India watch issue 5 - Indian M&A looking for stability after recent flux

Monday, July 13, 2009 | Posted by: Grant Thornton
Categories: | Tags: India, offshore, global, M&A, South Asia Group, Grant Thornton India, Anuj Chande, Alex Wright, Cross border, Pankaj Karna

Whilst M&A markets are usually less prone to instability than recession hit equity markets, recently the Indian M&A sector’s combined deal values have fluctuated dramatically. Combined deal values stood at US$970.85m in January, falling substantially to US$243.66m in February, before unexpectedly climbing steadily in March and April and finally dropping to a period-low of US$118.83m in May.

The surprising rise in the value of deals in March and April 2009 reflected the unfounded surge across western stock markets in those months. At the time, it seemed as though investor confidence was beginning to return and this boosted hopes for the year ahead. Unfortunately, this unsubstantiated stock market rally now seems to have been more of a dead cat bounce than the field of green shoots it suggested, and the decline in M&A activity in May seemed truer to 2009 investor sentiment, setting a more realistic tone for the sector.

Looking more closely at the month which represented the lowest level of M&A activity so far this year, May 2009 saw only 16 deals being completed, at a combined value of US$118.83m. This figure stands in stark contrast to the 46 deals, amounting to a total value of US$1.34 billion, which were completed over the same period in 2008. In further detail, May saw only 8 domestic deals (both acquirer and target being Indian), with a combined value of US$68.09m, and only 8 cross-boarder deals with a combined value of US$50.74m. 7 of these cross-boarder deals were outbound (Indian companies acquiring businesses outside of India) with the combined value attributing for the entire US$50.74m of cross-boarder deal values that month.

Looking at the first five months of 2009 against their 2008 comparatives, the total number of M&A deals during the first five months of 2009 stood at 90 deals, with a combined value of US$2.14 billion, whilst the same months in 2008 saw 220 deals, with a combined value of $10.78 billion.

As for sector activity over the period, the IT & ITeS sector saw the largest deal values. There were 5 IT & ITeS deals across March and April, with a combined value of US$351.10, accounting for 43.3% of the total deal values across the 2 months. The largest outbound deal in May also came from within the IT & ITeS sector - Aegis Limited acquiring UCMS Group Limited for US$37.80m. Deviating from the prominence of the IT & ITeS sector, it was the Oil and Gas sector’s Bharati Shipyard’s strategic stake in Great Offshore Limited for US$38.67m which made it as the largest domestic deal in May.

As can be seen from the above data, the economic environment is showing few signs of stabilisation. Even India, which has, to date, effectively minimised the impact of the global economic downturn, is seeing a slowdown in economic activity.

As for the outlook for the second half of the year, Indian M&A activity continues to be hard to predict. Hopes are that, as greater confidence returns to the market, M&A activity within India will gather both weight and pace. However, as noted, a close eye will need to be kept on the equity markets, with any increased instability or fluctuations likely to have a weighty knock on effect for Indian M&A.

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

Pankaj Karna
Partner and Head of Corporate Finance
For Grant Thornton India