Number of M&A, PE deals grows 33%, but value flat

Start-up driven Private Equity investments see spurt in volume while average deal size reduced

The number of mergers & acquisitions (M&A) and private equity (PE) deals in the first half of 2015 (calendar year) grew 33 per cent year-on-year, according to the latest report by Grant Thornton. However, the Half-yearly Dealtracker Report says the value of deals expanded only by 2.2 per cent, owing to a drop in average deal size.

Between January and June, the Indian market saw 739 deals worth $22.8 billion compared with 554 deals worth $22.3 billion in the year-ago period.

The assurance, tax and advisory firm said given the positive business sentiment and sustained momentum, 2015 would be a big year for deal making.

According to Grant Thornton, PE deals have seen a surge in activity since 2014, with 462 deals worth $7.1 billion being executed in the first half of 2015 against 285 deals worth $5.1 billion a year ago.

“It has seen substantial growth in terms of volume and value, though the average deal size has reduced due to the ripple effect created by the e-commerce boom and increased investor interest in start-ups,” said the report. PE firms are increasingly investing in the start-up space, which used to be dominated by venture capital funds, angel investors, and high net worth individuals.

Prashant Mehra, partner at Grant Thornton India, said, “The year 2015 has recorded around 740 deals valued at $23 billion compared to 550 deals worth $22 billion in the same period a year ago. A growth in deal volume has been faster compared to a growth in deal value, implying average deal sizes have reduced since a year ago.”

Strategic M&A deal value dropped eight per cent for the first time since 2012 to $15.8 billion (277 deals) compared to $17.1 billion (269 deals) a year ago. There were 11 inbound deals valued at $100 million each.

M&A deals were driven by strong inbound interest, which saw a 54 per cent increase, and accounted for 47 per cent of the total M&A value during the period. Outbound deals did not see too many big-ticket ones, as deal values decreased by 16 per cent.

The top-three sectors for M&A deals this year were energy and natural resources, information technology & information technology-enabled services, and manufacturing. Energy sector deals were at the top, with 27 per cent of the total deal value, led by the Vedanta-Cairn merger and Reliance’s stake sale in Eagle Ford.

The IT & ITeS space occupied 18 per cent of the total deal value. The manufacturing sector saw large-ticket deals with six deals above $100 million, and was 17 per cent of the total deal value.

PE investment activities were lead by IT & ITeS, banking and financial services, and pharma & healthcare. IT & ITeS investments were 38 per cent of the total deal value, due to the increasing PE interest in the e-commerce space. Investments in the banking and financial services sector accounted for 14 per cent of the total deal value. Pharma, healthcare and biotech stood at 11 per cent of the total deal value in PE.

“Indian assets are expected to remain in focus as inbound and domestic M&As accelerate on the back of a pickup in alternate buyout financing by PEs and increased capital market activity – both volume and value are clearly on an uptrend here,” said the report.
 
The government’s actions on goods and services tax, the new Companies Act, institutional trading platform for tech start-ups, land acquisition, and unblocking stalled projects should improve the ‘ease of doing business’ in India, the report said. These factors could further accelerate the transaction activity in India, it added.