New Delhi: Mergers and acquisitions (M&A) seem to be the flavour of the season in India this year with reports of more than two potential deals hitting headlines every day, but more than 80% of these do not actually come to fruition.
According to a study by international M&A deals tracking firm Mergermarket Ltd, India has emerged as Asia-Pacific’s second biggest target after China in terms of official or unofficial intentions expressed for takeover deals from across the world this year.
However, the conversion rate—measuring the proportion of news headlines actually converting into deal announcements—is the second-lowest for the country in the region.
India was the target for as many as 561 potential M&A deals in the first seven months of 2007, trailing China with 824 potential deals.
This translates into a daily average of about four deals in China and 2.6 deals targeting India during the 212 days between January and July.
The study discloses that the number of final deals was just 95 for Indian companies (one deal in more than two days)—a conversion rate of just 17%, which is the second lowest in the Asia-Pacific region, after 15% for Taiwan.
Mergermarket, in its report, discloses that India has emerged as a key region for actual and potential M&A activities, but issues such as restrictive foreign direct investment (FDI) policies were hindering the momentum of the deals.
“Restriction on foreign direct investment and limited capital account convertibility are limiting deal flow,” the study report said. “Important sectors such as banking and retailing remain off-limits to foreign acquirers.”
In India, the three biggest sectors for potential deals were industrials and chemicals space (118); telecom, media and technology (88); and financial services (76).
In terms of the announced deals during the period, 21 were recorded in the industrials and chemicals space; 15 in telecom, media and technology; and 12 were in the financial services sector.
The Mergermarket study mentioned that it was clear from the current activity in India that international players were “attempting to get around the FDI restrictions by buying minority stakes in local businesses or by setting up joint ventures with local partners—precursors to fully- fledged M&A deals, which could happen as and when the local regulatory environment relaxes”.
Like India, Mergermarket noted, restrictive barriers to M&As were hindering deal completion in China as well, even though the deal activity was surging with increased interest from global players.
“Domestic regulations on foreign ownership are particularly restrictive to deal activity, while the newly-framed law stating that the ministry of commerce must review all cross-border M&A deals will slow down the approval process,” the report said.
In addition, huge appreciation in Chinese asset valuations has allowed sellers to change the terms or back out of deals that were agreed to when valuations were much lower, it added.