India Inc India Inc: Wednesday, 03 February 2016 12:32

SMEs can dramatically impact India-UK deal flows

Beyond the big ticket deals struck by corporate houses, it is the mid-tier firms that hold the key to unlock untapped potential in the India-UK cross-border deals tally. 

The UK offers massive opportunities to mid-tier Indian companies looking to scale up, not only to the level of national champions domestically, but also as leaders in their respective fields globally. But the problem is one of networking – getting the relevant Indian and British companies to talk to each other.

And this can be achieved by greater involvement of the governments on both sides as well as professional services companies such as PricewaterhouseCoopers, KPMG, EY, McKinsey & Co, Allen & Overy and BDO LLP, among others, as well as capital market intermediaries such as Barclays, RBS, N.M. Rothschild & Co, HSBC and PE firms, speakers at a session on “Boosting India-UK Deal Flow”, organised by India Inc. and Bloomberg TV along with Allen Overy in London said.

Responding to a question from Abha Bakaya of Bloomberg TV who moderated the session, Sampa Bhasin, Director, EY, said though few deals have taken place in the recent past, there is a “robust pipeline” of M&A deals that should result in “a number of transactions happening”.

In the past, big-ticket deals such as Tata Steel’s takeover of Corus (now renamed Tata Steel Europe) and Tata Motors’ acquisition of Jaguar Land Rover have hogged the headlines and accounted for a bulk of the $25-30 billion M&A deals that have taken place between Indian and UK/European companies.

The mid-tier potential

What has escaped attention is the action in the mid-tier corporate space and this is where a lot of companies on both sides can utilise the City’s expertise in raising capital. “The trend will be for (demand from) mid-tier companies to growing more quickly than.... global companies,” said Sanjeev Dhuna, Partner, Allen & Overy.

Pointing out that there is heightened interest among UK companies to invest in India, Nikhil Rathi, CEO, London Stock Exchange, said the recent visits of Indian Finance Minister Arun Jaitley, Railway Minister Suresh Prabhu and Reserve Bank of India Governor Raghuram Rajan had raised the country’s profile.

“... and each time, the interest level for investors in terms of investing in India has been increasing,” he added.

Institutional investors, too, are waking up to the potential of India, the fastest growing among the G-20 nations, as evinced by the interest in HDFC’s masala bond issue.

India Inc. founder and CEO, Manoj Ladwa, has also flagged up the need to actively engage with SMEs in India-UK bilateral dialogue to take the relationship to a new level.

Cultural issues

But India is a very diverse and heterogeneous country and UK and European investors need to be aware of cultural nuances before taking a call on where in India to invest, said Bhasin. “The way business is done in South India is very different from the way it is done in the north and this is where issues come up” she pointed out.

“If you can find sector and city congruity, then you find real means to identify people to do business with,” added Kim Hayward, International Liaison Partner, BDP LLP.

To ensure a cultural fit, British companies investing in India can hire local talent, which, according to Dhuna, “is best in class”. This also helps foreign investors overcome any issues they face with the ease of doing business, which is improving but at a slow pace, which is understandable, given the size of the bureaucracy and the legacy issues that have to be resolved.

But Indian companies investing in the UK face no such problems as many Indians have extensive and deep family and social contacts with Britain and feel completely at home with its governance structure and legal system, which is largely similar to what they encounter at home.

That is why, Indian investors have no hesitation in picking UK as their preferred investment destination in Europe, said Bhasin.

Manufacturing, infrastructure to drive ties

The panellists felt manufacturing and infrastructure offered the greatest scope for British companies investing in India. “The domestic (Indian) market is big enough but many of them can use India as a hub for operations across South East Asia. That is a trend we are seeing and as it picks up, there’ll be a lot more activity between UK and India,” added Bhasin.

Indian companies, too, can benefit from technologies and processes available with companies in the UK in these spheres when they look to scale up operations. This can take the form of either technology transfers or, more likely, to outbound M&As from India. Going forward, this could be a major driver of Indian investments in the UK.

Boosting India - UK Deal Flow 

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