made by Tata (Tata-Corus) deal valued
at US$(12000 million) in India.
2. As per survey of corporate (secondary data), 33% of the
corporate objective behind M&A is to increase revenue &
profitability, while 28% of the corporate objective behind M&A is
to increase growth in sales faster.
3. The main factors fuelling the growing hunger for M&As among
Indian companies are huge fund supply, globally competitive
business practices and a favorable regulatory environment,
besides higher margins, revenue, volumes and growth prospects.
4. Almost 99 per cent of acquisitions were made with cash
payments.
5. Out of these 287 merger and acquisition deals, there have
been 102 cross country deals with a total valuation of US $28.19
billion.
6. The IT services have grown by 28 per cent and have posted
revenues of $23.1 billion. The BPO services have grown by 29 per
cent and have posted revenues of $10.9 billion.
7. Through ANOVA analysis I have found that there is a
significance difference between the two years.
8. The sales of TCS are much higher, but profit earned by Infosys
is higher as compared to others. The sales of Wipro is also higher
than average, but in terms of profit, it is much lower. So I have
found the correlation-coefficient between sales & profits, so it
helps to understand the co-relation between them. I found that
there is party negative correlation-coefficient between sales &
profit of IT/BPO companies.
9. I have also done the regression analysis of sales & profit of
IT/BPO companies. It helps companies to estimates sales & profit
for up-coming years.
10. I have found that if company’s average sales would Rs 30000
Cr then they will earned average profit of Rs 4420.64 Cr.

15
 11. I have also found that if company’s average profits were Rs
5000 Cr then they would be the average sales would be Rs
31437.86 Cr.

Bibliography

Websites: -

www.indianmba.com/Faculty_Column/FC720/fc720.html

http://www.india-now.org/Archives/ViewArticles.aspx?
art_id=16034&cat_id=598

www.indiabuget.nic.in

www.justtrade.in
(www.justtrade.in/download/stockreview/hcl_q4.pdf)

http://www.tcs.com/investors/documents/presentations/TCS-
Investor-Relations-Presentation-Feb-2009.pdf

www.infosys.com/investors/reports...2009/Q4/Q4-2008-AD.pdf

Books: -

Statistics for Management, 7th edition, Richard Levin & David Rubin,
Prentice-Hall of India private limited, New Delhi.

16