India's and Germany's relations play a strategic role in the development of both economies. Growing across seven decades of bilateral relations, the two countries have always maintained strong associations and liaised for mutual development. Testament to German investors' confidence in the growth potential of the Indian market, the country ranks as the seventh-largest source of Foreign Direct Investment (FDI) in India since April 2000. Located in Central Europe, Germany is viewed as a strategic location in terms of infrastructure, logistics, and research and development by many Indian companies. With the United Kingdom's exit from the European Union, Indian investors are increasingly viewing Germany as a prime investment destination to strengthen their foothold and consolidate operations in the European market.

To further fortify the association, inter-governmental consultations between the two countries aim at constant measures to simplify procedures and allure cross-border investments. Germany and India have signed numerous agreements to promote collaborative development in upcoming fields such as artificial intelligence, green urban mobility, industrial automation and robotics, as well as in sectors such as automotive, pharmaceuticals, and agriculture.

A popular route of entry and expansion for companies in the Indo-German corridor has been Mergers and Acquisitions (M&A). Led by sectors such as software and services, automotive, pharmaceuticals, and capital goods, deal trends in this corridor over the past decade are a reflection of the strengths of both economies, as they have largely complementary ecosystems that bridge business needs and introduce new growth avenues for one another. Consolidations to opportunistic acquisitions by strategic/ cash-rich buyers for market penetration, technological advancements, and customer acquisition are among the key factors that drove M&A activity in this corridor.

A key motivation driving Indian companies' acquisitions in Germany is the country's renowned technological prowess. Adding German competencies to their portfolio allows Indian companies to enhance product offerings and also tap into their global customer base. On the other hand, German acquisitions in India were fueled by the country's large captive consumption market and its positioning as a value-efficient base to cater to the world.

As the world combats the COVID-19 pandemic, M&A activities since early 2020 faced a challenging climate in various industries as well as businesses worldwide, and Indo-German cross-border transactions were no exception. Many of the M&A deals that were announced before the pandemic managed to remain on track despite the crisis. However, subsequent deal execution became significantly challenging. Many businesses were forced to halt their inorganic growth plans as a result of the financial strain, travel restrictions, and economic uncertainty brought on by the pandemic.

With the resulting lockdowns, the rising demand for athome services steered the economic landscape towards a digital marketplace, making the Telecommunication, Information Technology, and Healthcare sectors among the most important sectors in the years to come, thereby increasing M&A activity. Deals in these sectors, coupled with existing trends in the Indo-German landscape, are inclined to potentially continue in the coming years as companies adjust to build resilience and take advantage of the anticipated recovery in the post-pandemic era.

While there is tremendous potential for the two economies to develop cross-border business partnerships further, China has also been a key contender for German companies looking to enter the Asian market. Moreover, with the pandemic-driven geo-political developments, other South Asian economies are also increasingly gaining focus among international businesses looking to decentralize their operations. Thus, going forward, it will be important to dive deeper into the areas discussed during Intergovernmental Consultations and focus on a comprehensive approach to implement the initiatives, which will drive business in both directions.

As we celebrate the Seventieth Anniversary of diplomatic ties and the Twentieth Anniversary of the strategic partnership between India and Germany, it is important to understand how strategic business partnerships augment the relationship between these economies and their collaborative vision for the next decade. In this paper, we have attempted to dwell upon some of these complementary areas enabling collaborative partnerships over the past decade and in the years to come.

Executive Summary

Indo-German Investment Relations

With 20 years of strategic partnership, Germany's contribution to India's economic growth stands strong, as it ranks as India's largest trading partner in the European Union (EU) and 7th largest source of FDI.

Mergers and Acquisitions (M&A) has been a popular route of entry and expansion for companies in the Indo-German corridor, with 171 deals over the past decade.

Germany ranks in the Top 5 M&A destinations for Indian companies globally. While UK has been the leading investment destination in Europe for Indian companies in the past, Brexit may propel Germany's popularity as a foothold for Indian companies in the EU, as they need an alternative to consolidate and manage their EU operations.

Germany was ranked the 3rd most active European acquirer in India, solidifying its importance in both inbound and outbound acquisitions.

Achieving Collaborative Growth through M&A

What drove deal activity?

M&A trends in the Indo-German corridor over the past decade are a reflection of the strengths of both economies, with largely complementary ecosystems bridging business needs and introducing growth avenues.

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