M&A activities sluggish in Jan-Mar; 33% decline in deal value to $12.5 bn

The first quarter of 2019 recorded 110 merger and acquisition deals worth $ 12.5 billion (about Rs 86,500 crore), a 33 per cent fall in value terms as against the year-ago period, due to factors such as global economic conditions and uncertainty around Brexit, according to a report.

As per Grant Thornton's quarterly deal tracker report released Wednesday, "This drop (in value) can be attributed to delays in execution of deals, growing complexity in deal structures and macro-economic factors like upcoming elections, global economic conditions, and uncertainty around Brexit dampening investor sentiment."

However, the quarter recorded a marginal increase in deal activity as compared to the fourth quarter of 2018, owing to encouraging factors such as proceedings under the Insolvency and Bankruptcy Code, divestments of non-core assets that have no synergies with larger group firms, drive in stressed asset space and cleaning up of bad loans.

The deal volume witnessed seven per cent decline as compared to first quarter of 2018 when it stood at 118, the report added.
 

This quarter witnessed an encouraging trend with 2 per cent increase in deal value and 7 per cent increase in volume as compared to the fourth quarter of 2018, demonstrating a positive and promising deal sentiment.

"Although we entered 2019 with substantially less momentum with 110 M&A deals worth $ 12.5 billion compared to 118 deals worth $ 18.7 billion in Q1 2018, some big deals announced this year have provided some encouragement that the outlook for M&A will be healthy despite a drop," said Grant Thornton India Director Pankaj Chopda.

The announced deals include Arcelor Mittal's acquisition of Essar Steel for $ 7.2 billion, Radiant Life care's merger with Max healthcare for $ 1 billion, he said.

Strengthening market position through consolidation and geographical expansion along with monetisation of non-core assets to strengthen the core business were the key drivers for the transaction during the quarter, Chopda added.
 

"We expect to see an uptick in M&A deal activity across domestic, inbound and outbound segments spurred by action from financial services sector to minimise NPAs, and the US-China trade war being favourable in boosting India's manufacturing exports," he said.

Deal value increased exponentially in March 2019 with over 5 times as compared to March 2018. The month recorded the highest value in the past seven months on the back of eight high-value transactions despite a 6 per cent fall in volume.

Two deals of $ 2 billion each were recorded in manufacturing and pharmaceutical sectors in the first quarter of 2019 and 15 deals valued and estimated at and over $ 100 million each together contributed 93 per cent to the total M&A deal value and 15 per cent to the M&A volume, thus demonstrating an appetite for big-ticket deals and an uptick in deal activity amid other uncertainties.