Merger and acquisition deals drop by 45% in value terms in October

Merger and Acquisition (M&A) deals in the month of October dropped by 45 per cent in value terms and 40 per cent in volume terms compared to the corresponding period last year. The total number of M&As reported in October 2019 was worth $1.5 billion as against $2.8 billion a year ago. In volume terms, it was 28 deals as compared to 47 deals last year.

Grant Thornton’s M&A Dealtracker data shows that deals included a deal valued over $500 million and three deals valued at and over $100 million each, totalling to $1.4 billion and accounting for 91 per cent of the total M&A deal values.

While the overall M&A deal values and volumes declined, the month witnessed an 1.8 times increase in deal values despite a 22 per cent fall in deal volumes as compared to the previous month (September 2019), showing signs of improved deal sentiment and appetite for big ticket deals. 

This was driven by the corporate tax cut, which has improved both investor sentiment and confidence. This also resulted in the average deal size more than doubling from $24 million in September 2019 to $55 million in October 2019.

While the domestic deal segment saw a downtrend in terms of volumes by 25 per cent and values by 90 per cent, cross-border values on the other hand almost doubled with nearly three times the fall in the deal volumes, indicating that the month witnessed a trend of big ticket cross border deals. However, the overall M&A deal activity continued to see a declining trend as compared to previous comparable months.

Manufacturing, energy, start-ups, pharma, banking, IT, infra, and e-commerce sectors led the deal values in YTD 2019, accounting for around 89 per cent of the total overall deal values.

IT, start-up and pharma sectors, on the other hand, continue to drive deal volumes capturing 47 per cent of the total deal volumes.

Driven by the largest bet on India’s clean energy with French oil major Total SA’s 37 per cent stake in Adani Gas for $0.9 billion, the energy sector dominated the month’s M&A values with 64 per cent contribution to total M&A deal values. 

The sector also witnessed two other deals totalling $1 billion. In contrast to the previous month, which was dominated by transactions in IT and the start-up space, the month was dominated by deals in the pharma sector, pushed by Metropolis Healthcare’s acquisition of four pathology labs to fortify its foothold in Gujarat, followed by deals in the automotive, banking and energy sectors.

The month also indicated great potential in the automotive and infra space, attracting big cheques of over $100 million each amid the recent slowdown in the auto sector. Consolidation in these sectors was driven by strategic reasons to access combined market potential and gain sizeable market share.

M&A activity in October 2019 witnessed a decline compared to same month last year primarily due to low activity in the domestic deal trends. October 2018 had reported four large domestic transactions aggregating to about $2.1 billion; one in the energy and natural resources sector, two in the media and entertainment sector and one in the FMCG segment. 

While the trend in energy and natural resources sector continued in October 2019, the domestic transaction was replaced by an inbound strategic investment in Adani Gas Limited by Total SA. 

Deal volumes was fairly spread across pharma, automotive, banking and financial services, energy and natural resources, IT and ITeS, and media and entertainment sectors.

Manufacturing, energy and natural resources, pharma, healthcare and biotech, IT and ITeS, and banking and financial services sectors are expected to contribute to M&A transactions.

However, the absence of large ticket M&A transactions will weaken the overall deal activity, said Pankaj Chopda, Director, Grant Thornton India LLP.