Mergers & Acquisitions

At first glance India seems irresistible to U.S. companies seeking global expansion. In particular India's English speaking work force and low labor costs entice foreign companies to invest in the country--largely in well-known service businesses but also in manufacturing, mining and heavy-industry sectors. But newcomers to India quickly discover conditions on the ground are more complicated than the macro picture might indicate.

"Setting up shop in India is quite a task," says Shardul Shroff, managing partner of the Amarchand Mangaldas law firm in New Delhi. "The cross-cultural challenges are unique, with many cultural differences between Indian and Western companies. And takeovers are regulated by complex rules, with detailed thresholds, requirements and restrictions.

"The infrastructure is still developing. A lot of it is stuck in bureaucratic debate." And India's bureaucracy, like its infrastructure, imposes limitations and challenges on companies seeking to build a business there. In recent years, the government has removed the most severe limits on foreign ownership in some industry sectors--most notably telecom, utilities and real estate--and such reforms continue. But restrictions persist in other areas, such as retail and banking. And where investment is allowed, a maze of regulation confronts companies seeking to establish a new business entity.

"You're talking about every single approval to do business in India," Shroff says. "There are title questions, operating registrations, permits, licenses, employment and labor registration ... the list is endless. It's possible to set up a new company, but not if you're in a hurry."

Vindaloo Hot
Despite the complexities of cross-border transactions, the M&A market in India is on fire. Transactions from January 2007 through September 2007 exceeded $50 billion in value--five times the value of transactions in all of 2006. About two-thirds of this total involves foreign acquirers (see "Outbound M&A").

"The GEs and Vodafones of the world can't resist the opportunity to do business in India," Raju says. "We're seeing tremendous demand for corporate finance and M&A services." In recent yea rs India's main attraction has been its cheap labor.

Structuring M&As
The following are some of the laws that regulate how foreign companies acquire Indian companies and assets:

The Companies Act forbids Indian banks to finance leveraged buyouts (LBOs). Acquirers must finance buyouts with equity or with debt capital raised in other countries.


Michael T. Burr

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