Wednesday, October 21, 2009 | Posted by: Grant Thornton
Categories: | Tags: India, offshore, global, M&A, India Watch, South Asia Group, Grant Thornton India, Anuj Chande, Alex Wright, Pankaj Karna, Cross border M&A
The recent instability in M&A activity throughout the second quarter of the year, as discussed in the last India Watch report, has continued into the third quarter of 2009. Where equity and commodity markets have seen rather unprecedented growth over the past 4 months, Indian M&A activity has seen a continued lack of stability or growth.
While the value of Indian M&A deals in July (US$982.5m) saw an increase over the same period in the previous year (US$637m), had it not been for Sanofi Pasteur’s acquisition of a majority stake in Shantha Biotechnics, valued at US$664.9m, M&A deal values in July 2009 would have been significantly lower than in 2008. The Sanofi deal does, however, begin to reflect the current trend of increasing inbound (international companies or their subsidiaries acquiring all or part of an Indian business) M&A activity being witnessed throughout India recently. The reason behind this trend derives to some extend from the recent upturn in global equity markets, where cash heavy foreign funds are looking to gain a position in India’s growth potential.
While inbound deal values in July rose against the same period in 2008, the same cannot be said for outbound (Indian companies acquiring businesses outside India) M&A activity in India. Where July 2008 saw 20 M&A deals with a combined value of US$499m, the same month this year saw only 7 deals with a combined value of only US$14.23m. This trend continued into August, which in 2008 saw 17 outbound deals with a combined value of US$4.49 billion but this year only saw 7 deals with a combined value of US$76.19m. Even with August 2008’s large one off deals, namely Oil & Natural Gas Corp Videsh Ltd’s acquisition of Imperial Energy Plc for US$2.80 billion and HCL Technologies’ acquisition of Axon for US$750m, deal values in August 2008 dwarfed those in 2009. So what can be read from this decline in outbound transaction deals and values?
The domestic (both acquirer and target being Indian companies) M&A sector may shed some light. While July and August of 2008 saw domestic deal values reach US$93.83m from a total of 26 deals, the same months this year saw 34 deals with a combined value of US$543.46m. Two of the largest domestic deals in the period were, Fortis Healthcare’s acquisition of eight hospitals and two Greenfield Projects from Wockhardt Hospitals for a total value of over US$200m, and Essar Steel Ltd’s acquisition of a number of Shree Precoated Steels Ltd’s assets, valued at over US$133m. This rise in domestic M&A activity in India is reflective of the continuing upward trend of domestic M&A deals globally. The current environment in which the majority of companies are now operating in is one of organic growth and consolidation. In India’s case specifically, cash-rich Indian firms continue to be acquisitive, but with a definite preference being shown towards domestic M&A.
To further highlight the instability prominent throughout the M&A sector, July’s inbound deals had a combined value of over US$934m. In contrast, August saw only 4 inbound deals with a combined value of US$68.22m, the largest of which was Chloride Group Plc acquisition of a majority stake in DB Power Electronics Pvt Ltd for US$56.22m.
Where last quarter saw the IT & ITeS sector attain the highest values, the M&A sectors which garnered by far the most valuable investments over July and August were the Pharmaceutical, Healthcare and Biotechnology sectors with a combined value of US$1.017 billion across 5 deals accounting for 64% of the total deal values over the period.
While the above may indicate a slight upturn in M&A activity over the year, it is still far from the levels seen in previous years. To put the current year into better perspective, the total number of M&A deals during the first 8 months of 2009 stands at 183 deals with a combined value of US$6.56 billion. These figures are overshadowed by the 344 deals with a combined value of US$21.30 billion seen in the corresponding period in 2008.
In a similar vein to the last quarter, Indian M&A activity continues to be difficult to predict. However, while combined deal values have fluctuated, and to an extent they always will, the trends such as those seen in the increase in the number of domestic and inbound deals, driven by the organic growth and consolidation of Indian companies and the resurgence in the equity markets across the world, will continue to grow. These areas of Indian M&A activity will certainly be the areas to focus on as we move into the final quarter of the year.
Partner and Head of South Asia Group
For Grant Thornton UK LLP
Partner and Head of Corporate Finance
For Grant Thornton India