“India, the Developing-Market” of “Choice for UK Investments”| Asia Briefing

” India emerged as the developing-market of choice among British investors, attracting US$31 billion (Rs 1.9 lakh crore) in investments over the last 10 years alone”…

The figures came from an analysis of mergers and acquisitions statistics over the past decade, conducted by international law firm Freshfields Bruckhaus Deringer. “When it comes to searching for faster growth, India has tended to be the front runner over the past 10 years,” commented the firm’s Global Head of Corporate, Edward Braham.

The research showed that Britain’s leading companies invested US$645 billion globally across 3,967 deals, with investment in the UK (US$168 billion across 1,074 deals) and US (US$163 billion across 741 deals) accounting for more than half of that figure. Canada came in a distant third with 8 percent of the global investment total, although a single acquisition in 2007 by Rio Tinto of the aluminium manufacturer Alcan accounted for US$43 billion of Canada’s US$51 billion. India’s US$31 billion of investment put it at fourth place overall, with 4.8 percent of the global total.

“India has been more open to international investment in a range of sectors over the past decade, particularly those that are capital-intensive and have needed international expertise,” commented Chairman of Freshfields’ India Group. “British companies have been keen to capitalize on the opportunity and make the most of established historical, cultural and diplomatic ties. There have also been some significant strategic collaborations in key sectors which have contributed to an increasing flow of investment.”

One such key sector is the energy sector, which has dominated FTSE 100 deal activity with US$201 billion invested across 472 deals – almost a third (31 percent) of the global investment total. Oil and gas accounted for US$97 billion of that investment, while another US$91 billion was invested in metals and mining. One of the largest deals in India was BP’s US$7.2 billion purchase of a 30 percent stake in India’s Reliance Industries.

Other sectors featuring heavily were consumer-facing industries (including food and beverage, retail, tobacco and health) attracting over a quarter (26 percent) of FTSE 100 global investment (US$170 billion across 731 deals), and the financial sector, which attracted 17 percent (US$115 billion across 358 deals). Mr. Braham expected that in the future, there would be “more deals in consumer-facing industries as living standards continue to improve, the middle class expands, populations boom and consumer demand accelerates”. He pointed to the US$5 billion spent in one day in China, during “Cyber Monday” (the marketing term for the Monday after Thanksgiving in the US) as an example.

India’s investment numbers put it well in front of the other BRICS nations, with Russia following in seventh place with US$16 billion, and South Africa and Brazil coming in at ninth and tenth with almost US$14 billion each. China fell outside the top 10 at 14th place, with only US$8 billion of investment. Mr. Amin accounted for China’s lower figures by explaining, “Growth in China has been largely organic over the past decade and many international companies have gained a foothold in the region by pursuing joint venture models rather than outright acquisitions. International buyers have also faced restrictions when acquiring larger, high-quality assets, which are typically state owned.”

Mr. Amin pointed out that Indian deals were “undergoing a temporary slowdown” due to uncertainty over the upcoming legislative and presidential elections, but he remained confident that India would continue to be an important destination for M&A investment: “Stocks are at historic highs and private equity houses are also starting to eye up opportunities there again.” Indeed, many market experts expect that if the opposition BJP party prevails in the elections, a BJP-led government would be more active in implementing business reforms aimed at promoting economic growth.

Even though global M&A transaction levels have yet to recover to historic norms, Freshfields’ report indicated that business confidence appeared to be growing, and that British companies were increasingly turning to developing markets, particularly in Asia and Africa, for growth opportunities.

As Mr. Braham foreshadowed, “The undeniable shift in global economic power towards Asia, Africa and other developing regions will no doubt mean that the next ten years of FTSE 100 deal activity will reveal a different picture.”

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