Indian M&A deals up 23% to $16 bn in Jan-March even as volumes remain flat

However, the $11 bn Vodafone-Idea Cellular merger alone accounted for 74% of total value

M&A activity involving Indian companies during the quarter (January-March 2017) stood at 252 deals with a total disclosed value of $15.8 billion, up from $12.8 billion in the corresponding period last year. While value surged by 23 per cent, the number of deals did not show an upward trend.

As per EY's Transactions Quarterly report, the number of deals reported in first quarter of 2017 stood at 252, compared to 253 during the same period last year. The rise in value was due to a mega deal -- the announced merger between Vodafone India Limited and Idea Cellular for over $11 billion, accounting for nearly 74 per cent of the total disclosed deal value in the quarter.

If this deal were to be excluded, the total deal value would stand at $4.4 billion for the quarter.

The diversified industrial products sector led the M&A activity in terms of volume, accounting for 31 deals ($533.4 million).

The majority of these acquisitions were either domestic or inbound in nature, with acquisition targets in the power and electrical equipment and packaging segments. These acquisitions were largely aimed at expanding market share and enhancing product lines. On the other hand, the telecommunications sector dominated in terms of value, owing to the Vodafone-Idea deal, according to EY.

Amit Khandelwal, Partner and National Director, Transaction Advisory Services, EY said that the deal environment looks conducive on the back of a strong economic outlook and healthy capital markets, accompanied by the Government's increasing focus on improving infrastructure and expanding digital reach across the country.

Though global buyers are expected to be selective owing to ongoing global geopolitical issues, their interest in Indian businesses will remain alive as they look for growth opportunities outside the US and Europe. With respect to the outbound investments, cash-rich Indian players will continue looking for opportunistic buys with an aim to seek access to new technology and markets, he said.

The results of EY's latest Capital Confidence Barometer April 2017 report also reinstate this confidence as 57 per cent of the Indian respondents expect their companies to actively pursue M&A in the next twelve months.

Domestic drivers

Domestic activity remained the key contributor to M&A activity in India, in the quarter, accounting for 87 per cent and 67 per cent of the total disclosed deal value and volume, respectively.

Domestic deal value increased to $13.8 billion from $5.2 billion in 1Q16, largely because of the announced Vodafone-Idea merger. Barring this deal, the domestic deal value stood at $2.2 billion.

The aforementioned deal is a reflection of the ongoing consolidation wave, especially in the telecom industry. Other sectors that witnessed consolidation include diversified industrial products, technology and retail and consumer products. With expansion to acquire scale becoming a critical element of Indian corporates' strategy agenda, consolidation deals are likely to gain further prominence across sectors.

Cross-border M&A decelerates

Cross-border M&A activity slowed in 1Q17, both in deal value and volume terms. While, the deal value declined to $2 billion in first quarter of 2017 from $7.7 billion in first quarter of 2016, deal volume weakened to 83 deals from 104 deals.

Within the cross-border market, inbound activity moderated. Deal value decreased by 51 per cent to $539.8 million in first quarter and deal volume reduced to 42 inbound deals from 51 deals. The diversified industrial products sector dominated on the inbound front with 10 deals having a cumulative value of $224.3 million.

The outbound activity also recorded a decline. While the first quarter of calendar year 2017 registered 41 outbound deals with a disclosed deal value of $1.4 billion, the corresponding quarter a year ago had clocked 53 deals totaling $6.6 billion.

The technology sector sustained its leadership in terms of deal volume, recording 11 outbound deals. In terms of value, the automotive sector took the lead owing to the largest outbound deal of the quarter - the 571-million-euro acquisition of 93.75 per cent stake in Finland-based PKC Group by Indian auto parts maker Motherson Sumi Systems Limited. Strong bilateral relationship with the US in terms of M&A continued this quarter as well. The US was the most preferred cross-border partner to India with 28 deals (12 inbound and 16 outbound) with a total disclosed value of $449.9 million.