Indian companies have realised the necessity, benefits and the importance of mergers and acquisitions (M&As) as a strategic tool in their businesses. While the numbers and values of deals last year were lower than 2007, which was a bumper year in M&As globally and in India, the fact that it has not dipped significantly in spite of the global economic downturn is an indication that M&A is now a core strategy for Corporate India. Though the M&A activity has broadly moved independent of the BSE Sensex, there is a dip after a fall in Sensex as people adjust to revised valuations and then the activity levels restore themselves to their normal levels.
There is continued interest in doing deals in all the sectors, but the focus remains on energy , automobiles and IT. India companies’ love affair with acquiring companies globally continues unabated and North America and Europe continue to still remain the favourite destinations for them.
Last year also saw a surge in inbound transactions, which accounted for almost 50 percent of the deal value of $25 billion. Clearly, global Inc wants a larger piece of Corporate India and it should show a positive trend this year too.
Another aspect is private equity, which has been active during the last couple of years. Private equity investors have also actively encouraged M&As as a strategy for growth in their investee companies. Private equity is here to stay and for the present has replaced the IPO market as a source of capital. There is still substantial capital available, which is India focused and that should fuel further investments and M&A activities in 2009.
The credit crunch or global slowdown is not likely to impact M&As activities this year. In fact, a combination of factors like need for consolidation, struggling players needing new ownership, and attractive prices of assets will see a spur in M&As this year. Sometimes bankers may want to exit quickly from their holdings of significant stake to meet their liquidity issues on a distressed basis, which can be another opportunity.
With the slowdown affecting local businesses, there would be a spate of consolidation across industry this year. Some of the sectors that are likely to see consolidation this year are IT, media, auto components, telecom and pharma and that is where private equity players will have a major to play.
Another interesting factors that seems to be influencing M&As is the big difficulty faced by companies going for greenfield projects in India. We are witnessing substantial delays in high profile projects as well as smaller projects. Given the challenges, Indian companies seem to prefer to go global or acquire existing businesses than invest in greenfield projects.
The writer is partner, national management and head, specialist advisory services, Grant Thornton India
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