The M&A activities recorded a fall in the first quarter of 2019, with the January-March period posting a 33 per cent decline in value terms at $12.5 billion compared with the same period last year. The deals during the period also registered a 7 per cent fall in volume terms with a total of 110 M&A deals.
The drop can be attributed to the delays in the execution of the deals, growing complexity in deal structures and macro-economic factors such as upcoming elections, global economic conditions and the uncertainty around Brexit dampening investor sentiment, according to a study by Grant Thornton.
However, the quarter recorded a marginal increase in deal activity as compared to sequential fourth quarter (Q4 of 2018). This is due to various factors such as the Insolvency and Bankruptcy Code (IBC), divesting non-core assets that have no synergies with larger group companies, separation of ownership from operating businesses especially in roads, infrastructure, power, telecom and hospitality sectors.
The January-March quarter recorded an encouraging trend with 2 per cent increase in deal values and 7 per cent in volumes as compared with Q4 2018, demonstrating a positive and promising sentiment.
“Although we entered into 2019 with substantially less momentum with 110 M&A deals worth $12.5 billion, compared with 118 deals worth $18.7 billion in Q1 2018, some big deals announced this year, including Arcelor Mittal’s acquisition of Essar Steel for $7.2 billion, Radiant Life Care’s merger with Max healthcare for $1 billion has provided some encouragement, that the outlook for M&A will be healthy despite a drop,” Pankaj Chopda, Director at Grant Thornton India said.
“Strengthening market position through consolidation and geographical expansion along with monetisation of non-core assets to strengthen the core business were the key drivers for the transaction during the quarter. We also expect to see an uptick in the M&A deal activity across domestic, inbound and outbound segments spurred by action from the financial services sector to minimise NPAs, and the US-China trade war being favourable in boosting India’s manufacturing exports,” he added.
While the M&A activity witnessed a declining trend over the previous quarter and Q1 2018, values increased exponentially in March 2019 with over five times as compared to March 2018.
The month also recorded the highest values in the last seven months on the back of eight high value transactions despite a 6 per cent fall in volumes. Two billion dollar deals were recorded in Q1 2019, one each in the manufacturing sector and pharmaceuticals sector and 15 deals valued and estimated at over $100 million each. These together contributed 93 per cent of the total M&A deal values and 15 per cent of the M&A deal volumes demonstrating an appetite for big ticket deals amidst other uncertainties, it added.
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