Private equity funds swoop in as markets rise

Deal-making is supposed to pick up when stock markets are in a slump — when businesses are available at a bargain.

But the opposite has been true for India Inc, with corporate deals soaring along with the markets this year.

In April-November 2013, Indian companies inked deals worth $21.4 billion, up 61 per cent from the corresponding period last year.

Private equity (PE) funds swooping in on Indian targets dominated the deal scene, at $8.3 billion in the first eight months of this fiscal, from a little under $5 billion in April-November 2012.

“The increase in PE deal value is largely driven by some large buyout deals like the Blackstone-Agile deal, KKR-ATG Tires and Barings-Hexaware. There is clearly an emerging trend in the increase of buyout transactions by the large PE funds, especially global funds,” said Raja Lahiri, Grant Thornton Partner - Transaction Advisory Services.

Technology companies such as Hexaware, into which Baring Private Equity infused $400 million, saw PE buyers snap up stakes this year, as profits grew strongly helped by the weak rupee. E-commerce was a hot theme too, with Flipkart raising further funds from a consortium of investors.

Domestic deals

But Indian business groups indulged in some frenetic buying and selling, too. Domestic M&A activity registered an even sharper rise, surging 85 per cent to $7.9 billion.

Big-ticket deals in this space were UltraTech Cement’s $590-million purchase of Jaypee Group’s 5 million tonnes per annum facility in Gujarat and NTPC’s acquisition of a strategic stake in Nabinagar Power Generating Company for $412 million. Some of these deals were spurred by leveraged companies trying to raise cash through asset sales.

Cases of foreign companies buying out or infusing funds into Indian ones were fewer this year, with such deals declining 1.8 per cent to $3.7 billion.

“The moderation in India’s growth story, coupled with the weakness in overseas investor sentiments driven by the uncertainty in the tax and regulatory policies, has led to the decline in inbound transactions,” said Lahiri.

But there were still a few large inbound deals, such as the Mylan deal, Unilever’s acquisition of a stake in Hindustan Unilever and Diageo’s acquisition of United Spirits, which demonstrate the fundamental interest in India’s large market, he pointed out.

It is notable that overseas buyers mostly infused money into consumer-oriented sectors like consumer and pharma.

The largest deal that took place between April and November 2013 was Unilever’s acquisition of a 15 per cent stake in subsidiary Hindustan Unilever for around $3.1 billion, accounting for the bulk of the deal tally.

Etihad Airways’ $379-million stake buy in Jet Airways was another landmark deal, marking the first foreign direct investment in an Indian airline.

The value of a large number of inbound deals was never disclosed and, therefore, the tally could be higher.

Deal activity may increase next year depending on how much progress is made on reforms, said Lahiri.

“Elections in 2014, with the new government in place, are clearly expected to trigger new vigour and we expect increased deal activity post that. However, the key point would be implementation of reforms to increase FDI limits in specific sectors, certainty in the tax and regulatory framework which should bring in certainty in the minds of overseas investors”, he added.

> arvind.jayaram@thehindu.co.in

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