The second quarter of 2013 has come as a surprise to dealmakers and those watching the action on Deal Street. While the overall mergers and acquisitions (M&A) figures for the first half have turned out to be about 39 percent lower than that of the same period last year, the second quarter has been much better than that of 2012.
These trends have come up in the first half analysis by Dealtracker, a regular study of M&A and private equity activity put out by Grant Thornton India LLP.
According to the latest figures, the total value of M&A deals involving Indian companies in the first half stood at $13.92 billion, down 39 percent from the previous year’s figure. However, a key point here is that 2012 saw some big internal restructuring deals which also get counted in these figures but were missing this year. Notable among them was the $12 billion Vedanta group recast of last year, which inflated the previous year’s figure.
However, what dealwatchers are happy about is the sharp pick-up in activity in the second quarter of the year, despite the economic turbulence across the world and the sharp depreciation in the value of the rupee. The second quarter saw $9.3 billion worth M&As, almost twice that of Q2 2012.
Domestic M&A stood at $3.1 billion, in line with values seen during the same period last year. According to Dealtracker, domestic activity was largely driven by the power and energy, banking and financial services and real estate sectors.
Total cross-border M&A doubled in H12013 to reach $10.32 billion compared to $5.1 billion in H1 2012.
"Though both inbound and outbound deal activity witnessed an increase as compared to H1 2012, two large billion-dollar plus outbound deals ( Apollo Tyres’ $2.5 bn acquisition of Cooper Tire and Rubber Co, and Oil India’s $2.5bn stake acquisition in Rovuma Offshore block) proved to be the game changers in the cross border space,” Raja Lahiri, Partner, Transaction Advisory Services at Grant Thornton India LLP, said.
Private equity (PE) activity was also robust, as PE firms invested about $5.9 billion across 204 deals during the first half ended June 2013, an increase of around 55 percent compared to the same period last year. This was driven by the ITES, real estate, manufacturing and telecom sectors. “We also witnessed the Qatar Foundation $1.2 Billion investment in Bharti Airtel, which was the top PE deal in H113,” Lahiri added.
By and large, despite the growth slowdown, deal trackers seem to be looking forward to an increase in activity on the M&A front. The recent government moves on relaxing foreign direct investment (FDI) limits across a range of sectors—the latest being telecom—have also added to the bullishness.
“While growth rates have moderated in India and the challenges of weakening rupee impacts Indian corporates, the recent government policies to enhance FDI in various sectors including aviation, retail, broadcasting and now telecom etc are expected to bring back FDI and hopefully, enhanced deal momentum in 2013,” Lahiri added.
Sourav Majumdar is the Editor-in-Chief of Entrepreneur magazine.