Mumbai: After a record year for Indian mergers and acquisitions (M&A), deal-makers seem to have taken a pause, with M&A activity for the first quarter of 2019 falling to 242 deals worth $9.9 billion from 260 deals with a value of $21.6 billion in the same quarter last year, according to EY India consultancy.
M&A activity in Q1 was dragged down by a subdued global M&A market and the uncertainty around the results of the general elections, an EY report said.
“While the relative softening in the deal activity reflects the overall tepid nature of the global M&A market, the M&A was notable on the domestic front on the back of strong investor sentiment and sustained deal appetite," said Amit Khandelwal, managing partner, transaction advisory services, at EY.
Domestic M&A activity remained strong in the first quarter with 158 deals recorded, accounting for an aggregate disclosed deal value of $7.1 billion. This accounted for around 65% of the total deal volume and around 72% to the total disclosed deal value.
Consolidation remained the primary deals driver. Financial deleveraging, the faster pace of insolvency proceedings and opportunistic buys by big industry players also added to the push.
The quarter witnessed two mega deals (over $1 billion) in the domestic arena. The larger of these was the $3.2 billion merger of Bandhan Bank and Gruh Finance. This was followed by an investment of $1.2 billion in GMR Airports by a consortium led by the Tata group.
In terms of sectors, financial services witnessed healthy activity with 17 deals totalling $3.5 billion. The sector remained in focus following the liquidity crisis in non-banking financial companies (NBFCs) and consequent consolidation activity, the report said. In terms of deal count, the technology sector continued to dominate the M&A market, with digital disruption being at the core of the corporate’s growth strategy.
The quarter saw companies betting big on emerging technologies such as cloud computing, analytics, and artificial intelligence. Several acquisitions were also seen in the IT consulting space, with 15 deals valued at $878 million. Most of these deals were struck to boost competitiveness and expand customer offerings. One of the key examples was Larsen & Toubro’s Ltd’s acquisition of a significant stake in Mindtree.
Cross-border M&A showed a mixed trend during the quarter. While inbound deal value increased by 21%, outbound deal value declined by 53% on a year-on-year (y-o-y) basis. On the volume front, both inbound and outbound deal activity declined by 14% and 17% y-o-y, respectively. The US continued to be the most active cross-border M&A partner for Indian companies during the quarter, with a total of 28 deals, with 14 each of inbound and outbound deals, worth a combined $840 million. Japan and Germany emerged as other favourite trade partners, the report said.
EY expects stable M&A activity on the back of domestic consolidation and continued interest by foreign investors.
“The long-term prospects for the Indian transactions market look good on the back of a stable and strong government at the centre with its laser focus on growth and development, along with ongoing consolidation and restructuring activities," said Khandelwal.
While domestic consolidation will continue to drive deal activity, corporate restructuring and balance sheet deleveraging by highly-indebted players will also provide a push to deal-making, the report said. However, on the cross-border front, a sense of caution is likely to prevail, given high levels of economic and political uncertainty, and increased market volatility on the global scale.
“While it was a soft quarter, the activity of mid-sized deals (between $20 million and $500 million) remained (47 deals aggregating $4.4 billion) in line with the long-term quarterly mean, highlighting the steady foundation of the M&A market," said Ajay Arora, partner and national leader, M&A at EY India.
In addition, the findings of EY’s 20th edition of Capital Confidence Barometer also show that the deal environment in India remains favourable, said Arora.
“Notably, 66% of the Indian executives expect to actively pursue M&A in the next 12 months, a significantly higher reading than the 32% in April 2018 and the 10-year average of 40%," he said.
