India remains a favourite location for cross-boarder M&A

Monday, January 05, 2009 | Posted by: Grant Thornton
Categories: | Tags: India, investment, global, India Watch, South Asia Group, deals, Anuj Chande, economic, Pankaj Karna

The year 2008 witnessed a global economic downturn due to the subprime credit crisis, fluctuating commodity and equity prices and the closure of numerous investment banks and other financial institutions. Despite recent events, M&A and Private Equity Investment (PE) activity in India has seen some of the largest deals in sectors including Microfinance, Automotive and Oil & Gas, showing a significant increase in the type of sectors available in the Indian market.

M&A and PE in India has seen consistent growth despite the recent turn of events in the global financial markets. The total value of Indian M&A and PE deals in 2008 was US$41.54 billion, as against US$70.14 billion and US$28.16 billion in 2007 and 2006, respectively. The average Indian M&A deal size was close to US$68.17 million, while the average Indian PE deal size was around US$33.93 million in 2008. To put the success of 2008 in greater perspective, the top 3 deals of 2007 accounted for around 57% (US$29.03 billion) of the deal values that year.

Diagram one: Value-wise deal summary

The total number of M&A deals during 2008 stood at 454 with a total value of US$30.95 billion as against 676 deals with a total value of $51.11 billion in 2007 and 480 deals amounting to US$20.30 billion in 2006. There was a 39% decrease in deal values from 2008 to 2007, but a 52.5% increase from 2006. As mentioned above, 2007 was an exceptional year and even in such turbulent times as these, the value of M&A deals remained high during 2008. Despite the decrease in values, there were 24 M&A deals valued at over US$250 million in 2008 as compared to 22 deals in 2007 and 20 deals in 2006.

Diagram 2: M&A deal break up

The total number of inbound deals (international companies or their subsidiaries acquiring Indian businesses) over the course of 2008 stood at 86, with a total value of US$12.55 billion. At the end of the year, the largest of these was the Japanese-based pharmaceutical company Daiichi Sankyo’s step acquisition of a 60.63% stake in Indian-based pharmaceutical company Ranbaxy for a total value of US$4.5 billion. Another notable transaction was Japanese mobile operator NTT Docomo Inc.‘s acquisition of a 26% stake in Tata Teleservices Ltd for US$2.70 billion.

Over the same period, the total number of outbound deals (Indian companies acquiring businesses outside India) stood at 196, with a total value of US$13.19 billion. The largest outbound deal was Oil & Natural Gas Corp Videsh Ltd’s acquisition of Imperial Energy Plc for approximately US$2.8 billion, followed by the Jagular Land Rover acquistion by Tata Motors of US $2.36 billion.

The top 10 M&A deals accounted for more than 60% of the total values in 2008. Most of the top 10 deals were cross-boarder in nature. However, there were still 172 domestic Indian deals in 2008, with a total value of US$5.21 billion - a 83% increase on 2007.

The M&A deals that took place in 2008 occurred across various sectors. The Telecommunications, Pharmaceutical, Healthcare and Biotechnology sectors were the leaders by value. These four sectors garnered deals with a total value of over US$11 billion. The other sectors which contributed significantly to M&A deal values in 2008 were IT & ITeS and the Financial Services.

In terms of M&A sector volumes, IT & ITeS led with a 22% share of the total number of M&A deals in 2008. Other significant deal volumes during the year were in the Pharmaceutical, Healthcare & Biotechnology and Media, Entertainment & Publishing sectors, which accounted for a total of 20% of deal volumes.

When looking at M&A and PE activity over the last few years, we must bear in mind the exceptional year that was 2007 and that, despite a decline in values between 2007 and 2008, the total value of M&A and PE deals increased by 47.5% from 2006, maintaining the positive compound annual growth rate of M&A and PE in India. Further to this, 2008 saw some landmark deals and also witnessed more billion dollar M&A deals than in 2007.

So, in a time when liquidity and valuation levels continue to decline across the globe, Indian companies, which have generally remained cash rich, highlight the encouraging prospects for 2009 and show that even in this economic uncertainty, India looks to remain a favourite location for cross-boarder M&A.

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

Pankaj Karna
Partner and Head Corporate Finance
For Grant Thornton India