Private equity-backed mergers and acquisitions fall to 31-month low

Value of such transactions has also been coming down over time

The number of mergers and acquisitions (M&As) in August that involved private equity (PE) funds was the lowest in nearly three years. There were 26 such deals last month, according to data from tracker Refinitiv (part of London Stock Exchange Group).

The last time monthly deal numbers were so low in recent times was January 2021 when Covid cases were picking up during the second wave of the pandemic. The deal value for PE-backed transactions was $540 million, the second-lowest monthly value since November 2020.

A PE fund pools money from wealthy investors and uses the capital to strike lucrative deals.

A rolling 12-month analysis of the Refinitiv data, which smoothens out volatility in monthly numbers, also shows a declining trend. There were 706 deals in the 12 months ending in August, the lowest in 15 months. The deal value was at a 29-month low of $20.7 billion.

The fall in PE activity in M&As comes even as there has been a slight recovery in the value of M&As involving all players, including PE and non-PE players.

The total value of such deals involving Indian entities touched $82.6 billion on a rolling 12-month basis in August 2023, the highest so far this financial year.
 

August 2023 had the third-highest Indian M&As worth $22.5 billion. It was at its peak in April 2022 at $69.8 billion, followed by $30.6 billion in May 2018. The uptick comes amid a global slowdown. This has meant that over a tenth of transactions by value involved Indian entities. This is a significant increase over the recent past.

India’s share in global M&As was 11 per cent in the previous month, compared to an average of 2.4 per cent over the preceding 12 months.

In the first eight months of this year, the high technology sector recorded the maximum number of deal counts. Government and related agencies had the least with only four deals. The financial sector accounted for over half of the acquisition value, followed by industrials (10.7 per cent), high technology (7 per cent), energy and power (6.3 per cent), and real estate (5.2 per cent) between January and August.

Globally, health care accounted for the highest share at 14.4 per cent of the M&A value market, followed by energy and power (13.9 per cent) and industrials (13.4 per cent) in the same period.

The peak was in April 2021 when a total of $8.7 billion worth of deals backed by PE was undertaken — the highest on record in data going back to 2000.

Higher interest rates tend to affect M&A activity because capital becomes more expensive, according to a June 2020 study titled, ‘The impact of monetary policy on M&A outcomes’.