M&A up with deals of $39 bn in 9 months

Bankers expect activity to hit record figures in 2015

Mergers and acquisitions (M&As) have made a comeback in the first nine months of calendar 2015, with 599 transactions amounting to $39.5 billion according to Bloomberg.

In 2007, M&A activity had peaked to an all-time high of $50.2 billion, with big-bang acquisitions such as Tata Steel acquiring Anglo-Dutch steel maker Corus for $12.1 billion. This year, the largest deal so far is Adani Ports & SEZ acquiring Essar Ports in a $2.4-billion transaction. Others include Cairn India's $2.2 billion merger with Vedanta.

"The capital markets stayed dull for a significant period of time till last year, so with its opening up the desire of companies and the opportunities to transact have gone up," says Sourav Mallik, joint managing director and head of M&A advisory at Kotak Investment Banking. Equity and equity-linked issuance by companies increased to a total of $18.6 billion during the first nine months of 2015, a 121.2 per cent rise compared to the corresponding period in 2014. This is also the highest first nine months period for equity capital markets since 2007 which saw $24.2 billion worth of transactions according to a Thomson Reuters data.

Some asset-heavy sectors such as infrastructure have been under stress. Lenders have pressurised companies to divest assets at a time when the market has opened up and valuations have surged. Mallik is in the process of hiring more people as his firm is seeing a surge in the number of deals. With three more months to go, he would not be surprised if the year achieves highest ever deal value.

Deal-making has been secular across sectors. "It's been a mix of sectors this year - we have closed or announced deals in banking, tech and energy, beside metals and mining," says Raj Balakrishnan, managing director and co-head of Investment banking, Bank of America Merrill Lynch. "It's still the early stages of the M&A cycle and I expect a further pick up in cross-border volumes going forward," he adds. The number of transactions in the first nine months at 599 is significant compared to the record 650 deals of calendar 2007. "The drivers for M&A deals today are structural as well as related to economic growth and private equity-led. So, the activity is far more widespread, it is not just one or two companies looking at big-bang acquisitions. It is far more broad-based with a number of companies looking at opportunities to improve their value and valuations - that is the heady cocktail which has led to a surge in deals," says Kotak's Mallik. In 2007 capital for acquisition was available to a few companies so the intent was narrow - driven by large companies having a desire to expand overseas. This year the focus has been on the domestic market as people have a lot more confidence in Indian markets and that has led to surge in buy-out deals by private equity (PE) players as well.

According to Preqin , a consultancy firm providing data on PE deals, India had $4.9 billion worth buy-out deals across 64 transactions in the first nine months, against previous annual high of $6.3 billion in 2011. The domestic consumption story has also seen an uptick with signs of revival in the economy and that has led to more deals related with this theme in sectors such as consumer and pharmaceuticals.

"Sectors which are driven by Indian demographics like financial services, consumer, healthcare are seeing the most activity. In addition, the internet and technology sectors are seeing strong interest from global strategic and financial investors," says Ravi Kapoor, head of corporate and investment banking at Citi India. "The deal activity has certainly picked up. India is emerging as a bright spot amidst the global volatility, and we could see big deals coming back to India once international investors see more traction in improvement in earnings of Indian corporates as the government rolls out more reforms," says Kapoor.