At $16.5b, M&A deals in 9 months top total of 2013

by / Sunday, 09 November 2014 / Published in News & Updates

Sharp rise in outbound deals, but inbound transactions dip

Merger and acquisition (M&A) activities have picked up pace at the first hint of an economic revival, and India Inc has recorded deals worth more than $16.48 billion in the first nine months compared with $15.66 billion worth of transactions in the whole of 2013.

Domestic M&A deals dominated in terms of value and volume, with 172 transactions worth $7.85 billion from January through September, a 51 per cent jump from $5.17 billion in 2013.

Cross-border transactions, especially outbound ones, have also seen a sharp increase year on year, with 76 deals worth $3.76 billion this year against 71 deals worth $1.49 billion last year, data sourced from Venture Intelligence, a research service focused on private equity and M&A in India, showed.

Outbound deals had dried up over the past few years, as domestic companies had got saddled with large debt piles and turned cautious on cross-border acquisitions.

“M&A activity has pic­ked up, as confidence levels have grown among the companies following the election verdict. This is why there is an increase in M&A activity compared with last year’s,” said K Balakrishnan, chairman of Kriscore Financial Advisors.

But there has been a drop in inbound M&A deals this year, with just 98 transactions worth $4.87 billion, down 54 per cent in value terms from $9.04 billion and 31 per cent in volume terms from 144 transactions in 2013.

“My guess is, we will see more inbound M&A deals in the coming years, as global strategic investments will take place in sectors like consumer, retail, food and industrials. Once the insurance bill is passed, a lot money will come into that sector as well,” Balakrisnan said.

He said domestic M&A activity would remain subdued as capital, control and valuation issues would hold back a lot of companies from going for acquisitions.

Top domestic M&A deals so far this year included Sun Pharma’s $4 billion acquisition of Ranbaxy, Adani Ports’ acquisition of Dhamra Port for $930 million, Reliance Industries’ $676 million takeover of Network18 and Filpkart’s $300 million acquisition of Myntra.

“Indian M&A market started calendar 2014 on a high. When M&A deals across the world declined 1 per cent in the first half, the Indian market saw a 10 per cent jump,” said Mahesh Singhi, managing director, Singhi Advisors, a Mumbai-based investment banking firm. “This will only improve in the short to long term, as we feel there is strong appetite for M&As here.”

Industry experts say companies are more optimistic than ever about a revival in the domestic investment cycle. This coupled with expectations of policy and fiscal reforms will keep India buzzing on the global M&A radar.

In outbound deals, Cognizant’s $2.7 billion buy of Colorado-based healthcare IT provider TriZetto dominated the chart, followed by a few transactions in the $150 million-$200 million range by IT majors Wipro and TCS as well as Adani Enterprises and Aurobindo Pharma.

Jacob Mathew, managing director of boutique investment firm MAPE, said things were changing in the M&A space with the return of confidence. “Both domestic and cross-border activities will see an uptick in the months to come.”

Industry experts said more than general factors, sector-specific factors would play an important role in M&A activity over the next few months.

The recent government moves to ease restrictions on spectrum sharing will encourage consolidations, triggering a wave of M&A deals in the telecom sector.

Divestitures of non-core businesses by highly-leveraged real estate and infrastructure companies would also drive dozens of M&A deals in India in the days to come, they say.

“We may see acquisitions by large and mid-sized IT companies in the coming months, as cash flow generation from core businesses remains strong for these companies, Singhi said.

As the economy gets into revival mode, international investors have started taking interest in the country and this would boost strategic investment by foreign players.

“Inbound deals will be supported by rising interest from foreign investors and companies in the Indian consumer, healthcare, metals, real estate and telecom sectors,” said Singhi.

He said there should be a lot of deals in the near future as Indian companies sell assets to raise cash and cut debt. “As for outbound activity, strong domestic companies are already looking for expansion in foreign markets,” he said.

“Indian companies are more confidant now about completing large acquisitions abroad, as sentiment has improved tremendously back home,” he said.

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