The year 2010 has turned out to be one of the best years for merger and acquisition (M&A) activity in India. According to data compiled by Ernst & Young, merger and acquisition deal value reached a whopping $68.3 bn growing three-fold as compared to the value recorded in 2009. And in terms of deal count, 2010 recorded a total of 1,267 deals.
Calling it a blockbuster year, Ranjan Biswas, partner and national director - transaction advisory services at Ernst & Young said that swift economic recovery, together with growth potential of Indian companies triggered deal activity touching the peak levels of 2007. “Corporate India has become bolder and is going out to go to hunt for acquisitions. Indian companies jumped the M&A bandwagon pretty early in the year. The first quarter itself witnessed three mega (billion dollar plus) deals paving way for many other corporates to take the M&A plunge,” said Biswas.
India clocked 554 cross border deals worth $54.9 bn and a significant 80% share of the total deal value of 2010. A total of 263 outbound deals with an aggregate disclosed deal value of $32.4 billion were recorded in 2010. The share of outbound deals in the total M&A pie in terms of value rose to 47% in 2010 from a meager 6% a year ago. Notably, a number of outbound deals in 2010 were done by players in oil and gas and metals and mining sectors to acquire assets overseas in order to feed the growing energy demand at home.
Rahul Bhasin, managing partner, Baring Private Equity Partners (India) Pvt Ltd feels companies pursue merger and acquisition (M&A), to acquire new customers, markets and technology. “Either on the supply or market side, there is always a choice between doing it organically or inorganically. One takes the inorganic route only if it is cheaper and builds on efficiency. Acquisitions are also done only when companies have access to capital. These are two important factors driving M&A in India,” Bhasin said.
On whether market confidence acted as a catalyst for M&A activity, Bhasin that market confidence is a function of how much capital is available. “Indian companies have been doing well and majority of them have access to capital. The situation however is different in the international markets and companies there still continue to be under pressure in some form or the other. Indian companies thus have optimised on this opportunity by making acquisitions,” he said.
The biggest outbound deals of the year were Bharti Airtel’s acquisition of Zain Africa ($ 10.7 bn), the consortium acquisition of Venezuela’s Carbobo acreage by ONGC, Oil India and Indian Oil’s along with Repsol YPF SA and Petronas ($4.9 bn), Adani group’s acquisition of the Galiliee coal basin from Linc Energy ($2.7 bn) and RIL’s acquisition of the Marcellus shale gas assets from Atlas Energy Inc. ($1.7 bn). These four deals together contributed 62% share of the total outbound deal value.
Industry experts however also feel the M&A momentum may not sustain in 2011. “Liquidity is gotten tighter and I would be surprised if the trend continues in the one way direction,” Bhasin said.
Adding that M&A transactions tend to be lumpy, Bhasin asserts it's not advisable to read too much into it. “Looking at one time frame in the short term and then another time frame in the short term will be misleading in my observation. We should really look at it in a three-four year time frame comparing it with another three-four time frame. That will give a much better sense of what is really happening in the market,” he said.
An interesting trend observed in 2010 was the increasing willingness of Indian promoters to part with their stakes for strategic business fits thereby smoothening inbound deals. India witnessed a total of 291inbound deals in 2010 with an aggregate disclosed deal value of $22.5 bn, almost three times the value in 2009. Some prominent inbound deals were Vedanta Resources’ proposed acquisition of a majority stake in Cairn India ($9.5 bn), Abbott Laboratories’ takeover of the healthcare solutions business of Piramal Healthcare ($3.7 bn) and JFE Steel Corp’s investment in JSW Steel Ltd ($1 bn).
No comments:
Post a Comment