Cross border M&A deal values and volumes continue to rise

Thursday, July 15, 2010 | Posted by: Grant Thornton
Categories: | Tags: India, M&A, South Asia Group, Grant Thornton India, deals, Indian Economy, Cross border, Deal Tracker, Mergers and acquisition

As highlighted in our economic update, India’s economy continues to grow at a remarkable rate. While there continues to be fiscal matters which the Government will need to address in the short to medium term, business activity is very much on the rise.

In the last 6 months alone, India has seen more than double the amount of M&A deals (not including PE deals) in comparison to the corresponding period in 2009, and nearly a hundred more than in the corresponding period in 2008. Furthermore, and perhaps more importantly, the average deal value has risen dramatically over the first 6 months of 2010. The first 6 months of 2008 and 2009, saw average M&A deal values of $60m and $45m, respectively, where as, in the first 6 months of 2010, the average deal value rose to $106m - a truly incredible upturn and a clear signal as to the state of M&A activity involving Indian corporates.

To look further into the data, there were a total of 365 M&A deals completed in the first half of 2010 with a combined value of over $38 billion. In contrast, 2009 witnessed only 128 M&A deals in the first half of the year, with these deals having a combined value of only around $5 billion, and to put 2010’s increasing business activities into further context, the combined value of deals in both May and June of this year were $8 billion and $12.7 billion alone. Admittedly, this contrast in activity won’t come as a surprise given the economic turmoil the world has faced over the last 2 years, but it is the rate at which India has recovered since the downturn which is most remarkable.

The recovery and confidence in the Indian economy has also led to a significant upturn in the number and values of cross border M&A deals over the first 6 months of the year. Over the period, there were 142 cross boarder deals with a total value of over $23.1 billion. In contrast, there were only 64 cross boarder deals in 2009 with a total value of $1.4 billion - a 644% increase in average deal values. This increase in cross border M&A is a clear sign of the returning economic confidence that internationally focused companies are showing in the growth opportunities across India.

There were a number of notable M&A deals which took place during the second quarter of the year. The domestic (both acquirer and target being Indian) deal between GTL Infrastructure and Reliance Infratel Ltd. for Reliance’s tower assets at a value of $11 billion was the largest deal of the quarter and accounted for more than 51% of the quarterly M&A value. This deal was by far the largest deal in terms of value, with the next largest deal being the cross border inbound (international companies acquiring businesses/assets inside India) acquisition of Pirmal Healthcare Solutions’ domestic formulations business by the US healthcare major, Abbott Laboratories, in a deal valued at over $3.7 billion. The other cross border deals to note are the outbound (Indian companies acquiring businesses/assets outside of India) acquisition of KBL European Private Bankers for $1.9 billion by Hinduja Group, and the outbound acquisition of the Zinc business of Anglo American plc by Hindustan Zinc Ltd (part of the Vedanta Resources group) for $1.3 billion, making Vedanta the worlds largest Zinc producer.

With regard to the most active sectors, in respect of Indian M&A over the last quarter, the largest deals occurred in the Telecom sector (the GTL/Reliance deal contributing a significant part), the Pharmaceutical, Healthcare & Biotechnology sectors, the Financial Services sector and the Metals & Ores sectors. In our view, and as recent deals have confirmed, it will be the Telecom and Pharmaceutical sectors which will maintain their activity in the M&A arena in the short to medium term. Furthermore, with the Indian economy growing as it has recently, we will hopefully start to see less volatility in India’s M&A market as well as increasing average deal values.

By way of conclusion, it is clear to see from the above that there has been a dramatic upturn in India’s market place over a relatively short space of time. We must, however, not get too carried away with this recent flurry of activity, as Western economies continue to experience volatile market conditions which could impact the East and cause further global uncertainty. Nevertheless, India continues to deploy its growth strategy at a tremendous rate and its rapidly expanding business environment looks set to continue.

Anuj Chande
Partner and Head of South Asia Group      
For Grant Thornton UK LLP          

Srividya CG
Partner, Valuation Services
For Grant Thornton India