New M&A wave witnessed by India Inc.
Wednesday, April 13, 2011 | Posted by: Grant Thornton
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India Watch Issue 12
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During the first quarter of 2011, India witnessed 143 merger and acquisition (M&A) transactions compared to 188 in the corresponding quarter of 2010. M&A transaction values for the period were estimated at US$17.88bn (Q1 2010 equaled US$17.44bn).
In Q1 2011, there was 60 cross-border transactions of which 26 were inbound transactions (into India) with a total value of US$13.75bn. Whereas, in comparison to Q1 2010 there were 69 cross-border transactions of which 23 were inbound with a value of US$1.12 bn.
The last quarter of 2010 and the first quarter of 2011 have seen a similar trend in M&A and Private Equity (PE) volume however Q1 2011 saw a sudden increase in value size because of two large inbound deals which together amounted to US$12.2bn. Incidentally, both are UK-based acquirers - BP plc and Vodafone Group plc.
BP plc (formerly British Petroleum) acquired a 30% stake in Reliance Industries Limited for US$7.2bn and was the largest transaction in Q1 2011. The second largest transaction for the quarter was Vodafone Group plc increasing its stake in Vodafone Essar by 33% for US$5bn.
In addition, iGate Corporation-Apax Partners acquired 83% majority stake in Patni Computer Systems for US$1.21bn and Aditya Birla Group acquired US-based Columbian Chemicals Company for US$875m.
It is interesting to note that iGate’s acquisition of Patni Computer Systems has been the largest transaction in the last 5 years in the IT and ITeS sector which is followed by HCL Axon’s (UK-based) transaction for US$750m in 2008.
In terms of volume, the most active sector was Information Technology (IT) and Information Technology Enabled Services (ITeS) which saw 22 transactions. This was followed by the Manufacturing and Pharmaceutical sectors, each witnessing 13 transactions in Q1 2011.
Combined, the two quarters (Q4 2010 and Q1 2011) have seen 45 M&A transactions in the IT and ITeS sector which was followed by the Pharmaceuticals, Healthcare and Biotechnology sector and the Banking and Financial Services sector with 29 and 23 M&A transactions respectively.
In terms of value, the Oil and Gas sector witnessed a large amount of strategic investment with US$7.2bn worth of transactions in Q1 2011.
The first quarter of 2011 has seen three transactions which amount to more than a billion US dollars each and account for 75% of the total M&A transactions in the quarter. In the previous year, the corresponding period had witnessed two transactions amounting to more than a billion US dollars each, and accounted to 72% of the total M&A transactions in Q1 2010.
Q1 2011 has also seen significant high value deals. There have been six transactions amounting to more than US$600m in Q1 2011 which has been the highest among the corresponding periods in the last five years. The India growth story seems to be on track with an upward trend in the inbound transactions in the last three quarters with significantly large transactions like BP plc - Reliance Industries, Vodafone - Vodafone Essar, Abbott Labs - Domestic Formulations Business of Piramal (US$3.72bn), Huaneng - InterGen (US$1.23bn) and JFE Steel - JSW Steel (US$1.02bn).
PE investments in Q1 2011 have also seen an upward trend with 76 investments worth US$2.16bn announced. Whereas Q1 2010 saw only 59 investments for a total of US$1.56bn. The IT and ITeS sector has exhibited an upward trend in deal volume for the quarter in comparison to 12 months ago whereas the Banking and Financial Services sector increased in deal value to the previous corresponding quarter with seven investments amounting to US$413m.
Where PE has historically invested in Real Estate and IT, it has shown a marked shift in strategy with investment into new sectors such as Mining, Automotive, Agriculture and Agro Products. Bain Capital and Government of Singapore Investment Corporation (GIC Investment) investment into Hero Investments Private Ltd was the largest investment of the quarter valued at US$848m. This was followed by TPG Capital’s investment in Shriram Capital Trust for US$257m.
PE has seen relatively few billion dollar plus investments in recent history, in fact the Bain Capital and GIC investment in Hero Investments Private Ltd is the fourth largest investment in the last five years. The largest investments of 2010 were a US$300m investments by Blackstone into Moser Baer Projects and Quadrangle Capital Partners LLC into Tower Vision India (a consortium of international investors). All the large investments before 2010 were seen during the hay days of 2007 and early 2008. The return of significantly large PE transactions indicates the confidence of the global private equity houses in the resurgent Indian economy.
We expect the upward trend to continue especially with the onset of the new financial year in India, large corporates with strong balance sheets will start to pen strategies to achieve higher growth rates and hence we may see an increase in deal volumes in short to medium term. There could also be significant interest by large global companies in Indian Healthcare, as well as the Media and Retail sectors which have seen significant activity in terms of joint ventures and strategic investments recently. With the Indian Minister of Finance, Pranab Mukherjee, recently forecasting economic growth of 9% for the financial year 2011-12 and the benchmark index SENSEX (Bombay Stock Exchange) hovering around all-time highs it seems like we are about to see another wave of transactions in the coming few months.
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Other articles in this issue of India Watch include:
Grant Thornton Index shows strength against other indices
Sustained growth expected for India economy
India business optimism soars but skills shortage threatens growth
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