Value of deals jumps 303% in January 2010 over January last year.
After struggling all through 2009, private equity (PE) deal flow has revived.
With economic outlook on Indian as well global markets being positive, PE funds are closing deals more speedily than last year. The merger and acquisition (M&A) activity has shown similar momentum, with domestic deals ruling the charts.
| UPWARDLY MOBILE January deal summary | ||||
| Volume | Value (US$ mn) | |||
| 2009 | 2010 | 2009 | 2010 | |
| Inbound | 5 | 9 | 417 | 36 |
| Outbound | 5 | 15 | 40 | 341 |
| Total crossborder | 10 | 24 | 457 | 377 |
| Domestic | 8 | 32 | 1,324 | 2,167 |
| Total M&A | 18 | 56 | 1,324 | 2,544 |
| PE (incl. QIP) | 16 | 29 | 309 | 1,246 |
| Grand total | 34 | 85 | 2,090 | 3,790 |
| Source: Grant Thornton | ||||
PE funds closed 29 deals in January 2010 compared to only 16 during the same period last year. The value of such deals saw a significant jump of 303 per cent, from $309 million (Rs 1,425 crore) in January 2009 to $1,246 million (Rs 5,750 crore) this year.
“The activity has picked up in the last few months. We have been getting a lot of enquiries, both on M&As and PE investments. The markets have stabilised and there is more certainty about growth now as compared to last year. Though valuations remain a concern, the intermittent correction has given PE funds an opportunity to announce deal closures,” said Kuldeep Tikkha, partner, transaction advisory services, Ernst & Young.
The value of deals (including PE and M&A) had fallen to a low of $24,017 million (Rs 1.1 lakh crore) in 2009, mainly due to uncertain market conditions and a gloomy economic outlook. A number of companies had to defer fund-raising due to subdued valuations. PE fund managers also chose to wait as equity valuations recovered too fast in the second half of 2009.
“I see more conservative but realistic valuations and a greater deal flow in 2010 as compared to 2009. Sectors such as cleantech, consumer products and services, micro-finance, mobile value-added services and consumer internet will attract the most of the investments in the coming year. I also see more investments in aerospace, defence, rural and healthcare,” said Harshal J Shah of Reliance Venture Asset Management. “We expect to close three to six deals in the first half of 2010 involving a cumulative investment of $50 million (Rs 230 crore).”
M&A deal value had dropped to $11,963 million in 2009. However, the segment saw a sharp recovery in 2010, with deals worth $2,544 million (Rs 11,735 crore) in January alone, as compared to $1,781 million (Rs 8,215 crore) in 2009. Domestic deals contributed the most, with 32 accounting for $2,167 million (nearly Rs 10,000 crore). Investment bankers say domestic deals will continue to be a major driver for M&As this year.
“Consolidation on the domestic side will continue to happen. Companies with capital-intensive businesses will look at selling out to sound and stable companies. Indian companies are much stronger than their counterparts globally and that will drive the deal momentum. There will be a significant number of outbound deals as well because of depressed valuations abroad,” said Ajay Garg, managing director, Equirus Capital.
Telecom remained the favourite sector for M&As, followed by BFSI (banking, financial services and insurance), power, oil & gas, and infrastructure management. About 80 per cent of the deals closed were in the telecom sector, the largest one being GTL Infrastructure’s acquisition of Aircel’s telecom tower business for $1,787 million (Rs 8,240 crore). Bharti Airtel acquired a 70 per cent stake in Bangladesh’s Warid Telecom for $300 million (Rs 1,385 crore).
A part of the PE money also came through qualified institutional placements of Shriram Transport Finance, Karnataka Bank and YES Bank. A large part of the money came into real estate, power and energy.
“2009 was an exceptional year, when entrepreneurs were not willing to take risks. At the same time, PE funds were not willing to take bad bets just for the sake of doing deals. With the economic environment becoming more clear, companies are reviving plans that had been put on hold. Availability of capital has also eased. Valuations will always remain a challenge for PE funds but one has to be creative in structuring deals,” said Rajesh Singhal, managing partner, Milestone Religare Investment Advisors.
Some of the notable PE deals during the month were Bain Capital's 15.40 per cent stake in Himadri Chemicals and Industries and IFC's investment in Bhilwara Energy Ltd. January also saw a number of venture capital investments. For example, Sidbi SAS invested in CircuitSutra Technologies, IDG Ventures invested in iCreate Software and Sequoia Capital invested in Via.
