Domestic transactions drive Indian M&A with 67% share

New Delhi, 4 May, 2016

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  • Domestic M&A landscape witnesses upbeat deal activity, while cross-border activity is soft
  • Technology sector continues to top deal volume
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According to EY’s Transactions Quarterly, M&A activity involving Indian companies continued its momentum during the quarter ending March 2016 and saw a total of 245 deals with a cumulative disclosed deal value of US$7.8 billion. While this represents a 12% year-on-year (yoy) increase in terms of deal volume (219 deals in 1Q15), the aggregate disclosed deal value rose significantly by 63% as compared to the same period last year (US$4.8 billion in 1Q15). Domestic transactions contributed significantly to this momentum, accounting for 67% of the total disclosed deal value.

Technology sector continued to dominate the M&A sector tables in terms of volume, accounting for 33 deals, as companies across the technology services segment remained focused on augmenting capabilities in emerging technologies, with an aim to remain relevant to their clients’ emerging technology needs.

Commenting on the M&A scenario, Amit Khandelwal, Partner and National Director, Transaction Advisory Services, EY said, “The strong deal activity was driven mainly by domestic M&A. Big-ticket divestment deals were a significant contributor, reflecting Indian corporates’ focus on deleveraging their balance sheets by disposing of their non-core assets. Though the cross-border activity was relatively soft, it is expected to pick up over the next few months.”

Domestic activity dominates with a 67% share in deal value

Domestic M&A dominated the country’s deal activity during the quarter ending March, with 149 deals having a cumulative disclosed value of US$5.2 billion. Compared with the corresponding quarter of the previous year, the deal volume increased by 27% (118 deals in 1Q15) and deal value by 126% (US$2.3 billion in 1Q15). This surge in deal value can be primarily attributed to the quarter’s two largest divestment deals: Jaiprakash Associates Ltd. which entered into an agreement to sell six of its cement units to UltraTech Ltd. for US$2.4 billion and Reliance Infra which agreed to sell its cement division to Birla Corp Ltd. for US$710.7 million. Both the deals were driven by a need to deleverage balance sheets to reduce debt.

An improving domestic economy and health of public finances combined with soft commodity prices and accommodative government policies, boosted corporate confidence during the quarter, providing an impetus to the deal activity. Furthermore, the positive outlook of the Indian economy is expected to drive the deal momentum over the next few months. Also, as the competition heats-up, consolidation in sectors like e-commerce is expected to drive transactions. In the technology sector, domestic companies are expected to take the inorganic route to keep enhancing capabilities to stay relevant and expand geographical presence. Additionally, divestment deals should surge over the next few months owing to the pressure from banks that might encourage debt-ridden corporates to sell assets to generate cash to pay the banks.

Cross-border M&A activity relatively soft

Cross-border deal activity involving Indian companies was marginally lower in 1Q16 compared to 1Q15 as deal volume marginally declined to 96 from 101. However, deal value remained unchanged at US$2.5 billion. This soft performance owed to a reduction in inbound deals. There were 47 inbound deals during the quarter, which contributed US$1.3 billion to the disclosed deal value as compared to 65 deals accounting for US$2.1 billion in 1Q15.

On the contrary, outbound activity fared better, both in terms of deal value and volume. Total deal value almost quadrupled to US$1.2 billion from US$328 million in 1Q15, whereas outbound volume jumped to 49 deals from 36 deals seen in 1Q15. Indian corporates explored overseas opportunities to tap into high-end technology, expand to new geographies and augment product and service portfolios, especially across the pharmaceuticals and technology sectors, leading to an increase in transaction activity.

The US remains the most active cross-border partner

Companies from the US continued to be the most active counterparts for Indian companies in the cross-border transactions. During the quarter, players from the US were involved as acquirers in 10 inbound deals and as targets in 15 outbound transactions. Companies from Singapore followed next with 5 inbound and 4 outbound transactions.

M&A expected to maintain momentum in the near future

The latest quarter ended on a positive note for Indian M&A activity, with an improvement in disclosed deal value and volume. The activity is expected to remain strong in the coming months, driven by a positive economic outlook, investor confidence and supportive capital markets. While, on the one hand, the Government’s commitment to carry out policy reforms in the manufacturing and infrastructure sector should revive private investment, on the other hand a supportive monetary policy should ease the funding environment.

Top ten deals for the quarter ending March 2016

Deal type Date Target Target nation Acquirer

 

Acquirer nation

 

Value Sector 
(US$ million)
Domestic 28-02-2016

Jaiprakash Associates Ltd. (six cement units)

India UltraTech Cement Ltd. India 2,401 Cement and building products
Domestic 04-02-2016 Reliance Cement Co. Pvt. Ltd. India Birla Corp Ltd. India 711 Cement and building products
Domestic 17-03-2016 Videocon Telecommunications Ltd. (2 x 5 MHz spectrum) India Bharti Airtel Ltd. India 659 TMT
Outbound 11-02-2016 HealthPlan Holdings Inc. US Wipro Ltd. India 460 Insurance
Inbound 04-03-2016 Siemens Ltd. (healthcare unit) India Siemens Healthcare Pvt Ltd. Germany 455 Life sciences
Inbound 28-03-2016 Bangalore International Airport Ltd. India FIH Mauritius Investments Ltd. Canada 322 Infrastructure
Outbound 29-03-2016 Novartis Ag. (14 prescription brands) Japan Sun Pharmaceutical Industries Ltd. India 293 Pharmaceuticals
Inbound 23-02-2016 ibibo Web Pvt. Ltd. India Naspers Ltd.

South Africa

250 Retail and consumer products
Domestic 17-02-2016 Dr. Reddy's Laboratories Ltd. India Dr. Reddy's Laboratories Ltd. India 229 Pharmaceuticals
Inbound 07-01-2016 MakeMyTrip Ltd. India Ctrip.com International Ltd. China 180 Services