Are the days of cheap money for buyouts over?
The rising bond yields suggest so. Media reports or Blackstone's stock performance also suggests so. Does it means the end of Mergers and Acquisitions around the world and especially the much talked about India Inc' overseas acquisitions?
I do not think so.
Indian companies were not acquiring overseas companies because interest rates were low earlier. Predominantly all Indian acquisitions were strategic and growth oriented. They were either to acquire technology or to acquire market access and customers. Those fundamentals of India Inc are still very much intact and hence the intent to acquire is intact. The question of funding though important but is not ultimate decider. Indian companies have been borrowing large sums overseas to fund the acquisitions only because funds are cheaper there. The increased interest rates will increase cost of borrowing but will equally reduce the valuations. In that scenario the increased interest expenses should be more than compensated with reduced cost of asset overseas. The US stock markets are down by about 6% while interest rate is up by about 4%. Hence the overall impact is only towards the better liking of India Inc. Instead of slowing down global acquisitions it is rather a buying opportunity!
The rising bond yields suggest so. Media reports or Blackstone's stock performance also suggests so. Does it means the end of Mergers and Acquisitions around the world and especially the much talked about India Inc' overseas acquisitions?
I do not think so.
Indian companies were not acquiring overseas companies because interest rates were low earlier. Predominantly all Indian acquisitions were strategic and growth oriented. They were either to acquire technology or to acquire market access and customers. Those fundamentals of India Inc are still very much intact and hence the intent to acquire is intact. The question of funding though important but is not ultimate decider. Indian companies have been borrowing large sums overseas to fund the acquisitions only because funds are cheaper there. The increased interest rates will increase cost of borrowing but will equally reduce the valuations. In that scenario the increased interest expenses should be more than compensated with reduced cost of asset overseas. The US stock markets are down by about 6% while interest rate is up by about 4%. Hence the overall impact is only towards the better liking of India Inc. Instead of slowing down global acquisitions it is rather a buying opportunity!
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