With inbound investors lured by the attractions of India's infrastructure market and Indian tech companies acquiring assets in developed markets, cross border deal flow is at record levels.

Brexit may be dominating the news agenda in the UK, but it's not top of mind for IFIN's team in London. Of course, there is a lot of debate, commentary and opinion on the impact of Brexit, and the lack of clarity to date has created significant uncertainty for both our clients and our business.

Amid this uncertainty, the team is excited by the opportunities offered by a strong pipeline of cross border M&A, much of it with an Indian flavour. Combined, domestic, inbound and outbound Indian M&A reached a record US$ 56.2 billion in 2016 up from US$ 30 billion the year before. Domestic deals dominate, not surprisingly given India's strong and persistent economic growth, its stable political climate and soaring capital markets. Inbound deals were on the increase accounting for US$ 21.4 billion, highlighting India's attractiveness to foreign investors. Oil & gas, financial services, technology and infrastructure sectors all contributed.

India's infrastructure investment opportunity has begun to enthuse many large investors.

Long-term investors such as pension funds and insurance companies with large pools of capital allocated to the infrastructure asset class have historically focussed on opportunities in OECD countries. With significant capital chasing fewer transactions, returns have tightened in these markets. Consequently, investors are getting increasingly attracted to investment in Indian infrastructure assets, which offer a premium to the returns available from assets in Europe.

The scale of the Indian infrastructure market is another driver of interest for global infrastructure investors. They are attracted to the large number of brownfield investments in developed markets, particularly Europe, where investments in core infrastructure are underpinned by strong stable cash flows from mature assets. Construction risk is usually limited to capex incurred for up-gradation, improvement, and extension. With over US$ 900billion of investment in infrastructure in India in the last ten years, the sector is continuing to mature. Investors who invested in greenfield assets are looking to recycle capital from operational assets or for the growth of their portfolios. Governments are looking to fund the expansion of core infrastructure assets such as airports, ports, and roads. These factors are all contributing to the increasing size of the brownfield investment opportunity.

Investments into road, power, and renewable energy portfolios by a number of global investors, and Fairfax's recent acquisition of a stake in Bengaluru Airport, which is the entry point to India's tech hub, illustrates the increasing scale and attractiveness of the opportunity.

Given our expertise and experience as a leading developer, investor, and adviser on transactions, and as a fund manager for debt and equity in infrastructure, IFIN is an ideal partner to access investment in this large and growing inbound market opportunity.

The maturity of India's technology and ITES sectors is seen in a new wave of outbound M&A based on a strategy that fills gaps in existing portfolios. The Indian technology and business consulting companies such as Wipro, Infosys, TCS and their ilk, continue to extend their footprints in their target markets in the US and Europe. In part this is achieved by employing more local staff in the face of changing regulation and pressure from many governments. At the same time they're also growing inorganically by acquiring capability that allows them to keep pace with unprecedented disruption caused by technology and sector convergence. The US and UK top the charts for such acquisitions, but the Nordic states and continental Europe including Germany are attracting attention too.

Now that India's capability in IT services, business consulting and transformation delivery capability is so well established, it's a natural evolution for IFIN to build investment banking capability in this sector.

Another exciting cross-border theme is the acquisition by Indian companies of European businesses with technology that can be adapted and applied back in India, and other emerging markets, at a much larger scale.

IL&FS has experience as an early adopter in this area. One of its group companies acquired Elsamex, a company with decades of experience, established processes, and well developed technology in road maintenance, about a decade ago. Back then, it focussed on its Iberian home market and had a small presence in Latin America, but we've been able to take it into India, other parts of Asia, and to Africa. That's a model that continues to appeal to other Indian acquirers and can be applied in several industries, for example in the auto-components sector. Indians' car ownership is low by global standards and is expected to keep on growing over the coming decades providing a major market opportunity. The auto component industry in Europe is mature and as many European automakers invest in hybrid and electric car technologies, auto component manufacturers are following suit. The move to hybrid and electric vehicles is becoming increasingly relevant in India, as the country seeks to contribute to climate change reduction and the regulatory environment becomes closer aligned to those in developed markets. This provides a significant opportunity for European and Indian auto component manufacturing and technology businesses where European players are looking for strategic partners and investment and Indian companies are looking to be at the forefront of change in the domestic and regional markets.

The value of outbound Indian investments in which IL&FS' London team participates is on par, in value terms, with transactions in the opposite direction where European companies see investment in India as a compelling growth strategy. The size of the market, GDP growth of 7.5 per cent, rule of law, and the demographic dividend derived from one million young people joining the workforce every month are all contributing to the attractiveness of the market.

The introduction of a nationwide Goods & Services Tax in July 2017, the flagship of the current government's reforms to improve ease of doing business, removes some of the friction for foreign investors into India. IFIN expects that to give an added impetus to an already healthy volume of inbound investments.

But not all the transactions IFIN participates in from London have an Indian dimension. Given the strength of the investment banking franchise across India, the country features prominently, but the team is currently also involved in raising funds for a project in Indonesia globally through our offices here as well as Hong Kong, Singapore and Dubai. The teams are busy working on transactions ranging from raising debt for a project in Belgium from European, UK and Asian lenders to advising on the financing of real estate projects in the UK and the Middle East.

As Brexit plays out over the next 15-18 months, there will be significant uncertainty for some of our clients. With a clear focus on sectors that we know well, where we have deep connections, and which are ripe for cross-border collaboration, combined with a global reach, IFIN is confident that whichever way the UK's relationship with the rest of Europe falls, there will be demand for high quality advice on cross-border transactions and fund raisings. With the range of opportunities available to us, there's little time to worry about things over which we have no control.

About the Author

Vimal Jain is the Head of Europe & CEO of IL&FS Global Financial Services (UK) Ltd since April 2017. Vimal has around 20 years of professional experience, including that of investing in infrastructure assets and providing corporate finance advice on transactions globally. Amongst others, he has previously worked for EY in corporate finance and Henderson Global Investors in infrastructure private equity.

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