Inbound, domestic deals dominate Mergers and Acquisitions; less funds going abroad than inflows in M&As: ASSOCHAM-E&Y study

As many 870 mergers and acquisitions worth USD 28.6 billion were announced in 2014 with 93 per cent of the deals taking place in the form domestic and inbound M&As, reflecting robust investor interest in the Indian economy, according to an ASSOCHAM-E&Y joint study which also noted a sharp drop in outbound deals, meaning there was far less investor funds going abroad during the year.

Deal activity broke a four-year declining trend in terms of the count at 870 in 2014 against 742 in 2013 while the total value was USD 28.6 billion, showing an increase of 6 per cent over the 2013 deal value of USD 27 billion.

 

There were 5 deals more than US$1 billion and 9 deals with a deal size between US$ 500 million and US$1 billion in 2014 as compared to 12 deals of more than US$500 million (including 6 above US$1 billion) in 2013, according to 'M&A landscape in India' a joint study.

Releasing the joint study Mr U.C. Nahta, Sr. Member, Competition Commission of India (CCI) at the ASSOCHAM conference on 'Value Creation through Mergers & Acquisitions' said, in last one year, India has become one of the favourite destination for investments all across the world. It is one fastest growing economy in the world with GDP touching almost 7.6%, whereby returns on capital and the shareholder returns are on a higher side.

Domestic and inbound transactions accounted for 93% of the total deal value in 2014, an increase from 74% in 2013 (67% for the period 2010-14). Out of this, there was a major increase in domestic transactions, which accounted for US$16.2 billion as compared to US$6.2 billion in 2013.

Hence, the value of domestic M&As at US$16.2 billion exceeded the total value of cross border deals amounting to only US$ 2.0 billion while cross border inbound deals amounted to US$10.4 billion. Outbound investments were only 7% of the total M&A value (26% in 2013 and 33% for the five-year period 2010-14).

Mr. D S Rawat Secretary General ASSOCHAM said, deal activity began on a slow note, and picked up considerably in the second half of 2014 once the new government was elected and presented its pro-growth, investor-friendly budget and announced new policy initiatives such as Make in India, new norms for FDI in key sectors such as defence, increased funding for the infrastructure sector and initial steps to establish a stable, predictable tax regime.

India was the target of a substantial number of international investments in 2014. There were 257 inbound deals in 2014 with a total deal value of US$10.4 billion. The US led the inbound investment in India (71 deals, US$1.5 billion), followed by Japan (40 deals, US$1.6 billion) and the UK (21 deals, US$2.6 billion). Other prominent countries to have made large investments in India include Germany (17 deals, US$200 million), France (15 deals, US$947 million and Canada (8 deals, US$812 million), highlighted the joint study.

On the other hand, outbound deals were a minority in 2014 with only 119 overseas acquisitions being made by Indian companies. The total value from outbound deals was US$2 billion, around 7% of the total M&A value in India in 2014.

The increased investor sentiment in favour of investing in India is evident from the growth of the share of domestic and inbound M&A flows. The outbound investments have also been affected due to the relative investment potential, weak rupee and the reduction in large ticket overseas investment opportunities such as acquisition of oil bocks, etc. overseas.

With the new government easing FDI norms and allowing more investment in certain key sectors, it is expected that the cross border inbound deal flow will increase in the next few years as global companies look to enter the growing Indian market amidst fears of another economic slowdown in Europe. Additionally, large economies such as Japan are going through a period of economic stagnation, and leading corporations in such countries are looking to acquire targets in growing economies such as India to expand their global presence.

Technology was the most active sector in terms of deal volumes in 2014. In terms of deal value Pharmaceuticals, Technology and Retail & Consumer Products (RCP) were the most active sectors in 2014, leading the deal tables.

Other key sectors involved in deal activity were industrial products and media & entertainment (in terms of deal count) and banking and thermal power (in terms of deal value). Health care and real estate were two other sectors wherein deal activity picked up during the year and that show promising signs for 2015 and beyond.

In spite of the revival in the M&A environment in India in 2014, key growth sectors such as infrastructure, automotive and agriculture did not witness too much of deal activity and remain subdued throughout the year, highlighted the study.

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