Mega deals back in the making: E&Y

The deal street was buzzing with activity in the three months period between April and June 2010. The quarter saw 155 deals being struck with the average deal size also rising manifold when compared to the same period last year.

According to Ernst & Young’s latest Transactions quarterly report, merger and acquisitions (M&A) activity involving Indian companies witnessed an upsurge in the latest quarter - April-June 2010. While the deal count of 155 deals was similar to that of April-June 2009, the total disclosed deal value reached $16.9 billion, almost 400 per cent higher than the total deal value in the same period last year ($3.5 billion in April-June 2009), says the report.

“We are seeing deals materialize every second day. There is more liquidity and willingness to acquire amongst corporates,” says Ranjan Biswas, partner and national director, Transaction advisory services, Ernst & Young.

According to the study, outbound deal activity was dominant, reflecting increased business confidence among Indian players to acquire companies abroad. Outbound deals accounted for approximately 50 per cent share in the aggregate deal value between April and June 2010. This was in sharp contrast to the same period last year, when outbound deals held a share of just about 6 per cent in the aggregate deal value.

The quarter also saw the resurgence of mega deals as the global economic climate also showed signs of improving. The April-June 2010 quarter witnessed four billion-dollar deals, cumulatively worth $11.3 billion, despite continued uncertainty in Europe. The same period last year did not witness even a single billion-dollar deal, while the last quarter witnessed three such deals cumulatively worth $13.7 billion.

Further, the average deal size consistently increased over the past few quarters and rose to $296 million between April and June 2010, rising approximately six-fold from just $50 million in the same period a year ago and 18 per cent higher than $251 million during January-March 2010.

In terms of deal count, technology sector witnessed maximum deal activity with 22 deals, followed by industrial products (15 deals), financial services (14 deals), infrastructure (13 deals), and metals and mining (11 deals).

Meanwhile, the oil and gas sector proved to be the leading sector in terms of value on the deal street, accounting for almost one-third of the aggregate deal value during April-June 2010. Incidentally, this sector also accounted for the largest deal of the quarter - Indian Oil Corporation, Oil and Natural Gas Corporation (ONGC), Petroliam Nasional Bhd and Repsol jointly acquired a 40 per cent stake in Venezuelan oil and gas company Empresa Mixta for $4.8 billion.

The pharmaceutical sector ranked second, with deals worth $3.9 billion. The key transaction was Abbott Laboratories’ acquisition of Piramal Healthcare’s Healthcare Solutions business for $3.7 billion.