Cross-border M&A looking to increase in 2010

Thursday, January 21, 2010 | Posted by: Grant Thornton
Categories: | Tags: India, Grant Thornton, M&A, India Watch, South Asia Group, Anuj Chande, mergers and acquisitions, Cross border M&A, Srividya CG

As expected, due to the continued global financial downturn and economic cautiousness, M&A activity in India and across the rest of the world over the past year has seen a substantial decline in volume and value in comparison with previous years. Not even the recent economic growth seen in India in the last half of 2009 could revive the sector in the short term.

The total value of deals (M&A and PE) announced in the calendar year 2009* was US$21.20 billion in comparison to US$41.54 billion and US$70.14 billion in 2008 and 2007 respectively. The average Indian M&A deal size in 2009* was US$37.55 million, while the average Indian PE deal size was around US$50.55 million. However, to put it all into context, we must bear in mind the exceptional year for M&A that was 2007 (US$51.11 billion worth of M&A deals completed) and the record number of billion dollar deal witnessed in 2008.

As can be seen from the graph above, deal values in 2009* declined substantially from the highs of 2007. This was to be expected against the backdrop of a global financial downturn, and there was very little possibility for the successes of 2007, and to an extent 2008, continuing into 2009. With the value of most public companies declining over the period and with banks tightening their lending, the opportunities for M&A over the past 12 months retracted substantially.

The total number of M&A deals announced during 2009* stands at 267, with a total announced value of US$10.03 billion, compared to 454 deals with a total announced value of US$30.95 billion in 2008 and 676 deals with a total announced value of US$51.11 billion in 2007.

There were 142 domestic deals (both acquirer and target being Indian) with a announced value of US$5.80 billion (2008 - US$5.21 billion). One of the largest domestic M&A deals in the period was Quippo Telecom Infrastructure Ltd’s acquisition of a 49% stake in Wireless Tata Telecom Infrastructure Ltd with the cash part of the consideration totalling approximately US$530 million. This reinforced the notion that due to the uncertainty of foreign markets and economies, the greatest amount of M&A activity would be seen in domestic deals. This is further echoed by the number of outbound deals (Indian companies acquiring businesses outside India) in the period, which stood at only 64, with a total value of US$1.12 billion (2008 - US$13.19 billion), a sizable difference in comparison to domestic deals. Furthermore, the average deal value of cross-border deal was US$33.81 million, significantly lower than the average value of domestic deals (US$40.85 million).

Investment into India, while not at the levels seen in recent years, is certainly beginning to improve. The total number of inbound deals (international companies or their subsidiaries acquiring Indian businesses) over the course of 2009 stood at 61, with a total value of US$3.11 billion (2008 - US$12.55 billion). The largest of these deals was the Federal Agency for State Property of Russian Federation’s acquisition of a 20% stake in Indian-based telecom company, Sistema-Shyam Telecom, for a total value of US$676 million. So, while there may have been fewer inbound deals in comparison to outbound, the total value of inbound deals was significantly higher.

In 2009*, the top 10 deals accounted for nearly 57% of the total M&A deal values (2008 - 64%) with 7 of the top 10 deals in the period being domestic deals.

In terms of sector activity within Indian M&A, the Oil and Gas, sector followed by Telecoms and Healthcare & Biotechnology, were the leaders as far as values were concerned. These sectors garnered US$2.53 billion, US$1.78 billion and US$1.04 billion worth of deals respectively. The IT & ITeS sector led in terms of volume, with a 17% share of the total number of M&A deals, with Media, Finance and Healthcare & Biotechnology accounting for 9%, 8% and 7% of deal volumes respectively.

So, as India moves into a new decade with an increased sense of economic stability and an increasing GDP growth rate, M&A activity looks set to pick up. Domestic M&A deals again look likely to lead the way into 2010 with cross-border M&A values and volumes taking longer to recover. While the financial downturn cannot be said to be over, India seems best placed to continue it’s extraordinary growth rate and economic activity.

* January - 13 December 2009

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

Srividya CG
Partner, Valuation Services
For Grant Thornton India