Companies to re-train their investment guns at EU – FICCI
The global economic slowdown may have impacted the EU severely but it still remains clearly visible on the radar screens of Indian corporates. True, Indian investments in the EU during the current year may not reach the 2008 mark of Euro 2.4 billion.
But there is a sense of optimism, that Indian companies will re-train their investment guns at the EU in the next six to 12 months, according to a FICCI survey on 'Impact of Global Economic Slowdown on Indian Investments in EU' through the acquisition route.
The FICCI survey was conducted among companies which have invested in the EU in the past.
The companies that participated in the survey were from various sectors like Auto/ Auto parts, Energy, Manufacturing, Chemicals and IT/ ITes. About 40% cent of the respondents have said that they are open to making fresh investments in the EU in the medium term, i.e. they would consider investing in the EU only in the next six to twelve months or after 12 months .
The survey respondents expect European markets to recover by then and the situation to stabilize. A majority of such companies have also said that the deal size they have in mind is less than US $ 100 million on an average . This clearly establishes that companies who want to invest are not willing to go for large sized buys. The reason for a cautious approach in terms of a longer time frame and smaller deal sizes could be because of the current economic environment but the fundamental reasons for investing in the EU still remain strong.
The rush to acquire companies in the EU reached its peak in 2007 when the total investments reached a high of Euro 9.5 billion. This figure dropped to Euro 2.4 billion in 2008 according to Eurostat, the statistical office of the European Union.
The FICCI survey reveals that EU countries emerged as a favoured destination for Indian companies who were seeking growth in size and scale of operations, increased market access, new customers, better technologies and R&D facilities, skilled manpower, buying established brands and access to distribution networks, and to move upwards in the value chain. The technological and other strengths of EU companies and factors like a large consumer base, political and social stability , established and transparent legal systems also influenced the decision of Indian companies to invest there.
Till date, the most preferred sectors have been Pharma & Biotech, Energy, Manufacturing, Auto & Auto Components and IT & ITes. The year 2007 also saw an increase in the value of the deal size in comparison to the previous year. Apart from the total value of deals, the number of deals also dropped in 2008.
About 60% of the respondents have also reported that post their acquisition, there has been a positive impact on their profitability. This could also one of the factors which makes Indian companies open to investing in the EU. Though more than 60% of the respondents have said that the present economic scenario has led to attractive valuations of the companies in the EU, they still prefer to be cautious in terms of the overall strategic fit and not invest immediately.