M&As hit a temporary bump under Modi

Deal value in July-Sept dropped 65%

Mergers and acquisitions deals in India have dropped 65 per cent sequentially to $4.7 billion in the quarter ending September, according to Mergermarket, a global M&A intelligence service provider. Deals in the quarter were 20 per cent lower than $5.9 billion in the year-ago period.

M&A deals in 2014, however, reached $21.7 billion, up 22.5 per cent from the same period last year. The July-September quarter, amid a rally on the stock markets, crippled the momentum that had built up in the first six months of the year. The BSE Sensex has gained 11 per cent since election results were announced in May.

“There is another avenue for raising money, so promoters are taking stock,” said Sanjay Bhandarkar, managing director, N M Rothschild & Sons (India). "The economic environment has changed from gloom to optimism, so unless it is a desperate situation promoters would like to explore other options before getting into an M&A transaction,” he added.

Also 2014 has been bad for inbound deals which at $10.2 billion mark a five-year low. Inbound M&A deals in January-September 2013 were worth $12.1 billion.

“A few deals are held up over pricing,” said Anjali Piramal, head of strategy for the Asia Pacific at Mergermarket. “As valuations of listed players improve, promoters of private companies could hold on for better prices.”

Sectors such as e-commerce have already seen frothy valuations reflected by peers abroad. But Manisha Girotra, chief executive officer of Moelis & Company in India, says," Certainly, the valuation expectations have gone up with the re-rating of the economy, but the issue is not as much at seller side as at the buyers. FDI (foreign direct investment) is not happening and we need to convince the incoming investors about our policy stability and other regulations," she says.

Naturally there is a lot more expected from the new government on policy front. “There is a wait-and-watch approach to see how policies roll out, hence inbound deals are delayed,” said Ajay Saraf, executive director at ICICI Securities. “We see a lot of interest in the India-Japan corridor after the visit of Prime Minister Narendra Modi and expect inbound deals to revive from next year,” Saraf added.