Significant upturn in cross border M&A

Wednesday, April 21, 2010 | Posted by: Grant Thornton
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After the significant dip in the volumes and values of M&A in and out of India witnessed during 2009, the first quarter of 2010 saw a noticeable upturn as the global economic environment continued to improve. From the data set out below, it is clear to see that confidence is beginning to return to both investors and acquisitive companies who, over the last few months, have been seeking to take advantage of company valuations which are still far off their pre-downturn highs.

The first quarter of 2009 saw only 59 M&A deals with a total value of $4.3 billion. In contrast to this, over the same period this year there were 184 M&A deals with a combined value of $17.1 billion. This represents a significant turn around in both deal volumes (up 212%) and deal values (up 298%) over the last year. These numbers also represent a major improvement to the corresponding period in 2008. Deal volumes from the first quarter of 2008 to the corresponding period in 2010 are up 39% while deal values are up 106%.

These vast improvements in the state of India’s M&A sector have mirrored the improvements seen in both India’s and the world’s general economic condition. As the two are often intrinsically linked, this is nothing profound in itself; however, the actual growth rate seen in India’s M&A sector since last year has been unprecedented.

To look deeper into the data for the first quarter of 2010, there were 23 inbound (international companies acquiring businesses inside India) M&A deals with a total deal value of just over $1 billion, a 25% increase to the corresponding period in 2009. The largest inbound deal so far in 2010 has been the American Tower Corp’s (through its affiliate, Transcend Infrastructure Ltd) acquisition of Essar Telecom Infrastructure Pvt. Ltd. for a value of $450 million. This also happened to be the largest Indian M&A deal announced in February.

As well as increasing volumes of inbound deals, there were also significantly more domestic (both acquirer and target being Indian) M&A deals seen in the first quarter of 2010, compared to 2009. The first 3 months of 2009 witnessed only 25 domestic M&A deals in comparison to the 116 deals which took place in the first quarter of 2010. However, while there has been a significant increase in the volume of domestic M&A deals in 2010, there was a large discrepancy between the combined values for the comparative dates. 2010 may well have seen a 364% increase in the volume of domestic M&A deals but the combined value for these deals was only $2.9 billion compared to the corresponding period in 2009 where the 25 domestic deals had a combined value of $3.3billion, representing an unbelievable 81% difference in the average value per domestic M&A deal.

However, a decline in domestic M&A deal values, along with growth in cross-border M&A, represents a positive sign for the economy as a whole. The reason behind this is that large international M&A deals become few and far between during times of recession - due to subdued investor confidence and increased risk aversion - but smaller domestic deals continue to take place, often with the help of more local banks and investors. It is when the higher risk/value cross-border M&A activity begins to take place that a substantial improvement in the economic environment can be recognised.

As well as the increase in inbound M&A deals seen in the first quarter of 2010, the above notion is further enhanced by the dramatic upturn in outbound (Indian companies acquiring businesses outside India) M&A deal volumes and values. From the lows seen in the first quarter of 2009, where only 15 outbound deals with a combined value of $228 million took place, Q1 of 2010 saw 45 outbound M&A deals with a combined value of $13.3 billion. Much of this $13.3 billion came from the Bharti Airtel acquisition of Zain Africa BV which was valued at $10.7 billion in March. Nevertheless, this was by far the largest M&A deal seen in the first quarter of the year and the fact that is was an outbound deal is an indicator as to India’s growth plans over the next few years. Other notable outbound deals for the quarter include Fortis Healthcare Ltd’s 23.9% stake in Parkway Holdings Ltd for $685 million and Essar Minerals Resources Limited’s acquisition of Trinity Coal Corporation LLC for $600 million. With regards to M&A activity between India and the UK, special mention should be made to India based electrical products and services company, Compton Greaves Limited, who acquired Power Technology Solutions Limited, the UK based high voltage electrical engineering company for $46.15 million.

It has certainly been a busy first quarter of 2010 with regards to Indian M&A. The growth in both M&A volumes and values has mirrored the resurgence in the world’s economic condition. Additionally, the increasing value of cross-border deals has further enhanced the view that the markets are looking to return to ‘normal’ and that investor confidence is returning. Hopefully, as the year progresses, the ‘reliability’ of domestic M&A deals will continue to be outshone by cross-border M&A activity - in particular, between India and the UK.

Anuj Chande

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

Srividya CG

Partner, Valuation Services
For Grant Thornton India