Domestic deals driving M&A: EY

Cross-border deal activity involving Indian companies was marginally lower during March 2016 quarter

Mergers and acquisitions (M&A) activity during January-March climbed to 245 deals, with a cumulative disclosed deal value of $7.8 billion.

According to EY’s Transactions Quarterly, the number of deals rose 12 per cent, year on year, and the aggregate disclosed deal value rose 63 per cent.

Amit Khandelwal, partner and national director, transaction advisory services, EY, said activity was driven mainly by domestic M&As, which climbed to 149 deals, up 27 per cent from the same period a year ago, with a cumulative disclosed value of $5.2 billion, up 126 per cent.

The surge was attributed to Jaiprakash Associates selling six of its cement units to UltraTech for $2.4 billion and Reliance Infra selling its cement division to Birla Corp for $710.7 million. Divestment deals are expected to surge over the next few months, owing to pressure from banks on debt-ridden companies to sell assets.

In the information technology sector (IT), which dominated the M&A tables with 33 deals, companies took the inorganic route to expand capabilities and presence.

Cross-border deals declined marginally to 96 from 101 in the same period a year ago. However, the deal value remained unchanged at $2.5 billion.

“This soft performance owed to a reduction in inbound deals,” said EY. There were 47 inbound deals during the quarter, which contributed $1.3 billion to the deal value, against 65 deals accounting for $2.1 billion in the same period a year ago.

The outbound deal value almost quadrupled to $1.2 billion from $328 million in first quarter of 2015. The number of deals also rose to 49 from 36 driven by the pharmaceuticals and IT sectors.

Indian corporates explored overseas opportunities to tap into high-end technology, expand to new geographies and augment product and service portfolios, especially across the pharmaceuticals and technology sectors, leading to an increase in transaction activity.

Companies from the US continued to be the most active counterparts for Indian companies in the cross-border transactions. During the quarter, players from the US were involved as acquirers in 10 inbound deals and as targets in 15 outbound transactions. Companies from Singapore followed next with 5 inbound and 4 outbound transactions.

M&A expected to maintain momentum in the near future

The activity is expected to remain strong in the coming months, driven by a positive economic outlook, investor confidence and supportive capital markets. While, on the one hand, the Government's commitment to carry out policy reforms in the manufacturing and infrastructure sector should revive private investment, on the other hand a supportive monetary policy should ease the funding environment.