Low valuations will spur PE activity: Grant Thornton

With most financial markets witnessing a slowdown which has resulted in more reasonable valuations, corporate houses and private equity players believe that the current valuations would result in increased merger and acquisition (M&A) activity in the coming months, according to a survey conducted by Grant Thornton.

Over 45 per cent of respondents felt that the current valuations would result in increased M&A activity. An overwhelming 91 per cent of the respondents believed that the Indian economy has scope of undergoing further consolidation in the current market conditions.

Domestic deal makers, who played a small role in deal activity in the bumper years of 2006 and 2007, found favour among the respondents.

According to the survey, 68 per cent of respondents believed that domestic strategic buyers would enhance their presence in the Indian M&A market over the next 12 months. “Their involvement is only expected to increase this year as domestic buyers take advantage of low valuations which were previously out of reach even for their cash rich pockets,” the survey noted.

The survey noted that North America and Europe have been favoured destinations for outbound M&A by Indian corporates, accounting for 94 per cent of deal values in 2008. In line with this trend, a total of 75 per cent of respondents believed that these two regions would remain the most popular destinations for Indian M&A deal activity.

Respondents said the new Competition Act 2002, which has introduced specific provisions and requirements for companies intending to merge or acquire another business, would increase the timeline of deals. The Act specifies that any company with an asset base of Rs 1,000 crore or a turnover of Rs 3,000 crore has to seek the approval of Competition Commission of India for any transaction, domestic or cross border.

More than three-fourth (76 per cent) of the respondents said that the increased regulation brought in by the implementation of the Competition Act would result in increasing timeline for the completion of transaction. Nearly 22 per cent believed that the regulation would not impact any change in the transaction period.

However, 56 per cent of our respondents believed that implementation of the competition act would not have any impact on M&A activity.