The document analyzes US-bound acquisitions by Indian companies in the first three quarters of 2009. It finds that there were only 10 such transactions, a 78% decrease from the same period in 2008. Most deals were less than $50 million and driven by distressed acquisition opportunities. The slowdown was caused by lack of financing and lower demand/wages due to the global recession. Top target industries were IT, pharmaceuticals, and chemicals. The report discusses challenges for future deals and considers financing, distressed opportunities, and cost-cutting as key factors.

1. Vol. 2.2 Oct. 09
US-BOUND ACQUISITIONS BY
INDIAN COMPANIES
Analysis of Year-to-Date 2009 Transactions
October 1, 2009
VG VIRTUS GLOBAL PARTNERS
ICRA MANAGEMENT CONSULTING
SERVICES LIMITED
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www.virtusglobal.com Noida, India – 201301 www.imacs.in

2. US-BOUND ACQUISITIONS BY INDIAN COMPANIES
US- October 2009
Significant slowdown in US
US-
KEY HIGHLIGHTS AND TRENDS
bound acquisitions by Indian A sharp decline in growth projections, lack of
acquisition financing, decrease in US wages and
companies demand due to the global recession has caused
A sharp decline in global growth projections, lack of Indian companies to put brakes on their global
acquisition financing, decrease in US wages and growth plans in 2009.
lower demand due to the global recession has There were only ten US-bound transactions year-
caused Indian companies to put brakes on their to-date as compared to 46 transactions in the
overseas growth plans in 2009. Compared to the same period last year and 53 transactions in the
same period last year, there were 78% fewer US- first three quarters of 2007. This represents a 78%
decrease in terms of volume over last year.
bound transactions from India in the first nine
months of 2009. Most transactions were less than Compared to three one billion plus deals in the
$50 million in size compared to the three billion first three quarters of 2008, this year’s
transaction sizes were much smaller. Except for S
dollar plus transaction sizes seen in the same period
Kumar’s acquisition of Hartmax, all other
the previous year. Unlike last year, some of these transactions were less than $50 million in value.
transactions involved minority stake. This reflects
Over 50% of the transactions were motivated by
how Indian companies are adapting to the new
special situations and distress related value buying
economic realities while being still opportunistic opportunity.
about global growth.
Unlike last year, majority control was not a key
feature of these transactions.
One of the key aspects of this year’s transactions
involves distress and bankruptcy on the part of the A majority of these transactions had an earn-out
structure, where a portion of the deal value is
sellers. Examples include S Kumar’s acquisition of
paid on future milestones.
Hartmax, Cadila’s investment in Novavax, Cosmo’s
acquisition of ACCO’s print finishing business,
Piramal’s acquisition of RxElite, and 3i’s acquisition
of NRLB.
Chemical
10%
Print
10%
IT/ITES
40%
Textiles
10%
53
46
Pharma 10
30%
2007 2008 2009
Industry Breakdown of US-bound Transactions in the first US-bound Transactions in the first three Quarters of 2006
three Quarters of 2009 to 2009
PAGE 1

3. US-BOUND ACQUISITIONS BY INDIAN COMPANIES
US- October 2009
acquire customers and enter into new segments,
Key factors contributing to the Quest Global and 3i Infotech sought to further
slowdown strengthen and consolidate their business
The global credit crisis has resulted in lack of offerings.
acquisition financing available to fund such
transactions. After witnessing extensive capital
inflow in 2007 and 2008, India experienced a
reversal in 2009. Private capital flow in 2009 is
expected to be less than half of their 2007 levels,
posing pressure on investors that were a source of
acquisition capital for the Indian companies
acquiring US based companies. Banks as well as
other institutional funds are reluctant to provide Indian IT & ITES (Information Technology Enabled
acquisition capital in the current environment. Services) industry has come a long way from being
providers of lower margin services, such as
In addition, the economic recession has led to a software maintenance, payroll processing, and call
decline in growth projections for US companies and centre management to providers of high end
a decrease in US wages and demand. As a result services like software development, project
Indian companies fear making the wrong move in a management, technology consulting, and
dismal market with little pricing certainty. enterprise software implementation. This has been
achieved through a focused approach of moving
up the value chain. Now, Indian IT and ITES
companies are looking to establish their position
as leading service providers in these high end
services. This is evident in 3i Infotech’s acquisition
of JP Morgan’s national retail lockbox business
(NRLB) and Quest Global’s acquisition of ASE
Technologies.
Analysis of Transactions by
Industry On the other hand ICTEAS’ acquisition of Sapphire
International shows the propensity of Indian
Information Technology
companies to gain scale in terms of size, product
Information Technology (“IT”) has been the most
offerings, and geography. This particular
acquisitive industry so far. In the first three
acquisition is targeted not only at cross selling
quarters of 2009, this sector accounted for
ICTEAS’ business intelligence and business
approximately 40% of the total US-bound
analytics service (a niche area in which it has
transactions. Within this industry, financial
strong expertise) to Sapphire’s existing client but
services, enterprise resource planning, advanced
also delivering on the offshore component of
engineering services, and analytics sub-segments
Sapphire’s work thorough its development centre
were attractive for acquisitions. While ICRA Techno
in India.
Analytics Limited (ICTEAS) and Rediff sought to
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4. US-BOUND ACQUISITIONS BY INDIAN COMPANIES
US- October 2009
Pharmaceutical & Healthcare size of the US market. Relying on third party
The Indian pharmaceuticals and healthcare industry marketing agents may not be a good strategy in the
sector accounted for over 30% of the transaction long run, thus, Indian companies are expected to
volume with three US-bound acquisitions in the first acquire export supporting networks in the US.
three quarters of 2009. This sector has been
characterized by special situation and distressed
related value buying opportunity.
Piramal Healthcare’s acquisition of RxElite Holdings
provides Piramal with a sales and distribution
network in the US and complements its pending
acquisition of Minrad International, a pain
management company, announced in December
2008. At the same time RxElite Inc., the parent
company of RxElite Holdings, will use a significant
portion of the sale proceeds to retire its existing Automotive & Manufacturing
debts. Similarly, Satellite Overseas’ acquisition of a
Higher than expected valuation of available
minority stake in Novavax is part of several
acquisition targets and a significant industry
agreements between Novavax and Cadila, the parent contraction in the US has forced Indian automotive
company of Satellite Overseas, and included a and manufacturing companies to slow down on the
master service agreement and a joint venture.
acquisition trail. There was only one transaction in
this sector in the first nine months of 2009.
Cosmo Films Ltd’s acquisition of GBC Commercial
Print Finish of ACCO Brands Corporation is targeted
to boost Cosmo’s technical expertise and marketing
network globally. While Cosmo Films manufactures
bi-axially oriented polypropylene (BOPP) as well as
thermal films, GBC Commercial Print Finishing is in
business of lamination equipment and thermal films.
Cosmo Films already exports thermal laminates to
Apart from the special situation deals,
Lupin Europe and the US. The acquisition, besides
acquired global rights for AllerNaze from Collegium strengthening its foothold in other parts of the world
Pharmaceutical Inc in another transaction. This is also expected to establish Cosmo Films as a
transaction is targeted to expand Lupin’s brand global player in the thermal lamination segment.
business in the US.
There was no transaction in the automotive
As a target location, the US has traditionally lagged segment; however, with US companies moving their
behind Europe in pharmaceutical outbound basic auto-component production to China and
acquisitions from India. However, this could change India, assemblies and finishing sub-industries
based on the upcoming generic opportunities and represent the interesting segments.
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5. US-BOUND ACQUISITIONS BY INDIAN COMPANIES
US- October 2009
Other Industry Segments The road ahead...
Over the past years, Indian textile and jewelry
companies have built new manufacturing facilities
and SEZs. These companies have looked to acquire
distribution and retail channels to utilize the
additional capacity. The need to acquire US
companies is driven by the desire of these
companies to acquire new supplier relationships and
distribution channels and not for manufacturing
capacities.
A transaction that stands out is S. Kumar’s
acquisition of the troubled American clothing
manufacturer, Hartmarx Corporation. Hartmarx had US-bound acquisitions by Indian companies, in the
earlier sought Chapter 11 protection amid a group first nine months of 2009, have been significantly
of retail industry bankruptcies brought in by liquidity affected by the economic downturn. However, at the
concern in the credit market, rising unemployment same time the economic downturn has presented
and the economic recession. The acquisition is opportunities for distress related acquisitions at
expected to help the S. Kumar Group establish a attractive valuations. Factors expected to impact US-
substantial footprint in the global arena and also bound acquisitions by Indian companies in the near
bring significant business volume to the Group’s future are discussed below:
operations in India through a ‘front-end back-end Financing challenges: Financing will be one
synergy’ strategy. of the most important challenges faced by
Indian companies looking to acquire US
Alongside, Galaxy Surfactants Ltd., a supplier of companies in the near future as banks and
performance products for home and personal care financing institutions are already under
based in Navi Mumbai, India, has acquired Tri-K pressure.
Industries Inc. TRI-K Industries Inc. is a distributor Distress related value buying: We expect to
and producer of specialty ingredients to the see more deals targeted at acquiring control
cosmetics and personal care markets. Headquartered of the firms struggling in financial crisis.
in Northvale, N.J., the company has operated in the Profitability enhancing and cost saving deals:
personal care industry for more than 30 years. This We expect deals targeting consolidation, cost
acquisition strengthens Galaxy's global presence and savings and improving profitability rather
gives them an expanded product portfolio, allowing than expansion and increasing scale of
them to better serve their customers in the operations.
cosmetics and personal care industry. Increasingly positive interactions between
India and US: Talks on bilateral investment
treaty has already started between India and
the US, which is expected to improve
investment conditions in both India and the
US.
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6. US-BOUND ACQUISITIONS BY INDIAN COMPANIES
US- October 2009
Cross Border Acquisitions in the US: Key Considerations
Quantitative M&A Considerations Qualitative M&A Considerations
As the acquisition strategy is being developed, Several qualitative issues can influence the success
consideration should be given to the financial impact or failure rate of the acquired company within the
that a poorly constructed and integrated deal can organization and should be taken into consideration
have on the acquiring company. during the early planning phase.
Valuation – Market comparables, free cash flow Developing Acquisition Criteria – Having a clear
analysis, synergy valuation, and earning power strategic need and acquisition criteria, as well as
should all be considered when valuing an analyzing the likely impact of an acquisition will
acquisition target. help set a robust selection process.
Integration Costs – Depending on the level of Selecting Advisors – Advisors with prior
alignment, integration costs can be substantial. experience in US-based acquisitions and an
Sales/revenue dis-synergies can occur as the understanding of the market will ensure a
overall deal process tends to distract key smooth navigation through the acquisition
stakeholders during the due diligence and M&A process.
integration process. Legal
Legal & Regulatory – A major aspect in cross
Due Diligence – Comprehensive due diligence border acquisitions is the thorough legal and
determines synergy value and uncovers potential regulatory analysis of a transaction. A well
issues. US-based companies generally have good planned approach to managing contingent
management information systems, which create liabilities and contract issues is essential.
fast information flow.
Financing – Having financing in place during the
acquisition process increases the chance of a
successful transaction. Financing can be through
a combination of internal accruals and debt/
equity financing.
Acquisition Structure – While multiple factors
need to be considered for determining the
acquisition structure, jurisdiction, tax incidence,
accounting, access to funds and local regulations
are the most important factors. Generally, US-
bound acquisition structures include an earn-out
clause where a portion of the value is to be paid
over a period of time based on milestones.
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7. US-BOUND ACQUISITIONS BY INDIAN COMPANIES
US- October 2009
US- H1-
List of US-bound Acquisitions by Indian Companies in H1-2009
Tx Value
Date Industry Buyer Target ($m)
Manufacturing - Thermal films &
Jan-09 lamination Cosmo Films Ltd ACCO Brands’ GBC Commercial Print NA
Jan-09 IT & ITES Quest Global ASE Technologies NA
May-09 IT & ITES Rediff.com Examville.com LLC NA
Apr-09 IT & ITES 3i Infotech Ltd JPMorgan Treasury Services-NRLB NA
Mar-09 Pharmaceutical & Healthcare Satellite Overseas (Hldg) Novavax Inc 11.00
Jan-09 Pharmaceutical & Healthcare Piramal Healthcare Ltd RxElite Holdings Inc 4.20
Mar-09 IT & ITES ICRA Techno Analytics Ltd Sapphire International Inc NA
Jun-09 Pharmaceutical & Healthcare Lupin Ltd Collegium Pharm - AllerNaze NA
Jun-09 Consumer goods – Textiles S Kumar Hartmarx Corp 119.00
Jul-09 Specialty Chemicals Galaxy Surfactants Ltd Tri-K Industries Inc NA
*Source: CapitalIQ Database
About Virtus Global Partners and IMaCS
Virtus Global Partners, Inc. (VGP) and ICRA consulting, risk analytics, process consulting,
Management Consulting Services Limited (IMaCS) development consulting, and transaction
jointly offer advisory/consulting services to advisory services in several verticals including
clients based in the US and India. banking and finance, energy, infrastructure,
manufacturing, and services.
VGP, a boutique financial and business advisory
firm based in New York, is focused on advising VGP and IMaCS pool their respective expertise in
clients in the US seeking to invest or make their home bases and their complementary skills
acquisitions in India or vice versa. VGP provides in consulting and investment banking to offer a
cross border mergers and acquisitions advisory, strong value proposition to clients in the US and
private equity services, strategic consulting, and India.
capital raising services across various industry
sectors. VGP - IMaCS provides a full range of investment
banking services, including:
IMaCS, a wholly owned subsidiary of ICRA • Cross border mergers and acquisitions
Limited, is a multi-line management consulting • Fund advisory
firm with a global footprint across 35 countries. • Strategic partnerships & joint ventures
IMaCS’ practice areas include strategy • India and US entry strategy consulting
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8. US-BOUND ACQUISITIONS BY INDIAN COMPANIES
US- October 2009
Key Transactions:
has secured senior
credit and second-
lien financing
Advisor to Ultra
For more information, visit our websites www.virtusglobal.com and www.imacs.in OR contact Anil Kumar at
akumar@virtusglobal.com/
akumar@virtusglobal.com Bhaskar Som at bhaskar.som@imacs.in
bhaskar.som@imacs.in.
Disclaimer
The information contained in this document is a compilation of public domain data and internal research. Our findings are based on
information available as of September 30, 2009. Virtus Global Partners and ICRA Management Consulting Ltd do not guarantee the
accuracy or completeness of any information contained in this document. Recommendations rendered in this report are not binding.
Any decision or action taken by the recipient based on this report shall be solely and entirely at the risk of the recipient.
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