Bangalore: As firms hold tight to cash in the current liquidity crunch, mergers and acquisitions (M&As) in India fell by 60% in the three months to March, a recent report shows, but are likely to see a tempered revival this year.
Indian companies were involved in 54 M&As between January and March, including international and local transactions, compared with 135 deals in the same quarter in 2008, says a study by Venture Intelligence, which tracks private equity and M&A transactions in India.
Also See Crisis of Confidence (Graphic)
“Over the last six months, the mood has changed from looking for ways of growth to ways of survival,” said C. Venkat Subramanyam, founder and director of Veda Corporate Advisors Pvt. Ltd, an investment banking firm. “There is a crisis in terms of confidence in growth.”
Moreover, many companies had tried boosting their valuations through M&As during 2007 and 2008, as they looked to raise capital through initial public offerings or private equity. But that has stopped in the current environment, Subramanyam said.
Between January and March, manufacturing was the most active industry with 10 deals, followed by information technology (IT) and information technology-enabled services (ITeS) with seven, Venture Intelligence data show. Health-care and life sciences, food and beverages, telecom and farm businesses also saw significant merger activity during the period.
Of the 54 transactions in the first calendar quarter, values were announced for 26, which amounted to $4.6 billion (Rs23,000 crore). Data show 15 transactions were inbound—overseas firms buying Indian companies—another 15 were outbound, and 24, domestic.
In the January-March quarter of 2008, 54 deals worth $8.8 billion were announced. Outbound deals dominated with 61 deals, compared with 56 domestic transactions and 18 inbound deals. These included 37 deals in the IT and ITeS sector, and 21 in manufacturing.
The largest inbound deal in the latest quarter was France-based stationery manufacturer BIC Group’s 40% stake acquisition in Mumbai-based stationery products maker Cello Pens and Stationery Pvt. Ltd for about $161 million.
Other inbound deals included American Tower Corp.’s purchase of XCEL Telecom Pvt. Ltd, Mylan Laboratories Inc.’s residual stake buy in Matrix Laboratories Ltd and Sodexo SA’s acquisition of Radhakrishna Hospitality Services Pvt. Ltd.
“The Radhakrishna Hospitality and Cello Pens deals seem to validate the thesis that 2009 is likely to witness significant inbound transactions by multinational companies with strong balance sheets seeking to acquire Indian companies when valuations are attractive,” said Arun Natarajan, chief executive, Venture Intelligence.
The latest quarter also saw Indian companies aiming to close their acquisitions of global energy or commodities assets. Notable deals in this category included ONGC Videsh Ltd closing its acquisition of UK-based Imperial Energy Corp. for $1.9 billion and Sterlite Industries India Ltd’s new bid for US-based copper miner Asarco Llc at a renegotiated value of $1.7 billion.
The largest domestic deal struck during the period was Reliance Industries Ltd’s acquisition of its subsidiary Reliance Petroleum Ltd. In other domestic deals, private equity-backed Nuziveedu Seeds Ltd acquired a 51% stake in two seed companies—Yaaganti Seeds and Pravardhan Seeds.
Both Subramanyam and Natarajan expect M&As to revive in the next two-three quarters, though not to the levels of 2007. Natarajan sees heightened domestic activity, as firms with strong balance sheets look for cash-strapped targets.
Outbound deals, however, would be a challenge as many Indian companies that had earlier acquired foreign firms are facing issues, including for raising capital. Natarajan also says joint ventures in India could see more fallouts, on the lines of Britannia Industries Ltd and Groupe Danone, on differences in strategic planning.
Other experts say M&A activity does not have to be seen in the same light as private equity deals. M&As are generally driven by the strategic requirements of companies.
“In a downturn also, companies may need to hive off or acquire a business unit,” said Akil Hirani, managing partner of corporate law firm Majmudar and Co.
Graphics by Ahmed Raza Khan / Mint