Dozens of Indian textile firms are foraging the global market for acquisition opportunities that will bring them scale, technology and design capabilities, but hardening asking prices are proving to be a hurdle, experts said.
At least 50 firms, many of them home textiles and garment makers, are pursuing merger and acquisition (M&A) deals, but have had to jostle with competitors from other low-cost countries, a foreign investment banker said.
The number of proposals on the works suggest strong cross border M&A activity in the textile space for two years at least," the banker said.
Among listed firms scouting for deals are Raymond, Welspun India Alok Industries, Himatsingka Seide, House of Pearl Fashions, Gokaldas Exports, RSWM and GHCL.
"Indian firms have done what they know best, expand to reach scale. But they are still toddlers when it comes to market access, technology and designs." Prashant Agarwal, Associate Vice-President at consultancy Technopak, said.
"An overseas acquisition solves all that," Agarwal said adding that many of Technopak's 100 or so textile clients were looking at tie-ups or buyouts inspired by recent success stories.
Welspun, which has expanded its capacity with a Rs 6.5 billion investment, bought a controlling stake in British home textile firm Christy in July to gain a wider presence in the UK. "We have the volumes and are ready for a global presence," Joint Managing Director Rajesh Mandawewala said.
Alok, which is spending 23 billion rupees on expansion, is also looking for distributors to prop up supply chains in Europe and the United States, Managing Director Dilip Jiwrajka said. The company bought 60 per cent of Czech firm Mileta in September.
Home textiles firm GHCL expects its upcoming acquisitions to add at least $500 million to sales. It bought US-based Dan River and is looking at retailers and firms that sell to hotels and hospitals.
RSWM, on its part, claims to be just 'weeks away' from an acquisition. It has a unit in the Netherlands to buy specialised yarn makers and is looking at deals in Indonesia and Spain.
Valuations Richer
Courted by eager suitors also from countries such as China, and Turkey sellers have started demanding higher and higher prices and are thus delaying or defeating deals, managers at Indian textile firms said.
S Kumars Nationwide Ltd came close to buying US-based American Pacific but backed out after the asking price remained high. But Indian firms are not giving up and 'it is still possible to get a gem', the investment banker said.
According to Welspun's Mandawewala, deals had been struck at 3-4 times the target company's core earnings, but prices had shot up to as much as 7 times now. "That, in the textile industry, is very rich," he said.
But with production increasingly shifting to low-cost countries and the West remaining the biggest market, Indians' appetite for global acquisitions will continue for some time to come, experts said.
"Valuations for the right assets should preferably ease. Yes, there are too many distressed assets for cheap, but are we yet ready to take them and turn it around," Gokaldas' executive director, Rajendra Hinduja, said.
Source : Financial Express
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