Firms lose appetite for overseas deals2 min read . Updated: 30 Oct 2019, 10:39 PM IST
- Outbound M&As crash 81% in January-September to $2.1 billion
- The outbound mergers and acquisition activity is the lowest in the past five years
MUMBAI : Outbound acquisitions by Indian companies have plummeted 81% in the first nine months of 2019 to just $2.1 billion, according to financial market data provider Refinitiv.
Between January and September 2018, Indian companies had acquired overseas assets worth $11.2 billion—the best year on record after 2010, which saw Indian companies write cheques worth over $25 billion for overseas acquisitions.
Outbound M&A deal activity in 2019 is at its lowest in the last five years, indicating that headwinds, such as a slowing economy, liquidity issues in the non-bank sector and global macros such as the US-China trade war, were deterring companies from venturing abroad.
“Outbound M&A is directly correlated to the animal spirits in the economy, which have been very low, as is evident from the multi-year lows of domestic capex. Corporates, entrepreneurs and CEOs, particularly those in traditional capex-heavy sectors, have generally been in a risk-off, deleveraging and operations-focused mode," said Sumit Jalan, co-head, India investment banking and capital markets, Credit Suisse.
Aalok Shah, managing director, Rothschild and Co., said: “In an environment where growth has slowed down and profitability is under pressure, outbound M&A from Indian companies is bound to decline. Focus has shifted to their core domestic business." In fact, we are seeing Indian companies actively exploring divestment of their erstwhile overseas acquisitions, he added.
Missing from the deal activity were big-ticket pharma acquisitions, which have generally comprised a large portion of outbound deals in recent years, besides large deals from core industrial sectors that dominated outbound M&As in 2018. Last year, Aurobindo Pharma had acquired Sandoz’s US dermatology business and oral solids portfolio for $1 billion, the largest overseas pharma buyout by an Indian company till date. 2018 also saw UPL Ltd’s $4.2 billion acquisition of US-based Arysta Lifesciences, and Hindalco’s $2.6 billion bid to buy Aleris Corp. To be sure, not all these deals have closed yet.
“The pharma sector has, in recent years, been more focused on the domestic market. US regulations, the global economic slowdown, a difficult liquidity and funding environment, and subdued valuations have all made it more difficult to acquire outbound assets," said Jalan, adding that the IT sector was also cautious with overseas purchases, due to similar reasons, though they were active on small-ticket, bolt-on acquisitions to fill strategic gaps in their portfolio.
The trend is expected to continue into 2020. “Recovery will depend on improvement in growth, profitability, availability of credit and positive sentiment in domestic business," said Shah of Rothschild.