India Inc's M&As rise 150% in 2007

NEW DELHI: India Inc announced deals worth $70 billion in 2007, up 150% over the previous calendar year. Significantly, even though this is a mere 1.5% of the estimated value of global deals struck during the year, in terms of actual increase Indian companies were a much bigger contributor.

Total merger and acquisition (M&A) and private equity (PE) deals in India, which were $42 billion more than their 2006 tally, accounted for about 5% of the increase in the value of global M&A deals, which rose to $870 billion last year.

The value of total deals announced in India during the year stood at $70.14 billion as against $28.16 billion in 2006. The volume of deals involving Indian companies also crossed the 1,000 mark for the first time last year. Out of the total, $51.11 billion was the value of strategic M&A involving Indian companies, either as sellers or buyers, and the remaining $19.03 billion was the result of PE deals.

These figures, however, may not reflect the actual value of deals completed as some of the transactions will spill over into the next year, given mandatory regulatory approvals which take time. Moreover, the aggregate figure also does not factor in the value of deals whose transaction value remains undisclosed, which represented about one-third of the total 1,081 deals announced in 2007, according to the latest dealtracker compiled by advisory firm Grant Thornton.

Given the multi-billion dollar M&A deals: Tata-Corus, Vodafone-Hutch and Hindalco-Novelis — which constituted a little more than half of the total M&As involving Indian companies during the year — strategic acquirers clearly overshadowed PE funds on dealstreet.

The year 2007 would go down as the year when strategic M&As were clearly dominated by cross-border transactions. Cross-border deals, including both Indian companies acquiring abroad and multinationals acquiring equity stakes in Indian companies, accounted for 94% of the M&As by deal value last year as against just about 55% of the total in 2005.

Domestic M&As, which involve Indian companies acquiring another local company, declined in terms of transaction value. Even though the volume of domestic deals increased by 50% last year to 321, the average size of domestic deals shrunk to a mere $8.8 million or just about Rs 35 crore, as against the average size in 2005 when it was close to Rs 500 crore.

This implies that promoters of large Indian companies, who are selling out or paring down their holdings through big deals, are preferring MNC buyers even as Indian companies are busy striking small deals locally. Says Grant Thornton Corporate Advisory Services partner CG Srividya, “A large number of Indian companies who sees good growth happening in the future are preferring to go for private equity fund infusion. In India, this typically involves less equity dilution for the promoters with which the owners are more comfortable.”

With buyouts by PE firms picking up, led by Blackstone last year, local promoters may be waiting for yet another potential buyer who is willing to outbid other strategic acquirers and give a better exit option. The value of private equity deals shot up from $7.85 billion to $19.03 billion spread over 405 deals. The growing clout of PE funds can be gauged by the fact that there were 53 $100-million-plus PE deals as against 52 such strategic M&A deals.

In terms of sectoral spread, there was a significant difference between M&As and PE deals. While metals and telecom were the top two sectors attracting M&As by value, real estate was by far the most attractive sectoral play for PE funds, accounting for more than one-third of all PE deals by value. In terms of deal volume, IT & ITeS continued to be the most active industry, leading the charts for both M&As and the number of PE deals.