Last fortnight, even as industry observers and analysts were digesting the details of a high profile transaction in the cement sector, involving acc, Gujarat Ambuja and Holcim of Switzerland, the grapevine began buzzing that head-on rival Grasim from the Aditya Birla stable was planning to mount a counter bid for acc, at a premium of a little under 10 per cent to the Rs 370 offer made by Holcim to acc shareholders. Days later reports surfaced that another cement MNC with a presence in India, Lafarge, was also contemplating a coun-ter offer. Takeover regulations allow for such counter offers to be made within 21 days of the first acquisition announcement, which would mean that Holcim's rivals had till 10 February to make clear their intentions.

At the time of writing, no such counter bid was made for acc, but that's not important (not at least in the context of this story). The significance of the hyperactivity on the rumour mill is that the $1 billion (Rs 4,400 crore)-plus Holcim-acc-Ambuja deal is no flash-in-the-pan. "If you add on the debt element, the value of this transaction is $1.5 billion (Rs 6,600 crore). That's indeed a global-size deal, and I am sure this won't be the last such mega-deal," points out Rajeev Gupta, Joint Managing Director at investment bank dsp Merrill Lynch, who advised Holcim on the acquisition of acc. "This deal is a great sign of the renewed thinking about India, and is surely a harbinger of greater interest of multinationals in the country," declares Sudarshan Sampathkumar, Partner, Accenture, who's worked on a few cement transactions himself.

And that's just one half of the story. The other equally thrilling and noteworthy part is that Indian companies across sectors are gearing to make "real-scale acquisitions as against tucking acquisitions"-as Gupta puts it-overseas. Sure enough, Oil & Natural Gas Corporation (ONGC) at the time of going to press was negotiating a potential $6 billion (Rs 26,400 crore) buyout in Russia, of a former asset of the Yukos Oil Company. And you can expect plenty of such big-ticket, outbound action in the days ahead. Investment bankers point out that such big-bang transactions-$500 million (Rs 2,200 crore)-plus-could come from a variety of sectors. Steel companies are looking to tie in raw material supplies (read acquisition of mines). Oil majors like Indian Oil Corporation (IOC), GAIL India and Hindustan Petroleum Corporation Ltd. (HPCL) are finalising downstream deals in Africa and South-East Asia (Indonesia). IOC has narrowed down its shortlist to 11 countries for potential acquisitions and last fortnight GAIL sneaked a foot into the Chinese retail gas distribution market when it bought a 10 per cent stake in China Gas; bankers point out that it has sealed similar smallish transactions in Egypt for city gas distribution. State Bank of India is "almost certainly" going to make an acquisition in Africa, says a deal-maker. Pharma and consumer companies are hunting around for distribution front-ends in South-East Asia, Latin America and Europe. Auto component makers are acquiring and sourcing back production to India. And textile firms are acquiring brands in a bid to get "credentialisation into buyers", in banker-speak.

Whilst big outbound deals will doubtless happen, Jayesh Desai, National Director (Transaction Advisory Services), Ernst & Young, points out another significant trend. That the number of smaller outbound deals will increase, because "today, just about any Indian group is looking for overseas opportunities." Adds Ravi Menon, Director & Co-head (Investment Banking), HSBC: "Easier convertible bond financing is allowing mid-caps to expand overseas, with $15-20 million (Rs 66-88 crore) deals in sectors ranging from pharma to auto components to software to biotech."

If Indian industry has been bitten by the M&A bug, it's simply because India Inc. is leaner, meaner, and very hungry for growth today. After years of belt-tightening, companies are today in a mood to make investments to increase capacities. The options are clear-cut: Either build those capacities (or brands), or acquire them. The high valuations prevailing today may make greenfield capacities look more attractive today, but then acquisitions involve much more than physical capacities. As the Holcim deal reveals, acquisitions also bring along with them virtually overnight access to new diversified geographies, and customers. And as Sampathkumar of Accenture adds, the Holcim deal (and its price tag) will encourage many more sellers to crawl out of the woodwork.

HSBC's Menon: Easier convertible bond financing is helping mid-cap companies to expand overseas in a range of sectors

What will also help ensure that sellers abound is the nature of valuations, which appear more sustainable than during the last stock market boom of 2000. An efficient, restructured India Inc is turning out higher earnings quarter after quarter, even as protection levels have come down and the rupee has become stronger. At the same time, they're in a better position to raise capital, both from domestic markets and overseas. Result? Strapping balance sheets. "The myth that one couldn't raise more than $100 million (Rs 440 crore) locally-and that beyond $200 million (Rs 880 crore) you had to do a GDR, and that beyond $400 million (Rs 1,760 crore) an adr-has been truly shattered. Today $2 billion (Rs 8,800 crore) can easily be raised on Indian markets," says Gupta of DSP Merrill, adding that there are 73 companies with a market cap of over $1 billion (Rs 4,400 crore) in India today. "India Inc. is much more confident now to take some big steps overseas to achieve a greater geographical balance," adds Vedika Bhandarkar, Managing Director & Head of Investment Banking, J.P. Morgan India.

As 2004-05 closes, and a new fiscal begins, investment bankers are looking expectantly forward to a boom year. "2005 will be a record year," says Menon. In calendar 2004, according to Bloomberg, m&a activity spurted 111.51 per cent in volume over the previous year, with $9.3 billion (Rs 40,920 crore) worth of deals announced. Investment bankers are upbeat about an even bigger spurt this year. And that's not surprising: It's just a matter of a handful of billion dollar deals. After the Holcim deal, there's still room for a third cement major, and there's still some 40 per cent of Indian capacity (albeit fragmented) that's up for grabs. Holcim itself has reportedly committed a further $1 billion to the Indian market. Overseas, after the Daewoo and NatSteel acquisitions, the Tata group could have something even larger lined up. India's ONGC is mentioned in the same breath as Malaysia's Petronas, Russia's Lukoil, America's ChevronTexaco, France's Total, Italy's ENI and China's CNOOC when it comes to offshore reserve bids. Investment bankers don't rule out a mega-generics buyout by an Indian major, to bring it on a scale of the Tevas, Sandozs and Ivaxs of the world. Back home, there could also be some surplus automobile (car) capacity up for grabs. "What if Anand Mahindra decides to buy up capacity for his JV with Renault, and what if somebody like Fiat decides to exit India," teases one banker. Whether that happens or not, one thing's for sure: Billion dollar deals are here to stay.