indo-german newsletter 2 · adoption of gst the introduction of goods and service tax (gst) in...

TRANSLINKC O R P O R A T E F I N A N C ETL

INdo-GeRmAN NewSLeTTeR 2NovemBeR 2016

mACRo-eCoNomIC eNvIRoNmeNTFdI PoLICY ReFoRmS RevIew oF eQUITY mARKeTSINdIA m&A TReNdS IN 2016INdIAN INdUSTRIALS SeCToRINdIAN SPeCIALITY CHemICAL INdUSTRY – FoCUS SeCToRdoING m&A IN INdIA – KeY CoNSIdeRATIoNSTRANSLINK INdA ANd GeRmANYINdo-GeRmAN-deSK

Indo-German Deska TRANSLINK initiative to promote M&A transactions between India and Germany


mACRo-eCoNomIC eNvIRoNmeNT

Estimated GDP Growth Rate

Fastest Growing Economy in the WorldIndia continues to remain a bright spot in the otherwise bleak global econo-mic forecast of the International Monetary Fund (IMF). India will be the fastest growing major economy in 2016-17 growing at 7,5%, ahead of China, at a time when global growth is facing increasing downside risks, as per IMF.In India, lower commodity prices, a range of supply-side measures, and a rela-tively tight monetary stance have resulted in a faster-than-expected fall in inflation, making room for nominal interest rate cuts. The upside risks to inflation could necessitate a tightening of monetary policy.The Indian government’s favorable policy regime has seen a thrust on foreign capital inflow in the country by opening up sectors like defence, construction, pharma, civil aviation and media to foreign investment under the automatic rou-te, eased norms for businesses such as single-brand retail and private banking.FDI increased by 36% during the period of Oct 2014 - Apr 2016, post the launch of Make in India campaign, as compared to the 19-month period before the launch. Also the collapse in global oil prices has provided the economy with windfall gains. With inflation in check, the central bank has more room to focus on growth in its monetary policy review. It has also provided scope for spending on goods and services, while improving external and fiscal positions.

Adoption of GSTThe introduction of Goods and Service Tax (GST) in India, has become the most radical tax reform set to boost India’s competitiveness affecting all factors of production and economics. GST will help create a single unified market across India and allow free move-ment and supply of good in every part of the country. It will also eliminate the cascading effect of taxes on customers which will bring efficiency in product costs. GST will replace 17 indirect tax levies and compliance costs will fall. While the rate of GST is yet to be decided, industry observers have assumed an 18% rate recommended by government panel.The overall impact of better allocation of resources, improving efficiency of do-mestic production and exports is likely to improve overall growth. As per estima-tes from the National Council of Applied Economic Research (NCAER), growth could increase by 0,9% to 1,7%.Consumption (warehousing consolidation), logistics (more movement of heavy vehicles), house building materials (lower duties), and industrial manufacturing would likely experience a positive impact as GST addresses cascading of tax, inter-state tax, high logistics costs, fragmented market and increased protection from imports as GST provides for appropriate countervailing duty as well. Oil & gas could see a negative impact, if overall tax incidence goes up, which may be a low-probability event.

2

7,3 7,56,4 6,5

2,6 2,8 2,9 3,2

India China US World

2016 2017

FdI PoLICY ReFoRmS

3

Liberalization of FDI PolicyThe Modi government has been very progressive in introducing reforms to boost global investor confidence and attract higher foreign investments in India. FDI norms have been relaxed across several sectors at different points in time during its current regime. The government recently (June 2016) announced further radical liberalisation of FDI by easing norms for a host of important sectors inclu-ding defence, civil aviation and pharmaceuticals, opening them up for complete foreign ownership.

Recent FDI policy reforms

> 100% FDI permitted under automatic route with 30% of local sourcing relaxed

> 100% FDI under automatic route in greenfield pharma > Up to 74% FDI permitted under automatic route in brownfield projects – government approval needed beyond 74%

> Brownfield Projects: 100% FDI under automatic route> Airlines: 100% FDI under (49% under automatic route and beyond that under government route)

> 100% FDI under government approval route in cases where it is likely to result in access to ‘modern technology’

> 49% FDI permitted under government approval route

> 100% FDI permitted under automatic route in the market place model

> No approval requirement for foreign investment in Limited Liability Partner- ships (LLPs)

Single-brand Retail

Pharma

Civil Aviation

Defense

Insurance

E-commerce

Limited Liability

Partnerships (LLPs)

I n d o - G e r m a n N e w s l e t t e r 2 | N o v e m b e r 2 0 1 6


RevIew oF eQUITY mARKeTS

Equity Market ReviewIndian equity markets continued their upward trajectory driven by passage of constitutional amendment that allows for the introduction of GST bill in the upper house.The earnings downgrades seem to have halted and corpo-rate revenues are showing signs of improvement with respect to better earnings. Expected recovery could start gathering momentum as corporates draw benefits from margin expansion coupled with tailwinds from consumption. Indian equity markets had a sharp run up in last few months, driven by improved macroeconomic variables coup-led with robust FII inflows. Money raised from initial public offerings (IPOs) in the first half of FY17 touched a 9-year high at $2.658 mn. This is the highest amount raised in the last nine years, the last high being in 2007-08 at $3.268 mn. As many as 56 companies debuted on the exchanges during the period, a three-fold increase from the corresponding year which saw 39 companies listing on the exchanges.Mid and small-cap indices outperformed their larger peers and were near their peak level. Consumer Durables, Health-care, IT and FMCG indices were the top gainers for the year surging up to 25%.

Foreign InvestmentsForeign Direct Investment (FDI) inflow in India increased by 29,3% last year (year ending March 31, 2016) compared to the previous year. In other words, it increased from $30,9 bn in 2015 to $40 bn.The general service Industry (financial services, R&D, tech etc) received the highest inflows of $6,8 bn followed by the IT sector with $5,9 bn. The FDI inflow in the IT sector has increased by 50% while the automotive sector maintained its steady track record.India was the world’s top destination for FDI in 2015, over-taking China with the highest greenfield capital investment among all emerging markets. In 2015, the government an-nounced a major push to reduce red tape in 15 key sectors by increasing the threshold for foreign investment review from $438 bn to $731 bn.

4

27.849

25.696

26.169

23.779

26.714

28.423

I I I I I I I Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16

8%

27% 29%

-36%

FY2013 FY2014 FY2015 FY2016

% Changes in FDI Inflow over previous year

FDI Flows by sector in FY 2016 (% of total FDI)

Market Performance – BSE SENSEX

17%

Servi

ce IT

Telec

omAuto

Chemica

ls

Energ

y

Real E

state

Pharm

a

15%

6% 6%4% 3% 2% 2%

26%

14%

13% 9%

9%

9%

8%

7% 5%

22%

10%

6%

11% 22%

10%

8%

4% 7%

INdIA m&A TReNdS IN 2016

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Key Highlights of M&A in India (2016)India has emerged as one of the strongest performers in terms of deals related to mergers and acquisitions (M&A) for Q1 - Q3 2016. Total M&A deals involving Indian companies grew by 12% to $15,74 bn during January to June 2016, which is the highest in the first six months in any year since 2011, led by increase of Indian acquisitions abroad at $3,1 bn, up 138% on a year-on-year basis. Manufacturing, energy and pharma sectors brought in big-ticket deals in YTD16 while volumes were dominated by the startup sector. Indian companies are most keen on technology and industrials & chemicals, with these sectors witnessing 12 and nine deals, respectively, of a total of 40 transactions.Strong foreign sentiment arising from favorable economic conditions, encou-raging regulatory regime, recent FDI norms and GST adoption, coupled with country’s demographics that are equally promising: India is home to 18% of the world’s working-age population (ages 15-64), a growing middle class with incre-asing purchasing power and a corporate sector that is flexing its muscle dome-stically and globally, has placed India as one of the leading destinations ahead of the region’s economic behemoth China.India also attracted 6% of all US outbound M&A transactions (deal volume) in 2015, surpassing the 2% of outbound M&A directed at China that year. So far in 2016, India has continued to attract US interest, with $3,1 bn through 27 deals compared to similar US investment in China at $1,3 bn and 13 deals. Inbound Investment India over the past two years has been led by the US, UK and Japan while United State continued to be the most dominant acquisition geography for Indian companies followed by the United Kingdom and Germany.

India inbound M&A target sectors

(2011 - YTD 2016)

Key M&A Deals in 2016

Deal Size Domestic/

Acquirer Target Sector ($ mn) Stake Crossborder

UltraTech Cement Ltd Jaiprakash Associates Ltd Manufacturing 2.373 100% Domestic

Tata Power Renewable Energy Ltd Welspun Renewable Energy Pvt. Ltd. Energy & Natural Resources 1.380 100% Domestic

Nirma Ltd Lafarge India Pvt. Ltd‘s cement assets Manufacturing 1.400 100% Domestic

Fosun Pharmaceuticals (Group) Co. Ltd Gland Pharma Ltd Pharma, Healthcare 1.260 86% Inbound

& Biotech

Indian Oil Corp. Ltd, Oil India Ltd and Tass-Yuryakh oilfield Energy & Natural Resources 1.287 30% Outbound

a unit of Bharat Petroleum Corp. Ltd

The Yokohama Rubber Co. Ltd Alliance Tire Group Automotive 1.200 90% Inbound

Birla Corp. Ltd Reliance Cement Company Private Limited Manufacturing 710 100% Domestic

Bharti Airtel Videocon Telecommunications Ltd-1800 MHz Telecom 660 100% Domestic

Singapore Technologies Telemedia Tata Communications Data Centre Pvt. Ltd IT & ITES 616 74% Inbound

Consumer

Business Services

Pharma, Medical & Biotech

Transport

M&A Activity in India

(Volume and Value in $ mn)

TMT

Energy, Mining & Utilities

Industrials & Chemicals

Financial Services

Others

9.254

8.741

5.646

5.976

10.895

16.192

5.986

13.538

8.876

3.3896.731

10.914

2013 2014 2015 YTD Aug

Domestic M&A Inbound M&A

Outbound M&A



INdIAN INdUSTRIALS SeCToR

Indian Manufacturing SectorThe manufacturing sector in India will play a pivotal role in realising the projected growth in the Indian economy. The government has placed strong impetus on increasing the share of manufacturing in the GDP from 16% to 25% by 2025. This improvement will be led by rising industrial activity and a pick up in infra-structure related projects.As a step towards attracting foreign investment in the Indian manufacturing sector, the government has proposed to reduce the income tax rates to 25% (from 34%) for manufacturing companies set up in India post Apr 1, 2016.Among other regulatory steps to boost global investor confidence, the govern-ment has relaxed foreign investment norms across 15 sectors and eased the process of FDI approvals.

Capital Goods SegmentIndustrial / capital goods is the key segment in manufacturing and contributes to 12% of the total manufacturing activity. This segment essentially comprises of plant and machinery, equipment and accessories required for production. Heavy electrical and power plant equipment is the largest sub-sector contributing to approx. 65% of the total capital goods requirement. Other large sub-sectors include construction equipment, process plant equipment and dies & moulds.The capital goods component in industrial production has lagged in recent years due to slow pace of domestic production leading to growing dependence on imports. Capital goods production contracted by 2,9% in FY16 while imports doubled to almost $10 bn. Machine tools, heavy electrical and power plant equipment are sub-sectors that are particularly weak in self reliance with approx. 40% of demand being met by imports. In order to boost domestic production of capital goods from $35 bn in 2015 to $115 bn by 2025, the government has recently launched the Capital Goods policy to incentivise domestic manufacturers.Except for 4-5 large players, the market is fragmented with the majority of units in the SME sector. These SMEs are challenged vis-à-vis large foreign competitors with regard to operating scale and issues related to access to capital.

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Opportunity for European companies in India to intro-duce new technologies and equipment in key growing sectors such as construction machinery, power equipment, green capital goods

2015

2025

16%

25%

Target to raise

share of manu-

facturing in GDP

Growth in IIP Index (%)

2,13,1

7,06,4

1,7

3,6

-3,6-2,8

-3,4 -2,9

2,5 3,0

FY14 FY15 FY16

Basic Goods

Capital Goods

Intermediate Goods

Consumer Goods

INdIAN SPeCIALITY CHemICAL INdUSTRY –

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Indian Specialty Chemical SectorThe chemical industry in India is a key constituent of Indian economy, accounting for about 2,11 % of the gross domestic product (GDP). Indian specialty chemical industry is one of the leading producers in Asia, in terms of value and production volume and is valued at ~$25 bn. India is cur-rently the world’s third largest consumer of polymers and third largest producer of agrochemicals. India‘s share in global specialty chemical industry is estimated about 3 % in 2015-16 to 6-7 % in 2023, growing at almost 2x the global ave-rage.With the government’s focus on creating a conducive business environment, capex into the Indian chemical sector has already seen a 52% yoy jump to $22 bn in 2014 while FDI increased by 49% yoy in FY15 to $4 bn.India’s growing per capita consumption and demand for agriculture-related che-micals offers huge scope of growth for the sector in the future. Lured by the size and returns of the Indian market, foreign firms have strengthened their presence in India. From April 2000 to May 2015, total foreign direct investment (FDI) inflows into the Indian chemicals industry (excluding fertilisers) were $10,49 bn.

Government InitiativesFavorable initiatives by government in developing chemical clusters & Make in India campaign gives visibility for the industry. 100% FDI is permissible in the Indian chemicals sector while manufacturing of most chemical products is de-licensed. The government has also been encoura-ging Research and Development (R&D) in the sector. Moreover, the government is continuously reducing the list of reserved chemical items for production in the small-scale sector, thereby facilitating greater investment in technology up-gradation and modernisation. The Government has launched the Draft National Chemical Policy, which aims to increase chemical sector’s share in country’s GDP.

Growth DriversIndia has become a global low-cost manufacturing hub coupled with availabi-lity of skilled labor as an increasing number of Europe and US chemical players outsource manufacturing. Further, sharp correction in crude prices has certainly improved margins of the specialty chemicals players. Compared to developed markets, current usage of specialty chemicals in India is very low, with an increased focus on improving products and usage intensity of specialty chemicals, the industry is poised for strong growth in future.

FoCUS SeCToR

7%

GDP CAGR (%) Indian Specialty Global Specialty Chemicals CAGR (%) Chemicals CAGR (%)

Indian specialty chemicals industry

grew at double the rate of GDP

over the last five years

Rapid Growth in FDI into chemicals

over last 3 years

Market Segments

*Others include Plastic additives, Textile Chemicals,

Construction Chemicals, Flavors and fragrances etc

7%

13%

1,9 v/s

GDP

growth

2,4

FY 13 FY 14 FY 15

Robust CAGR

of 28% in FDI

over FY 13-15

2,7

4,0

Paints and Coatings

14%

Agrochemicals 13%

Dyes and Pigments

11%

Specialty Polymers

19%

Surfectants 4%

Others* 49%



INdIAN SPeCIALITY CHemICAL INdUSTRY – FoCUS SeCToR FoCUS SeCToR

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Overseas Players Key Indian Players

Foreign players dominate the space and are looking to invest more in order to expand operations and establish a stronger foothold.

Vibrant market comprising 40.000+ companies – where 60% of volume is produced by SMEs and handful of com-panies are large and listed.

Considering the intermediate manufacturing nature of the Indian industry, experts believe that scalability and efficiency (led by R&D process, product, and application) are key to the long-term progress of specialty chemicals sector.

Name Expansion strategiesOverseas Players

Competitive Landscape

> In Oct 2014, BASF India invested $1,54 mn in Guj chemical complex and the company has presence across all segments of the chemicals industry > Company is also focusing on R&D activities in India

> Covestro is looking at India as a growth driver in coming years and expects robust rise in demand for its polymers

> The company is planning to consolidate its business in 2016 and aims to expand its business and triple its market capitalization over the next 5 years

> The company is planning to launch innovative technology, farming solutions, and new products through organic and inorganic routes

> While rapid progress in the high-margin fluoro-speciality and refrigerant gases will drive value growth, steady free cash flow from technical textiles will supple- ment capacity expansion in fluoro-speciality.

> The best executor of expansion projects with its timely capacity expansion is set to gain from the large visible export opportunity led by the Chinese slowdown

BASF

(German)

Covestro

(German)

Tata Chemicals

(Indian)

United Phosphorus

Limited (Indian)

SRF

(Indian)

Aarti Industries

(Indian)

INdIAN SPeCIALITY CHemICAL INdUSTRY – FoCUS SeCToR FoCUS SeCToR

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M&A was driven by strong inbound interest of large global players in the spe-cialty chemicals segment in India with the aim of expanding footprints & market share in India and strengthening of supply base. Globally, Industrials & Chemicals is the most targeted sector in Q3, 2016 with 2.313 deals worth $416,8 bn repre-senting a 41,1% value increase compared to the same period in 2015. In Oct 2016, Japanese conglomerate Sumitomo Chemical acquired a majority stake in Mumbai-based Excel Crop Care. Excel Crop Care‘s extensive distribution network in India will complement Sumitomo‘s rapidly growing presence in India, This creates new opportunities for Sumitomo‘s proprietary products to penetrate into this key agrochemicals market. In July 2016, Fairfax Holdings (headquartered in Canada) acquired 51% stake in Privi Organics and the proposed scheme will bring significant diversification and synergies to both partners, with Adi Finechem gaining access to high quality research and development facilities, and Privi Organics benefiting from Adi Finechem’s focus on cost optimisation and capital efficiency. In April 2016, AkzoNobel (leading player in monochloroacetic acid market (MCA) ) and Atul Limited (leading supplier of crop protection chemicals using MCA) planned to set up a manufacturing joint venture to install monochloroacetic acid (MCA) plant in Gujarat. As of April 2016, Pidilite Industries Limited and Industria Chimica Adriatica Spa (ICA), entered into a joint venture, wherein Pidilite announced to have 50 per cent of the shareholding in the Joint Venture Company (JVC), Wood Coat Private Limited.In May 2015, Israel‘s Frutarom acquired majority stake in Bangalore-based company, Sonarome. The acquisition of Sonarome will provide Frutarom with the advantages of a global manufacturer having a local R&D and will also contribute towards accelerating the momentum of expanding activity in the growing mar-kets of Africa.The increased globalisation of the sector, sustained market opportunities and the emergence of Indian leaders are combining to create an exciting period for specialty chemicals.

Key Indian Players

M&A Activity

...strong inbound interest of large global players in the specialty chemical segment in India...

Key M&A Transactions in Specialty Chemicals space (2015-16)

Date Target Acquirer Value ($ mn)

Oct 2016 Excel Crop Care Sumitomo Chemical 213

July 2016 rivi Organics Limited Fairfax India Holdings Corporation l 55

Apr 2016 Oriental Aromatics Ltd. Camphor & Allied Products Ltd 45

May 2016 Sonarome Private Limited SFrutarom (UK) Ltd. 17



doING m&A IN INdIA – KeY CoNSIdeRATIoNS

Finding ‘investible’ targets in IndiaThe primary attraction for acquirers when investing in India is the potential of its domestic market and the opportunity to use India as a springboard to access some of the regional South Asian, Middle Eastern and even African markets. Given India’s size, its federal regulatory structure and socio-political diversity, most businesses take a regional approach for expansion in India, and as a result, only a few truly national players exist.Coverage and availability of information on domestic com-panies in India is still patchy, making secondary market scans difficult. And while auction processes are prevalent, many deals are done based on local relationships and a deep un-derstanding of the regional operations of potential targets.In addition to evaluating market access and financial per-formance, heavy emphasis should be placed on evaluating management during the preliminary phase, paying atten-tion to the level of promoter involvement in the day-to-day operations and the calibre of the management’s decision-making ability. Even once a potential deal is on the table it can take time for a seller to furnish historical financials and realistic fore-casts that link back to past performance. Most acquirers tend to take an independent view of a target’s growth prospects while factoring in the right level of investment support post deal.

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Transaction structureFor foreign strategic investors, greenfield development takes a significant amount of time has to be spent on navigating local regulatory bodies and simply understanding a diverse Indian marketplace.International companies typically opt for joint venture (JV) and strategic alliances to secure local knowledge and accele-rate the process of entering the Indian market. While there are still situations where JVs are unavoidable, and someti-mes even desirable, it is advisable for foreign investors to do deals that involve an outright purchase or the acquisition of a significant majority. Foreign investors should aim for a minimum 51% shareholding and a clear plan for taking operational control of the business.In case of JVs, acquirers need to spend a significant amount of time getting comfortable with the JV structure, paying particular attention to defining the process and the ability to increase shareholding in a JV in case of a change in regula-tions, dispute between partners or at the end of the useful life of the arrangement. Few important things to keep in mind while devising the appropriate deal structure are:>> Working with promoters to create deal structures that leave the maximum cash in their hands>> Implementing an earn-out structure in effect linking valuation to the future performance of the business>> Allowing promoters to stay involved in the business for financial or personal reasons>> Evaluating tax structures to reduce the quantum of tax liabilities for the sellerEarn-outs should generally be kept as a small part of the deal and aimed at keeping the promoter on board, and ma-king sure that the management team as well as knowledge of the company is sustained for a long period.

Managing the Indian Promoter Managing the relationship with the promoter (seller) can be of paramount importance for a successful deal. Pro-moters are typically involved in direct management of the business, thus selling would mean losing regular income, personal status and an important family asset. Furthermore, promoter-led businesses often have more than one decision maker and depending on family history, internal dynamics often become part of the M&A process. For International Companies looking to acquire in India, it means spending considerable months to get to know and understand the promoters and the family well, before starting a transaction conversation.A potential foreign investor needs to be mindful of the emotional connection of Indian families to their business. It is important for the foreign buyer to use a ‘collaborative approach’ and establish a good rapport with the Indian promoter.

Acquiring a listed vs unlisted companyAcquisition entails gaining control over the management of another company, typically through acquiring shares with voting rights. Thus, in case the shares of the company are closely held by a small number of persons, an acquisition can be made in agreement with the shareholders. However, where the shares of the company are largely held by the general public, regulations issued by the SEBI need to be complied with, thereby making the process more complex and longer.


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Due DiligenceDue diligence is important for assessing quality of earnings and liabilities during the financial and tax due diligence. It is also important for the inbound acquirers to spend a significant amount of time understanding the impact of related-party transactions and off balance sheet liabilities of the target. The impact of conversion from Indian GAAP to the buyer’s accounting standards is also a critical area that should be investigated during the financial diligence.From a tax perspective, acquirers should understand both direct and indirect tax liabilities in target operations during due diligence in order to evaluate transaction structures and thus avoid these tax liabilities. It is not uncommon in India to have companies that follow aggressive accounting and tax policies which are focused on paying minimal tax.In terms of challenges that are typically encountered during the due diligence process by overseas investors, coming to grips with compliance issues and credible historical financial data are the most challenging aspects of conducting due diligence on targets in India, followed by tax issues.Other areas of concern are issues such as labour law com-pliance, depth of talent, cultural alignment and promoter involvement, as well as degree of empowerment at different levels of management, organizational structures and reten-tion strategies. Environmental concerns are more pertinent for particular industries and investors should focus on un-derstanding historical issues and potential liabilities.

Long deal timelinesThe deal process in India may seem long even when there is no competitive bidding process. Finding issues with com-pliance, tax or historical financial performance is common during diligence and these may seem like deal breakers at first. To manage such challenges, acquirers prefer to implement transaction structures that allow buyers to leave liabilities behind with the sellers wherever it is possible, while ensu-ring sufficient engagement from promoters to ensure a smooth transition post deal. There may also be the need to build a business forecast bottom up, seeking independent verification of future contract commitments and an assess-ment of the dependence on promoter relationships for continuity of business.Where possible, buyers should request involvement of pro-fessional advisors on the sell side and ask for a well mana-ged process including electronic data rooms, verified finan-cial information, explanation of discrepancies with published results etc. at the start of the process.

Valuation expectationsValuation expectations of sellers in India are usually higher than in Europe because they know India’s potential, and bid-ders must pay a premium for market access. It is difficult to avoid this, but the premium is acceptable due to expected growth of the market.High valuation expectations in India are often formed on the basis of comparable transactions which in turn are based on the above mentioned expected market entry premium. Less sophisticated sellers might misinterpret such data and confuse market capitalization and enterprise value while assessing the valuation of their company.Helping the seller understand the principles behind valu-ation in these situations can be more effective than a direct price negotiation.It is important for the investor to understand these issues and build in enough time to address them properly.

Post deal issuesIn case of foreign investors already having a significant base in India prior to an acquisition, integration of local domestic operations with the target may be a big challenge. Key focus areas to keep in mind include navigating cultural differences, managing employee expectations from an in-ternational acquirer and alignment of management styles.It typically takes 1-3 years for the integration to complete and most foreign acquirers recognize the importance of a local approach for a successful integration – either by sending executives from the foreign organization to India or giving local management autonomy to run the Indian operations.


TRANSLINK IN INdIA

Introduction to TRANSLINK India (“BMR”)BMR Advisors is a professional services firm offering a range of M&A, Tax, Legal and Risk advisory services for domestic and global businesses of all sizes. Founded in 2004, BMR is now more than 600 professionals across 6 offices in India covering the entire country. BMR is the largest non audit consulting firm in India and is ranked consistently in league tables across various service lines.Established strong global network and extensive cross border deal experience - relationships in significant world markets to effectively deal with cross-border issues.

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Introduction to TRANSLINK GermanyTRANSLINK Corporate Finance GmbH & Co. KG is an inde-pendent, owner-operated Investment Banking Firm focusingon Mergers & Acquisitions and other Corporate FinanceServices. TRANSLINK Corporate Finance GmbH & Co. KGis the exclusive TRANSLINK partner office for Germany andAustria:

TRANSLINK IN GeRmANY

M&A OfferingsWe act as lead advisors and project managers for providing expert end-to-end solutions from initiation through transaction closure for the proposed transaction. Our unique and integrated service offerings encompass critical and underlying aspects of M&A transactions and related thought process in a comprehensive manner:

Corporate Finance: Lead advisory – Buy side / Sell side and capital syndicationTransaction support services: End-to-end transaction advisory including due diligence, valuation, tax and regulatory advisory, and implementationM&A Tax: Corporate and Business restructuringLegal Advisory and Documentation: Drafting and negotiating term sheets/ LOI/ agreements and General Corporate Law Advisory

TRANSLINK’s extensive experience in cross border deal execution along with deep understanding of Indian and German entrepreneurs’ mindset enables proactive identification of issues leading to successful closure of the transaction.With coverage across all key verticals viz infrastructure, engineering, manufacturing, technology etc. TRANSLINK has the ability to combine industry, business and deal perspectives in order to enable successful outcomes.

TLWe are specialists for

cross-border M&A assign-

ments in the mid-market

segment with a substan-

tial deal experience

TLWe understand the needs

of individual entrepreneurs

as well as the specifics of

dealing with multinational

conglo-merates

TLWe serve our clients in

Germany and Austria from

3 offices with a dedicated

team of experienced

M&A professionals

TLTLRated Tier 1 for Trans-

actional and M&A Tax

excellence by International

Tax Review Annual trans-

actional Tax Survey 2014

Ranked #1 in M&A

in terms of deal count for

first 9 months of 2015

by Venture Intelligence

League Table for 2015

TRANSLINK GeRmANY – ILLUSTRATIve deALS

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TRANSLINK IN GeRmANY



TRANSLINK INdIA – ILLUSTRATIve deALS

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1 5

CASe STUdIeS – TRANSLINK INdIA

Case Study 1 – Japanese Chemical Company

Deal Drivers

Promoters of a listed agrochemical company (Target) were exploring opportunities to exit the business; promoter group held ~25% stake in the business while the balance (~75%) was held by public shareholders. Over a period of time, a broker group had acquired ~20% shareholding in the com-pany making it the single largest shareholder group

Acquisition provided the Japanese company with: >> Entry into the Indian market and an opportunity to tap the high growth agrochemicals market in India>> Target’s robust off-patent product portfolio and low-cost manufacturing facilities in India will enhance Japanese group capabilities

The company wanted a “one-stop shop” for providing Lead advisory services in conjunction with entry strategy and related tax and regulatory services

Key Challenges

Multiple players (including Private Equity firms) with varied interests placed their bids for this transaction. BMR assisted in putting a compelling bid based on seamless dis-cussions with the promoters and internal valuation analysis; therefore our client was provided exclusivity to move to the next stage

Given that the preference of our client was to acquire maximum stake in the company, a joint share purchase agreement was negotiated with the promoters and broker who had acquired ~20% stake in the company; Accordingly, the Japanese Group was able to achieve ~45% stake under this agreement

As per listing laws in India, the Japanese Group was also required to conduct an Open Offer to acquire upto additi-onal ~30% shares from the public shareholders; In spite of the fact that market perception and expectations from the transaction were quite high, Japanese group was able to acquire upto ~20% shares from the market taking the total acquired stake to ~65%

Result

The transaction was successfully closed in October 2016 with the Japanese Group taking over the control of opera-tions of the company

Case Study 2 – European HVAC Company

Deal Drivers

Shareholders of an identified Target, engaged in the business of manufacturing technologically advanced copper and aluminum heat exchanger coils were looking to divest their stake in the Target.

A European company was looking to expand its opera-tions in international markets through acquisitions and specifically in the Asian market where it is anticipated that there will be important developments for the industrial and commercial refri-geration industry.

This acquisition will enable the European company to streng-then its production base in Asia, expand its presence in the Asian markets, leverage the Target’s reputation as a preferred supplier for some of the most prestigious Euro-pean brands and expand its portfolio of offerings.

Key Challenges

The transaction involved a long winded process which was initiated as an auction process and involved multiple bidders up to advanced stages of discussions – while the objective was to minimize the acquisition cost for the Euro-pean company, given the importance of this acquisition for the European company’s global plans, the valuation bid had to be carefully strategized to ensure that the European company did not lose out on the acquisition to higher bidders

The transaction involved acquisition of shareholding from multiple blocks of shareholders (including families and cor-porations) with varied commercial objectives – valuation and deal covenants had to be thought out in a manner that the objectives of all the selling shareholders were satisfied

Given that India was a relatively new market for the European company, continuity of engagement of key ma-nagement personnel in the Target’s business was critical

Result

The transaction was closed in October 2016 with the European company acquiring 95% shareholding in the Tar-get at a compelling price

Key management personnel shall continue to be engaged in the business and hold 5% shareholding in the Target during the transition period


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The Indo-German Desk is a joint initiative of the German and Indian office of TRANSLINK Corporate Finance, with the aim of initiating and supporting cross-border M&A transactions between the two countries. Interest in cross-border transactions has been on the rise from both sides in the past few years. Buyers from both countries are convinced of the advantages of being present in the other country. Despite being cautious initially, more and more buyers have been able to muster the confidence to enter the country, either through outright acquisitions or strategic partnerships. Most German buyers initially refrained from outright acquisitions and instead opted to form joint ventures. A fair number of German companies with joint ventures or strategic partnerships, later chose to increase their stakes or in some cases completely buy-out the JV partner’s stake. Indian buyers in Germany have been and continue to be very opportunistic. Most Indian buyers in Germany have in the past chosen to acquire 100% equity stakes in German companies. The completion of over 100 cross-border transactions in the last 5 years clearly illustrates cross-border deal interest from both sides.Business sentiment in India has benefitted by the election of Narendra Modi as the nation’s Prime Minister. The current Indian government has made job creation a national priority and has taken several measures to encourage investment from both foreign and local businesses. The potent combination of the government’s determination and favorable demographics will prove very advantageous for businesses with a strong presence in India. An M&A driven approach to expan-sion is proven to save time and effort when compared to a Greenfield investment approach. With the formation of the TRANSLINK Indo-German desk, we aim to provide potential buyers comprehensive advice and support in acquiring companies in both the countries. Well established local teams in both countries enable us to offer clients a much better understanding of the Indian market and local support in completing M&A transactions.

TRANSLINK Germany office has 12 M&A professionals

in 3 offices in Bremen, Frankfurt am Main and Vienna

TRANSLINK India office has over 50 M&A professionals

in 6 office across the country

Well connected & knowledgeable partners

in both countries, enable TRANSLINK to provide high caliber

advice & support across focus sectors

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Industrials

Healthcare

Technology& Telecom

Translink focus sectors

Impressum: Publisher: TRANSLINK Corporate Finance GmbH & Co. KG - Leher Heerstraße 28, 28359 Bremen, Germany - Tel. +49 421 94404720All liabilities excluded. This newsletter is based on information obtained from sources (government, partner offices, companies, publications etc.) we believe to be reliable. However, TRANSLINK Corporate Finance GmbH & Co. KG does not take any responsibility as to its accuracy or completeness.Copyright © 2016 TRANSLINK Corporate Finance GmbH & Co. KG. All rights reserved. Protected by copyright laws.

INdo-GeRmAN deSK A TRANSLINK INITIATIve To PRomoTe m&A deALS BeTweeN INdIA ANd GeRmANY

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