Indian companies take to mergers and acquisitions abroad to beat the slowdown: report

MUMBAI: The slowdown in the domestic market is pushing several Indian companies to scout for cheap assets overseas, especially in Europe, says a report by global valuation firm American Appraisal.

"The decline in domestic growth means that expansion into Europe through inorganic growth is seen as a way of maintaining dynamism," the report said, adding that the weakening rupee could, however, act as a dampener, with deals that previously looked attractive having become 10%-15% more expensive over the last few months.

On inbound investments, the report said that much needed reforms of foreign direct investment ( FDI) laws are being somewhat counteracted by changes to the tax laws around takeovers, and specifically the capital gains made under previous owners.

"The uncertain tax environment in India continues to make foreign investors nervous," said Varun Gupta, managing director and head of American Appraisal India.

"The government had barely managed to bury the retrospective tax bogey when a new transfer pricing controversy erupted. Nonetheless, the sheer size and growth potential of the Indian economy continues to attract investors."

However, some sectors that have been opened up for FDI could see higher merger and acquisition activity. "With the opening up of foreign investments in sectors like retail and aviation, uptick in inbound M&A in these sectors is likely to be at high valuations, given the considerable international competition for assets, and will put upward pressure on average multiples," the report said.