To Merge And Emerge

MergersThe appreciation of rupee has brought about significant changes in the economy. From creating new challenges to some of these changes presenting new opportunities, its been a roller coaster ride for the economy.

In the light of the rising rupee, it is worth mentioning that new M&A opportunity has presented itself before India. India Inc.can now reach out to the world by acquiring global concerns. The year started with big acquisitions such as Tata Steel buying the Corus and Hindalco acquiring Novelis.

The value of the deals made in only the first six months of the year is about $ 14 Billion. From the year 2003 to August 2007 the value of the deals has more than doubled, implying a 108% compounded growth annually.

Where the economy was struggling with the appreciation of the currency, the Indian firms that had acquired assets abroad saved approximately $ 1.66 Billion, according to a study conducted by the industry chamber, Assocham. The IT sector alone has been able to manage savings of Rs 795 in the first quarter of the current year.

The studies also suggest that due to continuous decline in the dollar value, US has remained the favourite destination for overseas buyouts. On the other hand, the depreciation of rupee against the Euro has led to a decline in buyout activities by about 88% in the second quarter if the year compared to the first quarter.

The fact that about 1 in 3 of these deals can be termed successful, speaks a lot about the entrepreneurial drive in India. The competitiveness and skills to manage an enterprise on a global scale are present in India. In a market place where intangible assets like knowledge, intellectual properties, brand, customer relationships etc are taking a major role in defining a company’s success, India is faring better than good. With respect to these intangible assets, reports suggest India is number three in the world and number one in Asia.

The appreciation of rupee affected the textile industry as well, in a way which does not match the picture painted so far. The textile industry’s exports suffered a heavy loss due to competition from the foreign countries. The failure of the industry to keep up with global competition is often attributed to fragmented structure of the industry.

The industry is divided into many small-scale enterprises and hence does not enjoy the advantage of reduction of cost due to large scale. The economy of large scale is not realized and hence costs are always high.

The year’s reports show that domestic mergers’ value was only 8% of the total value of global deals. Clearly, merging of these loss making small sectors can bring better results due to improved efficiency. India can only aspire to be a global force, if the fragmented sectors in the economy are consolidated to be able to cater well to the domestic and global competition.