In the past five months, at least seven outbound deals have taken place, signifying the intent of these companies to expand their operations abroad. Together, these transactions amount to over Rs 30 billion (Rs 3,000 crore), higher than the total value of outbound deals in the past three years, according to research firm Grant Thornton.Godrej Consumer Products Ltd has wrapped up four deals in three months. These include the buyout of Nigerian company Tura in March for Rs 4-5 billion (Rs 4-5 billion (Rs 400-500 crore), of Indonesian company Megasari Makmur in April for Rs 10-12 billion (Rs 1,000-1,200 crore), the acquisition of the 51 per cent Sara Lee stake in the Indian joint venture, Godrej Sara Lee, in the second week of May for Rs 10.55 billion (Rs 1,055 crore), and the buyout of Latin American firm Issue for Rs 2.3 (Rs 230 crore).
With this, GCPL has almost exhausted the Rs 30 billion (Rs 3,000 crore) war chest it had set aside for acquisitions. The company is unlikely to sit still as it eyes more buyouts in the markets of Asia, Africa and Latin America. "We will continue with acquisitions," GCPL Chairman Adi Godrej had said to Business Standard, when announcing the buyout of the Sara Lee stake in the Indian joint venture.
For this, GCPL may seek further approval from the board to raise money, say analysts tracking the company, though the management declined indicating anything at this point. It is already talking to private equity players to raise up to Rs 6-7 billion (Rs 600-700 crore), Godrej had said to Business Standard earlier, which will be utilised to fund the acquisitions.
Offshore debt
Much of the debt GCPL is raising is offshore, Godrej had said. This is a trend, says Ajay Arora, partner, advisory services, Ernst & Young, that will persist as more companies look to snap up firms abroad. "The need to lower their cost of funds is what is driving them to do so," he says. "It makes eminent sense to seek offshore debt, since much of the funding for outbound deals will happen at special purpose vehicle-level, using the target company's cashflows as collateral."
"This is typically for deals above $100 million or Rs 4.6 billion (Rs 460 crore), where leveraging one's balance sheet makes sense," says Srividya CG, partner, specialist advisory services, Grant Thorton. "But, for ones that are small, internal accruals suffice."
Take Marico's Code 10 buy in January. Acquired from Colgate-Palmolive in Malaysia, the size of the deal was estimated to be around Rs 250 million (Rs 25 crore). "This is something that would have been funded via cash," says Srividya.
It is unclear, however, how Marico is funding its recent acquisition of Derma Rx in Singapore by subsidiary Kaya. The deal is estimated to be about Rs 1 million (Rs 100 crore) and would give Kaya, a loss-making unit of Marico, access to the Southeast Asia market, where Derma is strong.
