After a dismal 2009, 2010 proved to be a banner year for Indian M & A transactions.  According to Thomson Reuters, deal volume was up more than threefold from $21.3 billion in 2009 to $67.2 billion in 2010.  In addition, although this overall number was just shy of the record set in 2007 of $69.4 billion, 2010 was the biggest year for outbound M & A deals originating in India.  The acquisition spree driving Indian M & A stands in sharp contrast to the general slowdown witnessed globally in the M & A arena, which, according to Bloomberg, is down 46 percent from the high in 2007.  In the US and Europe, the world’s largest markets, deal volumes are down by 51 percent and 59 percent, respectively.   

As cash-rich Indian firms continue to hunt for strategic bargains abroad, industry insiders are confident that 2011 will continue to see a high volume of Indian M & A activity.  According to Bloomberg’s M & A Global Outlook survey, companies in the Asia-Pacific region, including India and China, are expected to be the most active buyers in 2011 as attractive valuations drive deals globally.  While activity is expected in all sectors, as Indian companies seek oil, gas, coal and other minerals to fuel India’s continued industrial growth, natural resources will undoubtedly continue to be the subject of a significant portion of deals originating in India. 

The focus on natural resources reflects a shifting paradigm in Indian M & A activity.  In the past, large outbound Indian deals have tended to feature private firms buying controlling interests in foreign entities in an effort to become multinational.  Compare this to China, where large deals have focused on natural resources and have been driven by state-controlled firms seeking to bolster China’s energy security.  In short, unlike deals originating in India, Chinese deals have been driven by the Chinese state’s strategic needs.  However, India now appears to be planning a major push to secure supplies of scarce natural resources such as oil, gas, coal and other minerals, and this distinction will eventually blur.  Large state-owned energy and mining companies such as Oil India Ltd. and Coal India have been eying foreign assets and the Indian government appears to have recognized the need to establish a comprehensive policy framework to help such companies acquire natural resources abroad. 

The Hindustan Times recently reported that in a meeting arranged by the Prime Minister’s office in December, it was decided that the Department of Industrial Policy and Promotion (DIPP) would draft a formal policy for the acquisition of foreign natural resources.  According to a senior official, “DIPP will seek cabinet approval to a government policy on facilitating outward investment by Indian private sector companies.”  He continued that “[o]utward investment by the private sector companies may be for many purposes, acquisition of raw material resources being one” and that “what is required is a policy statement to avoid criticism from any quarter on why government agencies are promoting the cause of private companies, and to create a mechanism to provide necessary help wherever required.”  Among other things, the preliminary plan calls for the establishment of a centralized organization, empowered with strategic and decision-making powers.  Further, in recognition of the fact that M & A involving natural resources often involves matters of sensitive state diplomacy, the Ministry of External Affairs has been asked to prepare a strategy in connection with the acquisition of such resources. 

The final form of the DIPP and Ministry policy is yet to be seen; however it appears that in recognizing the need for change and taking steps to facilitate the outbound M & A boom, the Indian government is headed in the right direction. 

Shubi Arora is an energy and global transactions associate attorney at Akin Gump Strauss Hauer & Feld LLP in Houston, Texas.  He can be reached at sarora@akingump.com. 

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