Slump fears dent Indian M&As

Deal value dips 70% in Jan-Feb 2008, but Asia bucks trend led by China.

After a phenomenal year of M&A transactions, the appetite for deals is slowing down amid concerns of a cooling-off effect on the Indian economy.

The deal value in India has plummeted by 70 per cent to $4.82 billion in the first one-and-a-half months of the calendar year compared with $16.2 billion in the year-ago period, according to data from Dealogic.

It is worthwhile to mention here that the M&A value in Asia, ex-Japan, rose by 28 per cent to $53.5 billion with 1,019 deals struck during the same period.

However, the last year's prodigious figure was mainly attributable to a few large-size deals, such as Vodafone-Essar (worth $12,900 million), which drove up the overall value. What is notable here is that the number of deals has increased from 133 to 211, even while their value has gone down.

Analysts attribute this fall to the global sub-prime meltdown which had its far-reaching impact in all parts of the world.

China led the M&A bandwagon in Asia, with $19.1 billion worth of transactions so far this year, followed by Singapore and South Korea.

The size of deals has certainly fallen after Tata Steel's $12.9 billion (Rs 51,600 crore) acquisition of Corus and Hindalco's $6 billion (Rs 24,000 crore) purchase of Canada's Novelis. This is mainly because Indian firms are looking for bargains as valuations have come down.

Says Sanjeev Krishan, executive director at PricewaterhouseCoopers: "There has been an impact of the US recession, but the fact remains that one can't replicate the size of a Tata-Corus or Hindalco-Novelis every time. There will be an impact on M&A transactions because of a huge crash in markets in January. The purchasing power of companies has fallen because of a fall in stocks, so financing is going to be a tough task."

There were a total of 661 M&A deals with announced value of $51.17 billion in calendar year 2007. The average M&A deal value stood at $77.42 million. Analysts estimate that this year could possibly surpass the previous year's figure as short-term blips may not result in the overall decline in the M&A activity.

Among the most noteable deals in the first one-and-a-half months of this calendar year is LNM India Internet Venture's 28.6 per cent stake in Sophia Power Company for $397 million.

The next important deals were the merger of RPG Transmission with KEC International for $323 million followed by General Electric's 26 per cent stake in NDTV Networks and Walt Disney's stake in UTV Software Communications.

Harish H V, partner, Grant Thornton, said, "In-bound deals will see a slowdown because today almost every foreign player is present in India. The government will have to open up new sectors like retail to attract more in-bound FDI. Out-bound deals will certainly grow because the credit turmoil in the US has shaved off valuations of many companies in Europe making them easy preys. At the same time, private equity will also see an upsurge because of realistic valuations available in India now."

An investment banker, who did not wish to be named, said corporate houses had become cautious and one might not see aggressive acquisitions like the last year's. If concluded, the acquisition of Jaguar and Land Rover by the Tatas could possibly become one of the largest deals this year.