Press release

Domestic M&A stays strong in 2Q16

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  • Domestic M&A dominates deal activity, cross-border activity at heightened levels compared to last quarter
  • Technology leads deal volume; while the infrastructure sector leads disclosed deal value

According to EY’s recent Transactions Quarterly report, M&A activity involving Indian companies moderated during the quarter ending June 2016 after witnessing a strong start to the year but reported a healthy growth compared to the same period last year. Deal volume for the quarter stood at 190 deals with a total disclosed deal value of US$7.0 billion. The deal volume declined by 8% as compared to the corresponding quarter last year. However, the aggregate disclosed deal value increased by 14% from US$6.1 billion in 2Q15, predominantly due to four mega deals (US$500 million and above), which contributed ~US$4 billion and accounted for 57% of the total disclosed deal value during 2Q16. The technology sector continued to dominate the deal volume with 23 deals, followed by the infrastructure and retail and consumer products sectors which clocked 18 deals each. On the value front, the infrastructure sector led with US$2.8 billion.

Commenting on the M&A activity, Amit Khandelwal, Partner and National Director, Transaction Advisory Services, EY said, “While the relative softening in deal activity reflects the overall tepid nature of the global M&A market, the deal activity was more pronounced on the domestic front on account of some mega deals and driven by a need to consolidate. Inbound activity also saw an increase owing to global investor’s continued interest in India. We expect the M&A activity to remain stable over the coming months.”

Domestic activity led the way

Domestic activity continued to dominate the Indian M&A transactions in 2Q16, with 103 deals accounting for an aggregate disclosed deal value of US$4.9 billion. This contributed ~54% to the total deal volume and ~70% to the total disclosed deal value. This noteworthy contribution in disclosed deal value can be largely attributed to a few mega deals. The largest deal involving home-grown companies during the quarter was the announced acquisition of Welspun Renewables Energy Pvt. Ltd. by TATA Power Renewable Ltd., for US$1.4 billion. In another deal, JSW Energy limited announced to acquire Jindal Steel and Power Limited’s 1,000 MW power plant in Chhattisgarh, for US$977 million.

These big-ticket transactions, especially in the power sector, were distressed asset sales by leveraged corporations to deleverage their balance sheets. These deals are anticipated to gain further prominence in coming months, with banks’ stringent view on non-performing assets. The domestic deal activity was also driven by the Indian corporates’ focus on maintaining competitive advantage and strengthening their core businesses. Home-grown players will continue to explore acquisition opportunities to expand their market share in the domestic arena, owing to positive macro-economic fundamentals. Consolidation deals, especially in sectors including e-commerce, retail, financial services and pharmaceuticals, is also expected to support domestic deal activity.

Cross-border M&A activity heightened in 2Q16

Transnational M&A activity involving Indian companies increased in 2Q16 as compared to 2Q15. While the deal volume witnessed a marginal decline (87 versus 93), the deal value jumped to US$2.1 billion for the quarter, up 87% from US$1.1 billion in 2Q15.

There were 56 inbound deals during the quarter, which contributed US$1.3 billion to the disclosed deal value as compared to 53 deals accounting for US$647 million in 2Q15. On the other hand, the marginal drop in the overall cross border deal volume was on the outbound front, which slowed to 31 deals from 40 deals in the same period last year. But, the outbound deal value increased to US$856 million from US$492 million in 2Q15, registering a growth of 74% from last year, on the back of two deals which contributed US$669 million, accounting for 78% of the total outbound deal value.

The UK was the most active cross-border partner in terms of deal value

The UK topped the deal value table for the quarter with US$841 million, driven by two large deals which contributed US$743 million (88% of the India-UK cross border deal value) with a total of 15 cross-border transactions (eight inbound and seven outbound). In terms of deal volume, the US continued to be the most active cross-border M&A partner for Indian companies during the quarter, with a total of 21 deals (14 inbound deals and 7 outbound transactions).

M&A activity likely to remain soft in the near future

The overall deal momentum may face a period of uncertainty in the near-term, due to continued economic and political uncertainties in global markets. While long term implications are unclear, investor confidence and business sentiment is expected to be impacted in the short-term, which would lead to companies going slow on planned deals. Nevertheless, with the long-term outlook on India remaining robust, the activity should pick-up pace once the global political and economic scenario becomes more settled.

Top 10 Indian deals of the quarter

Deal type

Deal description

Date

Target

Target nation

Acquirer

Acquirer nation

Value

Sector 

(US$ million)

Domestic

Majority stake acquisition

06-12-2016

Welspun Renewables Energy Pvt Ltd

India

Tata Power Renewable Energy Ltd

India

1,382.3

Infrastructure

Domestic

Asset/Business purchase

05-04-2016

Jindal Power Ltd- 1000 MW Power Unit

India

JSW Energy Ltd

India

976.7

Infrastructure

Domestic

Asset/Business purchase

04-08-2016

Aircel Ltd-4G spectrum

India

Bharti Airtel Ltd

India

524.4

Telecommunications

Inbound

Investment by a consortium

06-28-2016

Neotel(Pty)Ltd

India

Liquid
Telecom Group and Royal Bafokeng Holdings(Pty)
Ltd

UK

424.5

Telecommunications

Outbound

Brand purchase

06-11-2016

Teva Pharmaceutical Industries Ltd- Eight Drugs

Israel

Dr Reddy's Laboratories Ltd

India

350.0

Pharmaceuticals

Outbound

100% acquisition

05-27-2016

Target Group Ltd

UK

Tech Mahindra Ltd

India

318.8

Technology

Inbound

Minority stake acquisition

05-09-2016

GMR Energy Ltd

India

Tenaga Nasional Bhd

Malaysia

300.0

Infrastructure

Inbound

Asset/ Business purchase

04-18-2016

Kemwell Biopharma Pvt Ltd- India Pharma Division

India

Recipharm AB

Sweden

205.2

Pharmaceuticals

Domestic

100% acquisition

04-01-2016

Geometric Ltd-Business

India

HCL Technologies

India

191.4

Technology

Inbound

Majority stake acquisition

06-05-2016

Excel Crop Care Ltd

India

Sumitomo Chemical Co. Ltd.

Japan

93.1

Chemicals

Source: EY Analysis of ThomsonONE data

 

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