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Deal Tracker Vol I 07

Deal Tracker Vol I 07

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Dealtracker\u2026
Providing business owners and managers with M&A market insight
Volume I 2007
M&A \u2013 2007 ACTIVITY
\u00a9 Grant Thornton 2007
Table 1:Year wise details on M&A value in
Commodities ($ Bn)
Commodities
% of Total
Deal Value
2005
3.7
25%
2006
3.5
20%
2007 (Jan-Feb)
20.9
57%

We welcome our readers to the first issue
of Dealtracker in 2007. We believe that the
year is going to see high levels of action in
both M&A and private equity. The M&A
activity in the year 2007 has started with a
significant momentum with a total value of
about USD 37 billion, which is close to
twice the deal value for the full year 2006.
This has been primarily achieved with
some high value M&A deals in
commodities (especially metals) and
telecom.

In our earlier Dealtracker issues in 2005 &
2006, we had covered analyses of several
sectors in the new economy as Information
Technology, Business Process
Outsourcing and Telecom. We are recently
seeing significant growth in M&A activity in
the commodities space. In this issue, we
have analysed M&A deals in commodities
sector over the last 26 months since
January 2005.

Table 2 \u2013 Sub classification of Commodity sector ($ Million)
2005
2006
2007
Total - 26 months
Value
%
Value
%
Value
%
Value
%
Energy and oil & gas
2,652.78 57.14% 2,296.56 36.75%
840.75 0.62% 5,790.09 20.55%
Steel
969.34 26.11%
49.21 1.40% 13,688.19 65.34% 14,706.74 52.20%
Cement
4.75 0.13%
958.29 27.30%
0 0.00%
963.04 3.42%
Other Metals
0 0.00%
0 0.00% 6,060.52 28.93% 6,060.52 21.51%
Others
85.81 2.31%
205.98 5.87%
360.89 1.72%
652.68 2.32%
3,712.68
3,510.04
20,950.35
28,173.07
M&A IN COMMODITIES SECTOR

The Indian Commodities sector comprises
segments including agro-products, oil &
gas, energy, cement, steel, aluminium &
other metals, coal etc. The growth in this
sector is determined by factors such as
economic growth, international commodity
prices, exports, infrastructure growth, low
cost of manufacturing, cheap and
abundant labor, etc. In the recent past, this
sector has started seriously adopting the
strategy of establishing a global footprint
through inorganic growth in order to
achieve higher capacity over a very short
period of time. Year on year comparison of
M&A deals in commodities sector as given
in the Table 1 shows an increase in deals
in this sector. The trend to use acquisition

(especially high value deals) as a growth
strategy has started in 2006 and some
of them have materialized in early 2007.

The deal value in the commodity sector
has increased from $ 3.7 billion in 2005
to about $ 21 billion in the first two
months of 2007 (Ref: Table 1). The
increase has been from a handful of high
value deals rather than a general growth in
the number of deals. Steel has been the
sector garnering the maximum share of
value at 52% (Ref: Table 2) and most of it
is from a single deal \u2013 Tata Steel\u2019s
acquisition of Corus \u2013 which is also
corporate India\u2019s largest acquisition so far.
The second position is occupied by \u201cother
metals\u201d at 21.5%, again, primarily
contributed by a single deal \u2013 Hindalco\u2019s

acquisition of Novelis. It is followed by
energy and oil & gas sector accounting for
over 20% of the deal value.

TOP DEALS - COMMODITIES SECTOR

The top 5 M&A deals in commodities
sector in 2006 and 2007 are provided in
Table 3. Though most of these top deals
are outbound deals there were some large
inbound deals as well. Recently, we are
seeing outbound deals much larger in
number and value compared to inbound
deals.

The rationale for inbound deals such as
Holcim\u2019s investment in Gujarat Ambuja
and Ambuja Cements (inbound deals)
were to expand capacity by acquiring
companies in India with higher margins at
attractive valuations.

The key rationale for outbound deals have
been to make significant strides in the
international market by making high value
acquisitions. It is notable that in most of
these large deals, the acquirer has bought

companies with values larger their own
revenues. Tata Steel\u2019s acquisition of Corus
was valued at $ 13 billions while Tata
Steel\u2019s current revenue is about $ 4 billion.
The acquisition has enabled Tata Steel to
move from the 56th position to the 5th
position in the international steel industry.

Similarly, Hindalco\u2019s acquisition of Novelis
was valued at $ 6 billion while Hindalco\u2019s
revenues are about $ 4 billion. Novelis
processes around 3 million tonnes of
aluminium a year, has a wide international
distribution network and is a market leader

Table 3 \u2013 Top 5 deals in Commodities sector in 2006 and 2007
Acquirer
Target
Sector
Acquisition
(Mn US $)
% Stake
Bought
2006
Holcim
Gujrat Ambuja Cements Ltd.
Cement
470.00
14.80%
Essar group
Essar Oil Limited
Oil & gas
760.81

66.88%
Aban Lloyd Chiles Offshore
Limited

Sinvest ASA
Oil & gas
446.00
33.76%
Chevron Corporation
Reliance Petroleum Limited
Oil & gas
300.00

5.00%
Oil and Natural Gas Corporation
(through ONGC Videsh Limited)

Omimex de Columbia
Oil & Gas
425.00
50.00%
2007
Hindalco Industries
Novelis Inc
Aluminium
6,000.00 Acquisition
Rain Commodities
GLC Carbon Canada Inc
Commodities
360.89 73.56%
Holcim
Ambuja Cement India Limited
Cement
117.00
11.00%
Mittal Investments
Guru Gobind Singh Refineries Ltd
(GSSRL - HPCL's Bhatinda Refinery) Oil & Gas
711.11
49.00%
Tata Steel
Corus
Steel
13,650.00 Acquisition
\u00a9 Grant Thornton 2007
in the flat rolled product segment with 19%
market share.

One of the reasons for such high value
deals is the tremendous increase in
confidence and support shown by banks
and financial institutions in these Indian
companies. Many of the large outbound
acquisitions are leveraged buyouts.

We believe that several other Indian
companies in the steel, metal, energy and
other sectors are exploring large
international acquisitions. We expect to
see more activity in M&A in the commodity
sector in the current year and moving
forward.

Sectorwise Break up- M&A deals by value Jan-Feb 2007
IT & ITeS
2%
Oil & Gas
2%
Others
4%
Alum inium
16%
Telecom
35%
Steel
37%
Construction
4%
Sectorwise Break up- PE deals by value Jan-Feb 2007
IT & ITeS
24%
Autom otive
3%
Banking &
Financial
Services
14%
Hotel
5%
Others
9%
Telecom
3%
Re al Estate &
Infrastructure
Management
20%
Media &
Entertainment
22%
FIRST TWO MONTHS IN 2007
M&A DEALS

There were 102 M&A deals with a total
value of about $ 36.80 billion in January
and February 2007 as against 480 deals
with a value of $ 20.30 in 2006. Of these,
the number of domestic deals has been 41
with a value of $ 0.62 billion. The number
of inbound cross border deals has been 21
with a value of $ 15.18 billion and the
number of outbound cross border deals
was 40 with a value of $ 21 billion.

There have been some significant
outbound acquisitions by Indian
companies in the first 2 months of 2007,
the largest being the Tata-Corus deal. Tata
Steel has announced acquisition of the
Anglo-Dutch steel maker Corus for $ 13.65
billion. The other significant outbound
deals during the last two months have
been Hindalco\u2019s acquisition of Novelis and
Aban Lloyd\u2019s stake in Sinvest. The most

significant inbound deals during the last 2
months have been Vodafone\u2019s acquisition
of Hutch\u2019s stake in Hutchinson Essar and
Mittal Investments stake in Guru Gobind
Singh Refineries.

PRIVATE EQUITY

There have been 74 private equity deals during the first 2 months of 2007 with an announced value of $ 2.19 billion.

A list of M&A and private equity deals for the first two months in 2007 are provided in the following pages.

SECTORAL BREAK UP OF M&A AND
PRIVATE EQUITY DEALS IN JANUARY
AND FEBRUARY 2007

The graphs below represent the range of
sectors in which investments have been
made through strategic M&A and private
equity respectively in January and
February 2007. The sectors garnering the
maximum investment for this period in
M&A is Steel sector with 37% and
Telecom with 35%. The other key sectors
getting a significant share in M & A is
Aluminium with the single largest deal of
Hindalco\u2019s acquisition of Novelis.

ABOUT GRANT THORNTON
\u00a9 Grant Thornton 2007

Grant Thornton India is the Indian member
firm of Grant Thornton International, the
fifth largest accountancy firm network in
the world, with over 600 offices in over 110
countries and employing more than 22,000
people.

The Indian member firm has four full
service offices in New Delhi, Mumbai
(Bombay), Bangalore and Chennai and
specialises in helping Indian business
owners and entrepreneurial companies
with international ambitions.

Grant Thornton member firms are global
leaders in mid- market M&A deal advisory
and have over 1,000 corporate finance
professionals dedicated to deal advisory
globally. In each of the last three years, the
firm was amongst the top 5 M&A advisors
internationally for deals upto $100 million
in value.

Grant Thornton India\u2019s services include:
Accounting and Assurance
- International Accounting and Assurance
(US GAAP/ IFRS Focus Group)
- Management Assurance & Risk Services
Tax and Regulatory Services
- Indian Tax Compliance & Advisory
- International Taxation and Transfer
Pricing
- Inbound and Outbound Investment
Corporate Advisory Services
- Due diligence
- Mergers and Acquisition lead advisory
- Valuations
- Project Finance
- Distressed Assets Advisory
- PRIMA Consultancy (Family Business
Consulting)
We would be delighted to receive your
feedback!
Harish H V
Partner \u2013 Corporate Finance
Ehvh@gt-india.com
M+91-9900112127
Pankaj Karna
Partner \u2013 Corporate Finance & Head of M&A
Epk@gt-india.com
M+91-9810034213
C.G.Srividya
Vice President \u2013 Corporate Finance
Ecgs@gt-india.com
M91-9845249399

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