Our Bureau

New Delhi, Jan. 3

Mergers and acquisitions (M&A) are fast becoming a norm with India Inc. In fact, there were a total of 467 deals struck in 2005 as compared to about 360 in 2004. Of these, 343 were M&A deals and 124 private equity (PE) ones.

According to a report by consulting firm Grant Thornton, the total value of deals grew 48 per cent to $18.2 billion compared to about $12.3 billion in 2004. The average deal size (value per deal) was however close to $40 million. Meanwhile, there were more than 25 deals with deal value of over $100 million.

Telecom tops

The telecom sector was the clear leader in value, with large deals such as Essar Group's acquisition of BPL Communications, Vodafone's investment in Bharti Tele-Ventures, Maxis group's acquisition of Aircel, VSNL's acquisition of Teleglobe International Holdings (Bermuda), increase in stake by Essar group in Hutchinson Essar Telecom, among others.

The telecom sector commanded a one third share of all M&A deal value. The other sectors that significantly contributed to M&A value were energy, IT&ITES, steel and chemicals/plastics.

A noteworthy trend in the M&A transactions in 2005 was the high proportion of cross border deals to the total M&A activity, at 58 per cent of the deal value amounting to $9.5 billion and 56 per cent of the deal volume at 192 deals. There were more outbound deals (Indian businesses acquiring international companies) than inbound deals both in value and volume terms.

Global footprint

According to the report, while Indian companies have acquired several businesses overseas to get an international footprint, most of these outbound deals have been lower value deals showing that Indian businesses are treading carefully and minimising their risks through value buys.

The largest proportion of outbound acquisitions has been in Europe (50 per cent of deal value), followed by North America (24 per cent of deal value). USA and UK are the two countries that garnered the maximum outbound deal share, at 35 per cent of deal value.

Inbound deals were fewer in number and much higher in value.

PE deals grow

Private equity investments too saw substantial growth in 2005. From $1.1 billion invested in 60 deals in 2004, private equity investments have increased to $2 billion in 124 deals. The value of PE deals increased by 85 per cent in 2005, with more than 10 deals of over $50 million.

Sector-wise, pharma, healthcare and biotech emerged as the largest with 18.4 per cent share of all PE investment, having received $374 million in 19 deals. The other significant sectors were IT & ITES with 12 per cent of deal value, automotive with 9.6 per cent and banking and financial services with 9.1 per cent.

IT & ITES had the maximum number of private equity deals with 22 deals in 2005, followed by pharma, healthcare & biotech, banking & financial services, textiles & apparel and media & entertainment.

According to the report, significant developments in the private equity sector have included increased focus by many funds on larger and mature deals including PIPE deals across sectors; more fund allocations to India; international funds setting up establishments in India; and several funds looking for "change of ownership/ buyout" deals (in line with the global PE trend).

(This article was published in the Business Line print edition dated January 4, 2006)
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