M&A deal activity drop in CYQ3; outlook bright with improving economic indicators
The drop in mergers and acquisition (M&A) transactions by 54% in the third quarter of the calendar year 2017 has not dented the expectations of experts as they are confident improvement in economic indicators and application of Insolvency and Bankruptcy code would provide sufficient deal opportunities in coming quarters. Amit Khandelwal, Partner and National Leader, Transaction advisory Services of Ernst & Young said, companies adopted a wait and watch policy during the third quarter of 2017 with cumulative disclosed deal value of M&A falling to $6.2 billion from $13.7 billion in the same period last year. However, the volumes increased marginally by 8% to 252 deals against 234 deals in the year ago quarter. Read On ..
He believes, after the slowdown in growth rates in the first two quarters of 2017, some of the high frequency economic indicators have started to show signs of revival. The data released in September shows a rise in exports and industrial output and stability in manufacturing PMI (Purchasing Managers' Index). “The market witnessed healthy activity in smaller value deals. Consequently, third quarter witnessed a fair increase in deal volume while deal value reduced compared with the same period last year,” Khandelwal said.
In value terms, domestic deals made up for $5.2 billion with Dilip Buildcon’s road assets taken over by Shrem Infraventure for $250 million and Wilmar Sugar buying additional stakes of Shree Renuka Sugars for $126.5 million leading the inbound space. Top among outbound deals was Apeldoorn Flexible Packaging acquiring JPF Netherlands BV for $94 million.
The local M&A landscape was largely characterized by small-sized deals essentially aimed to expand market share. Most of these deals were witnessed in retail and consumer products, professional services, technology and media and entertainment sectors. Online players were popular targets across these deals, reflecting the companies thrust for digital transformation.
The cross-border deals too remained quiet for the third quarter with the total disclosed deal value recording a decline of 80.5% year-on-year, primarily led by lesser big-ticket inbound investments. From a sector perspective, technology led the activity, both in terms of value and volume with 33 deals totalling to $3.8 billion, followed by financial services, recording 32 deals with a disclosed value of $291 million.
January-September (YTD) Performance
Conversely, the year-to-date (January-September 2017) deal size activity presents a healthy scenario and is expected to continue the positive momentum. The January-September M&A deal value reached a record high at $33 billion compared to $27 billion in the corresponding period last year primarily led by domestic transactions, according to data from Grant Thornton India.
Prashant Mehra, Partner at Grant Thornton India LLP said, "The activity was driven by higher consolidation witnessed in the domestic segment as home-grown companies chose the inorganic route to generate growth with around 190 deals worth $28 billion."
During this period, the cross-border deal activity witnessed a declining trend both in terms of deal values and volumes. Total cross border transactions fell by more than 50% to $5.2 billion over the same period last year.
January-September period recorded four deals in the billion dollar club and 58 deals valued at and above $100 million, together contributing around 84 per cent of the total deal values.
"Attracted by the long-term potential in the country due to improving economic conditions, companies are increasingly exploiting opportunities in the emerging Indian market, particularly those in the telecom and e-commerce sectors," Mehra said.
BDO Consulting in a report said, throughout 2017, India has continued to be a healthy deal-making market and is expected to keep growing in the coming years. "While the number of deals has largely remained the same, the ticket sizes of deals as well as number of exits are increasingly reaffirming investor confidence in India," the report added.
"Application of Insolvency and Bankruptcy Code is likely to increase the number of transactions going forward into the next quarter and fiscal year," the report added.
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