Indian M&A Activity in Canada: The Paradigm Shifts

October 22, 2008

Note: This article is adapted from the Introduction to the author’s in-depth study, “India Looks Outward: Cross-Border M&A by Indian Corporations – Canadian Considerations”, which is available from the author or by sending a request to [email protected].

Multinational corporations in emerging economies are looking to mergers and acquisitions as a means to tap quickly into new markets and assets. While discussions of Asian M&A have traditionally focused on China, the increasing economic power of India has led to an exponential increase in M&A involving Indian companies. Such activity was once confined to the domestic sphere or to foreign investments on Indian soil. In recent years, however, the paradigm has shifted: Indian companies are now, more than ever, participating as active and visible players in the outbound, cross-border M&A game.
Driven by a desire to grow quickly and globally, Indian firms are seeking entry into European and North American markets rather than making acquisitions locally or being bought out themselves. Furthermore, industry observers foresee continued growth in the pace of acquisitions by Indian companies in the near future. Who are the targets of this buying spree? While U.S. and European corporations are now regularly being acquired by Indian corporations, Canada has also fallen onto the Indian “radar”. In fact, the Canadian industrial landscape, in many ways, provides an attractive stalking ground for Indian acquirors on the hunt.

To date, Indian cross-border M&A transactions have almost always been structured as negotiated (“friendly”) all-cash transactions for the target entity. Nevertheless, Indian buyers carrying out friendly transactions in Canada should be aware that there are still significant legal issues which must be considered in order to complete the transaction in the most effective and efficient way possible.

Key drivers of Indian overseas acquisitions

The burgeoning trend towards outbound M&A by Indian corporations, versus domestic acquisitions or inbound transactions from foreign acquirors, has been triggered by a number of factors.

Indian growth cycle

Broadly speaking, many Indian corporations epitomize the classic corporate growth model. After a decade of strong domestic growth, cash-rich Indian companies are now at the point in their evolution where they can realistically rely on foreign acquisitions as their primary growth mechanism. Some of these corporations are even participating in multiple M&A transactions in order to build an interest in different businesses in a variety of industries.

Government policy and regulation

Government restrictions on foreign direct investment in certain sectors of the Indian economy have further fuelled the trend towards outbound, versus inbound, Indian M&A. Additionally, Indian companies have benefited from an Indian regulatory regime that has gradually relaxed controls on the outbound flow of capital, making it easier for Indian corporations to sell securities and raise financing abroad. Furthermore, the lowering of import tariffs in India has enhanced domestic competition, thus compelling Indian corporations to access markets abroad.

Global economic conditions

The global business environment has played a key role in facilitating the upsurge in Indian cross-border M&A. The rising value of the rupee against the U.S. dollar has provided Indian CEOs with more buying power when contemplating a foreign expansion. Similarly, the rise in valuations of Indian companies, combined with a fall in the U.S. stock market, has further favoured outbound M&A by Indian companies, versus inbound investments by their Western counterparts.

Along with the stockpiles of cash that Indian corporations have been accumulating over the last decade, Indian companies are also not facing the same challenges that their North American and European counterparts are encountering in obtaining financing to acquire overseas companies. Domestic Indian lenders such as ICICI and HDFC have not been impacted to the same extent as their North American counterparts by the credit and liquidity crises afflicting global financial institutions. These banks have been happy to extend credit to Indian corporations, and such financing practices have not been confined to the Ambanis and Premjis, but to the small and medium-sized enterprises (SMEs) as well.

While the long-term impact of the U.S. credit crunch on Indian cross-border M&A may not yet be discernable, many observers are of the view that cash-rich Indian corporations may have a competitive advantage in bidding against firms whose traditional sources of financing have become restricted. Additionally, with Indian corporations and markets growing faster than many of their Western counterparts, many U.S. and European private equity funds are increasingly happy to help finance the Indian M&A frenzy. Such M&A activity may accelerate if large numbers of distressed assets become available at affordable prices in the so-called “credit-crunch” economies.

Cultural factors

Indian companies are also endowed with certain key familiarities with the West, which make doing business easier. English is the official business language in India, and therefore effective communication is seldom an obstruction in business negotiations. Furthermore, India is the world’s largest democracy and its legal system is grounded in the British common law tradition. Indian business leaders are therefore not taken aback by the regulatory and legal issues surrounding cross-border acquisitions in North America and Europe. Each of these commonalities provide Indian firms with additional “comfort factors”, and make corporations in North American and European countries more attractive for acquisition purposes.

A change in attitude

Many have also attributed the outbound Indian M&A trend to an overall change in mindset amongst Indian CEOs and management teams. Where Indian business ventures were once typically characterized by marked caution, corporate leaders are now seeking to explode onto the global stage and “prove themselves to the West”, especially in light of the recent high-profile international deals executed by large Indian conglomerates (as described below). These sentiments have been fuelled by the pressing need for Indian corporations to establish the strength of their brands globally.

Sovereign wealth funds

Finally, it should be noted that although India does not currently have a sovereign wealth fund, if India does establish such a fund (as many observers expect it will), out-bound Indian M&A activity could increase significantly.

Recent transactions

A wide range of Indian acquirors have participated in the cross-border M&A wave recently. Examples of some of the more significant large-cap (“mega-deal”) M&A transactions to date are set forth in the following table:

Selected Outbound M&A Transactions Valued at 1 Billion Dollars or More1 (“Mega” Deals)


Foreign Target

Target Industry

Target Country

Approximate Value (U.S.$)

Mittal Steel Co.2

Arcelor S.A.



$47.44 billion

Tata Steel Ltd.

Corus Group PLC



$14.85 billion

Hindalco Industries Ltd.

Novelis Inc.



$6 billion

Sterlite Industries India Ltd.

Asarco Inc.



$2.6 billion

Tata Motors Ltd.3

Ford Motor Co.’s Jaguar Limited and Land Rover Holdings



$2.3 billion

Essar Steel Ltd.4

Algoma Steel Inc.



$1.57 billion

United Spirits Ltd.

Whyte & Mackay Ltd.

Food and Beverages


$1.18 billion

Tata Power Company Ltd.

30% stake each in PT Kaltim Prima Coal and
PT Arutmin Indonesia



$1.1 billion

Tata Chemicals Ltd.

General Chemical Industrial Products Inc.



$1 billion

Canada as a target

As evidenced above, while U.S. and European targets are now more regularly being acquired by Indian buyers, Canadian companies have begun receiving increased attention as well. It is important to note that the myth that Indian business is all about IT and outsourcing has been dispelled. Along with the IT and software sectors, the auto industry, pharmaceuticals and banking have long been target industries for Indian corporations. Moreover, recently there has been significant M&A activity by Indian companies in traditional “old economy” sectors such as mining, energy and power (including oil and gas), chemicals, steel, aluminum and other metals, auto components, commodities and telecom.

Considering Canada’s prevalence of significant oil and gas, mining and natural resource players, along with the presence of industry leaders in the chemical, automotive parts and IT/software industries, an increase in M&A by Indian buyers in the Canadian market is a distinct possibility. As an example of this trend, it has been widely reported that Indian companies could invest up to U.S. $2.5 billion for stakes in Canadian oil sands projects as a part of efforts to secure overseas energy assets to fuel the country’s fast-growing economy.

Other “old-economy” sectors of the Canadian economy may be targeted by Indian acquirors as well. For example, with Indian financial institutions continuing to thrive in comparison to their North American counterparts, there have recently been reports of large Indian financial institutions planning acquisitions of smaller players (i.e., “consumer franchises”) in the U.S. or Canadian markets.

Thus, from all angles, an increase in India-generated M&A in the Canadian market may in fact be more a question of “when”, rather than “if”.



1 The information in this table has been compiled from the Capital IQ database.
2 Stikeman Elliott LLP advised Mittal in this transaction.
3 Stikeman Elliott LLP advised Tata in this transaction.
4 Stikeman Elliott LLP advised Essar in this transaction.

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