Breakingviews - Tata's Iveco deal heeds lessons of its M&A past

Reuters

31-07-2025

MUMBAI, July 31 (Reuters Breakingviews) - The Tata group has a patchy record of overseas expeditions. Wednesday's all-cash 3.8 billion euros ($4.34 billion) agreed offer, opens new tab for Iveco's (IVG.MI), opens new tab non-defence businesses appears to avoid past M&A mistakes. The transaction will allow the conglomerate's $28 billion Tata Motors (TAMO.NS), opens new tab to gain access to Europe without stretching its balance sheet, and returns look reasonable, too.
Sure, the 5.8% average EBIT margin of the Iveco businesses Tata Motors is buying lags the acquirer's 9.1%. But the target's commercial-vehicle unit grew revenue almost 1% last year, per Visible Alpha. While hardly stellar, it's better than the roughly 5%, opens new tab drop suffered by the acquirer's top line. And the purchase will add a European presence to Tata's own trucks business, which is expected to be spun off by the end of December.
It's also a tool for the Indian group, whose 2008 buyout of Jaguar Land Rover helped it develop India's top-selling electric car, to acquire the know-how key to achieving New Delhi's push to transition to battery-powered heavy vehicles.
Some of Tata's previous overseas deals set a relatively low bar for success. It piled on leverage in its $12 billion buyout of Anglo-Dutch steelmaker Corus in 2007 and faced accusations of overpaying, to boot. Jaguar Land Rover only turned net-cash positive last financial year; slowing global growth and tariffs mean it's a mixed success, at best.
Tata Motors' shares briefly dropped 2% after the deal announcement, reflecting fears the Indian truckmaker will borrow a heap more, months after its autos division turned net debt-free, opens new tab.
Some of those concerns look unfounded. While Tata Motors' net debt will rise, it's likely to stay below 2 times one-year forward EBITDA, according to forecasts compiled by Visible Alpha. Its offer values Iveco's non-defence enterprise at just over 3 times its forecast operating income for the 2026 fiscal year, about one-third the multiple Motilal Oswal analysts ascribe to the acquirer's CV unit.
Assuming the target's operating income rises to 1.48 billion euros by the 2028 fiscal year, as estimates gathered by Visible Alpha reckon, and applying a 27% tax rate, Tata Motors stands to earn a 16% return on invested capital, well over its 11.5% weighted average cost of capital, per LSEG.
It's a sign the Tata group has learned painful yet valuable lessons from its past forays into cross-border takeovers.
Follow Shritama Bose on Linkedin, opens new tab and X, opens new tab.