Have cash? Invest abroad: India Inc's 2012 deal mantra

If a slowdown in economic growth and a perceived notion of policy-paralysis on reforms front made the companies cautious in India during 2011, the new year may see those with deep pockets going abroad to mint deals.

The last year had its own share of hits and misses, in terms of merger and acquisitions, as some large deals finally got consummated after months of deal and a few others had to be abandoned prematurely.

The investment bankers say that the prevailing view among the large corporate houses remains that the cash could be better utilised for buying assets in overseas markets, given the existing regulatory hurdles and a delayed pace of reforms.

The adverse economic conditions, globally and within the country, did pull down the deal-making activities towards the end of the year, but the overall tally for the year still managed to get decent annual figures.

According to global deal tracking firm Dealogic, the total India-targeted M&A volume stood at $43.8 billion in 2011 till December 20, a decline of 31% from $63.5 billion in the previous year period.

The trend was much better in the first six months of the year with a total value of $28.4 billion -- almost equal to the figure for the first half of 2010 at $28.9 billion.

But, there was a slowdown in the second half and the last quarter of 2011 was seen shaping up as be the worst quarter since 2005, Srividya CG, Partner & Practice Leader - Valuations, at consultancy major Grant Thornton India said.

Lack of proactive governance also had a crucial role to play in the subdued M&A deal activity, and this trend is likely to continue in the next year as well.

"Had we seen more active governance and policy making over the last six months, the inbound interest in India could have been far higher," PriceWaterhouseCoopers Executive Director/Partner, Transactions Group Sanjeev Krishan said.

According to Ben Scent of Mergermarket, "M&A activity is likely to remain depressed in the first half of next year, thanks to the gloomy economic environment and worries that the government bureaucracy could hold up deal approvals."
    
"While a number of Indian businesses are indeed thinking of extending operations overseas, and some of the large ones may continue to be able to do so in 2012, the smaller/mid market players would be challenged to do so, owing to the attendant risks and the tough financing environment," PwC's Krishan said.
    
Some deals could also get delayed due to the new merger control provisions under the Competition Commission of India. The notification requirements could make some deals cumbersome for bidders, so acquisition activity may slow until people have more clarity on the rules, Mergermarket's Scent added.

PwC's Krishan believes that "the change in FDI regulations in pharma appears to be a retrograde step, and may impact inbound interest in that segment."

Inbound deals in the year have amounted to $27 billion driven by BP's $9 billion acquisition of 23 Oil & Gas blocks from Reliance Industries in February which is the biggest India M&A deal so far this year and the second largest India Inbound M&A transaction on record.
   
The deal got cleared after a significant delay, while same was the case for Vedanta group's acquisition of Cairn India. A few deals, such as the one between RCOM and GTL Infra and Reliance Industries group's purchase of Bharti group's insurance business interest, were abandoned mid-way.
    
The total value of outbound deals (Indian companies acquiring businesses outside India) in 2011 was $10.4 billion through 132 deals as compared to $22.5 billion by way of 198 deals, according to global consultancy firm Grant Thornton.