Photo: Hemant Mishra/Mint
Photo: Hemant Mishra/Mint

Domestic M&A activity continued to dominate deals landscape in Q3

There were 137 domestic M&A transactions in the September quarter with an aggregate disclosed value of $7.3 billion

Domestic merger and acquisition (M&A) activity in the September quarter accounted for two-thirds of the total number of deals year to date despite an uncertain global environment, advisory firm EY said in a report.

Domestic M&A activity continued to dominate India’s deals landscape, recording 137 transactions with an aggregate disclosed value of $7.3 billion in the three months ended 30 September. This was about 65% of the total deal volume, compared with about 54% in the year-ago period, and about 64% of the total disclosed deal value, compared with 32% a year earlier.

The increase in deal value was driven by large domestic transactions such as Nirma Ltd’s acquisition of the India cement business of LafargeHolcim for $1.4 billion and the merger agreement between Housing Development Finance Corp. and Max Group for their life insurance businesses.

“The domestic deal environment continues to be healthy since strong manufacturing activity and consumption levels are likely to keep corporate earnings thriving. Moreover, the RBI’s (Reserve Bank of India) move to ease monetary policy on the back of a benign inflation environment will likely increase private investments, and drive momentum behind M&A activity," the report said.

Consolidation deals in sectors such as infrastructure and retail are expected to boost M&A activity going ahead, the report said.

However, despite the increase in domestic M&A transactions, overall M&A activity in the third quarter was weak. The quarter recorded 210 deals with a total disclosed value of $11.3 billion. In terms of deal volume, this was 15% lower than in the corresponding quarter last year.

Cross-border M&A activity declined in the third quarter, with deal volume declining substantially to 73 from 114, while the deal value declined by 33% to $4 billion.

The quarter recorded 29 outbound deals, contributing $277 million to the disclosed deal value as compared with 33 deals, accounting for $3.3 billion last year.

This significant decline in outbound deal value was due to the absence of mega deals, the report said. “3Q15 had seen three mega deals totalling $2.7 billion in the pharmaceuticals and oil and gas sectors", it said.

There were 44 inbound deals with a disclosed deal value of $3.8 billion in the third quarter, as compared with 81 deals totalling $2.7 billion in the previous year, adding to the decline in the overall cross-border deal volume.

“While the overall deal activity was muted due to an uncertain global environment, the domestic M&A activity remained healthy owing to strong macroeconomic environment and the growing need for digitalization across all sectors. On the cross-border front, both the inbound and outbound activity was impacted due to a slide in investors’ confidence and negative business sentiments globally," said Amit Khandelwal, partner and national director, transaction advisory services at EY. However, he added that in the longer term, M&A activity is expected to pick up as the global environment stabilizes.