M&A deals slump 71% in value terms

The mergers and acquisitions (M&A) activity of India Inc seems to be running out of steam as the deal value has fallen 71 per cent in the first three months of this calendar year, compared with the same period in 2007.

While there has been a marginal decline in the number of deals from 148 to 125 in 2008, the deal value has seen a sharp slump from $33.85 billion to $9.64 billion, according to a Grant Thornton study.

Fears of an expanding credit squeeze in global markets have put a question mark on the M&A appetite of companies, more so because financing has become a challenging task. Global markets have plunged more than 25 per cent since last year, putting brakes on the expansion plans of companies.

Even though the M&A drive of India Inc has witnessed a slowdown, India Inc's acquisition spree is restless with outbound deals continuing to steal the show. And if experts are to be believed, 2008 will see more outbound deals than inbound ones.

According to the data from Grant Thornton, number of outbound deals increased from 12 to 15 since February and the value of these deals rose from $240 million in February to $2.66 billion in March.

Harish H V, partner, Grant Thornton, said, "Outbound deals have seen an upswing because valuations have fallen globally, making it easier for Indian companies to acquire firms there, and the trend will continue. However, it will be difficult to finance large buyouts and leveraged financing will take a hit. Firms with strong balance-sheets may look for bargain buys."

One of the most coveted and important outbound deals during last month was Tata Motors' acquisition of the two marquee brands, Jaguar and Land Rover for $2.3 billion from Ford Motors. Others include IL&FS Transportation Network Limited's acquisition of Elsamex SA for $73 million and Champagne Indage's acquisition of Loxton Winery for $56.25 million.

Private equity seems to have revived after a lull as the deal value increased 47 per cent compared to last year.

The total number of PE deals during the first three months of 2008 stands at 124, with an announced value of $4.38 billion as against 112 deals amounting to $2.98 billion during the corresponding period in 2007.

Experts attribute this upsurge in PE activity to weak IPO market which has discouraged issuers to go for public listing. The turmoil in secondary market has robbed IPOs of its sheen and as a result many small and mid-size companies are now tapping the private equity route.

Private equity not just acts as a benchmark for valuation of the company but also brings various value-added services on the table, right from corporate governance practices to assistance in inorganic expansion plans.

Some of the PE deals clinched in March include Goldman Sachs' 20 per cent stake in Shriram Credit for $75 million, Merrill Lynch's undisclosed stake in DRS warehousing for $75 million and Orient Global Tamarind fund's 2.60 per cent stake in Cairn Energy for $278.69 million.