​M&A activity hits six year high in 2016

Buoyant on big-ticket acquisitions, Indian M&A activities touched a six-year high in 2016 and deal values clocking $56.2 billion, the highest since 2010. The robust M&A momentum is expected to continue through 2017, owing to continued positive macroeconomic outlook for the country, a sustained focus on reforms by the Government amid optimistic investor sentiment.

A resilient domestic economy and stable capital markets delivered robust M&A activity through 2016, while the year also registered the largest ever in-bound investment of $12.9 billion, according to EY’s analysis of M&A, ‘Transactions 2017’.

A total of 867 deals with a disclosed value of $56.2 billion was announced in 2016. While the deal value soared (87 per cent on YoY) to a new high since 2010, the volume declined marginally (2 per cent YoY). This surge in deal value owed itself to $12 billion-plus deals totalling to $34.4 billion.

The largest transaction of the year was the $12.9 billion acquisition of Essar Oil Ltd (98 per cent stake) and Vadinar Port by Russia’s state-controlled petroleum giant Rosneft Oil Company-led consortium. The oil & gas sector led in terms of the deal value, followed by the financial services sector. From a volume perspective, the technology, infrastructure and financial services sectors dominated, accounting for nearly one-third of the total announced deals in 2016.

“M&A activity in India was buoyant in 2016 with the announcement of several big-ticket deals. The momentum is expected to sustain in 2017 as the Government continues its focus to improve business and investment climate in the country. Sectors like technology, life sciences and financial services are expected to attract significant investor attention,” Amit Khandelwal, Partner and National Leader, Transaction Advisory Services, EY, said.

The year saw 505 domestic deals totalling $25.1 billion, the highest yearly value, accounting for 58 per cent and 45 per cent of the total deal volume and value, respectively. A significant momentum behind India’s M&A activity was driven by an increased consolidation across sectors as companies divested distressed assets in an effort to reduce debt. On the other hand, corporates with stronger balance sheets were seen deploying funds towards acquisitions and consolidating their market positions.

A total of 362 cross-border deals with a cumulative disclosed value of $31.1 billion were clocked in 2016. While the deal value witnessed an increase of 127 per cent YoY, the deal volume registered a decline of 10 per cent YoY. Inbound activity contributed significantly to this surge in value, in large measure to the $12.9 billion Essar-Rosneft transaction.

On the outbound front, the year clocked 158 deals with a cumulative disclosed value of $9.7 billion — registering an increase of 8 per cent in terms of volume and 160 per cent in terms of deal value. The oil & gas sector led in terms of total deal value, with two billion-dollar-plus acquisitions cumulatively contributing $5.5 billion. The outbound activity for the sector is expected to remain strong as the national oil companies will continue to scout for E&P assets in CIS, Latin America and Africa.

The US sustained its position of being the most active cross-border partner with a total of 93 cross-border deals (50 inbound, 43 outbound), followed by the UK (21 inbound, 23 outbound) and Singapore (16 inbound, 8 outbound).

The momentum behind the M&A activity is expected to stay robust through 2017, with domestic deal activity impacting positively on transaction dynamics. With scale expansion becoming a critical element of Indian corporates’ strategy agenda, consolidation is likely to dominate the M&A agenda across sectors. On the inbound-front, investments are likely to stay healthy given the attractiveness of the Indian economy. In addition, the recently announced proposal to abolish the FIPB in the Union Budget FY17-18 will further liberalize the FDI policy and encourage foreign investors.

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