Merger and acquisition and private equity deal activity in the country witnessed a deceleration in 2012 amid domestic and global economic worries. During the January-December 15 period, India Inc inked deals worth $48.7 billion, compared to $53.4 billion in the corresponding period of 2011 and $56 billion in 2010.

The deal mop-up during the January-December 15 was equivalent to 71 per cent of the achievement during the entire 2011 calendar year, according to research and consultancy firm Grant Thornton’s Dealtracker report. A total of 973 deals were inked during the period, less than in the same period of 2011, but more than in 2010.

Lion’s share

Of the cumulative value of deals inked in April-October, 2012, merger and acquisition activity accounted for the lion’s share of $41.5 billion, while private equity activity contributed $7.2 billion. This was in line with the trend in previous years.

But there was a sharp decline in the value of cross-border merger and acquisition deals during the period, which stood at $20.7 billion, down from $39 billion in 2011 and $31.5 billion in 2010.

What is more, outbound deals accounted for about two-thirds of the total cross-border transaction value. This was a divergence from the trend seen in 2011 — when inbound deals accounted for 91.3 per cent of the total transaction value — but in line with 2010 activity, when outbound deals were responsible for 71.5 per cent of cumulative cross-border deal value.

Big deals

Among the major cross-border deals that took place during the year was ONGC’s acquisition of an 8.4 per cent stake in the Kashagan oilfield in Kazakhstan for $5 billion and the UK-based Diageo PLC’s acquisition of a controlling stake in Vijay Mallya-promoted United Breweries Ltd for $2 billion.

Hong Kong and Shanghai Banking Corporation’s acquisition of the commercial and retail banking businesses of The Royal Bank of Scotland in India for $1.9 billion, ONGC Videsh Ltd’s purchase of a stake in Azerbaijan-based oil and gas assets for $1 billion and Rain Commodities Ltd’s acquisition of a 100 per cent stake in coal tar pitch manufacturer Rutgers NV for $915 million were the other highlights.

In addition, GMR Group’s $598 million reverse merger with Singapore-listed United Fiber and Infosys’ acquisition of Switzerland-based Lodestone for $349 million, besides Grasim Industries’ $360 million buy of Canada-based Terrace Bay Pulp, boosted the deal tally.

The value of domestic M&A deals during the April-October period stood at $6 billion, higher than the $5 billion worth of deals inked in 2011, but lower than the $7.3 billion total for 2010.

The major domestic M&A deals during the year include Piramal Healthcare’s acquisition of an additional stake in Vodafone Essar for $618 million, Lodha Developers’ $490.9 million purchase of DLF subsidiary Jwala Real Estate and TV18 Broadcast’s takeover of Eenadu Television Network for $395 million.

A substantial chunk of the M&A deal activity was due to internal merger and restructuring of companies, which amounted to $14.8 billion, more than a third of the total deal value in April-October.

This can be attributed to major restructuring and merger exercises that took place in the first six months of the calendar year, such as Sesa Goa’s merger with Vedanta Resources ($12.8 billion) and Tech Mahindra’s merger with Satyam ($1.4 billion). Internal merger and restructuring activities were valued at just $531 million in 2011.

Mining sector tops

An analysis of M&A activity reveals that mining was the top sector — with six deals worth $12.1 billion accounting for 29 per cent of cumulative deal activity — followed by oil and gas, which was 16 deals worth $6.9 billion, equivalent to 17 per cent of the total kitty. The IT and ITES sector took in 8 per cent of the total money on offer, while the pharma, healthcare and biotech industry got 7 per cent and breweries and distilleries 5 per cent.

Private equity deal activity was robust during the first ten months of the year, an improvement vis-à-vis the corresponding period of 2010, but lower than the mop-up in January-October, 2011. Volumes were also higher than the previous two years.

The PE deal value was primarily driven by Bain Capital’s $1 billion investment in Genpact during the year. The $150 million infusion by Naspers and Tiger Global in online retailer Flipkart and Ashoka Concession’s $150 million tie-up with Macquarie SBI Infrastructure Fund and SBI Macquarie Infrastructure Trust also contributed to the surge in PE deal activity, besides Blackstone Real Estate’s $200 million investment in three business parks of Embassy Property Development.

A break-up of PE deal activity shows that IT&ITES accounted for 28 per cent of the total mop-up, followed by pharma, healthcare and biotech (12 per cent), banking and financial services (10 per cent), real estate (10 per cent) and the power sector (5 per cent).

arvind.jayaram@thehindu.co.in

(This article was published on December 24, 2012)
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