The Hindu Business Line : `Growth, reforms set to boost M&A activity'

PwC bulletin
In the first half of 2006, the country witnessed a record number of M&A deals, collectively worth $25.6 billion.
In June alone, 10 cross-border, large-scale deals with a combined transaction value of $1.5 billion were finalised.
Around 76 cross-border deals worth $5.2 billion were finalised in the full six-month period.

MR SANJEEV KRISHAN

Chennai , Aug. 25

Consistently strong economic growth combined with continuation of the reform process and improvements in infrastructure by the Government would prove to be a shot-in-the-arm for M&A activity in the country, says Mr Sanjeev Krishan, Executive Director, PricewaterhouseCoopers.

In the first half of 2006, the country witnessed a record number of M&A deals, collectively worth $25.6 billion. Both inbound and outbound cross-border mergers were on the upswing.

Key drivers

According to Mr Krishan, the key drivers fuelling M&A activity during this period were entry into new markets, establishment of leadership positions by existing players, extension of domain knowledge by acquisition of know-how and the potential to enter the fast liberalising Indian market.

Mr Krishan says significant activity is expected in auto ancillaries, retail, real estate, oil & gas and the financial services segments.

According to him, outbound investments may outstrip inbound activity in the second half of 2006 too. "Outbound activity is currently very strong and is expected to comprise a major chunk in the second half of the year too," he says, adding, "This could, however, be dependent on how successful the forays of Indian oil and gas majors would be during this period, considering that these investments are significant in value terms."

Accordingly, should ONGC Videsh or OIL complete a few big acquisitions overseas (as they have been planning to) like ONGC Videsh's 25 per cent investment in Omimex de Columbia recently, which was worth $800 million, "We could well see outbound investments outstripping inbound investments during this period," Mr Krishan says.

It may further be noted that ONGC has contributed $2.3 billion of the aggregate outbound investments so far — in excess of 40 per cent of the aggregate outbound investments to date.

However, if the Government opens up the retail sector further (for FDI), the balance may slightly tilt towards inbound investments, he says.

Record June deals

According to the Asia-Pacific M&A Bulletin from PricewaterhouseCoopers, in June alone, 10 cross-border, large-scale deals with a combined transaction value of $1.5 billion (a monthly record for India so far) were finalised. Around 76 cross-border deals worth $5.2 billion were finalised in the full six-month period.

Mr M. Ramprasad, Chairman, MAPE Advisory Group, too says that there may be a significant number of mergers and acquisitions in the months to come. MAPE Advisory is the one that facilitated the Rs 270-crore Godrej-Nutrine acquisition deal.

In terms of numbers, Mr Ramprasad says, when inbound investments will largely be in the old-economy sector, outbound ones will mostly be in the new-economy business. "Indian business houses, new-economy businesses in particular, which are not land-locked in old mindsets, basically want to service global markets in a big way."

High-growth sectors such as pharmaceuticals, IT and automotive ancillaries are poised at an inflection point and growing competitive pressure has been a driving force behind the overseas acquisition in these sectors. "The pharma sector, in particular, has witnessed an unprecedented rise in cross-border deals, primarily in the generics space with the European Union being a preferred market."

Mr Ramprasad says even in the domestic market, a lot of M&As will happen. "Consolidation, improving efficiencies and acquiring new markets are going to be the order of the day."

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