M&A activity down 20% in July-Sept quarter: E&Y

| Updated on: Oct 09, 2012

Merger & Acquisition (M&A) activity involving Indian companies declined 20 per cent year-on-year in the July-September quarter to 161 deals against 202 deals in the year ago period, according to Ernst & Young.

In the reporting period, the total disclosed deal value also fell sharply by 51 per cent to $3.4 billion (6.9 billion).

According to Amit Khandelwal, Partner and National Director, Transactions Advisory Services, Ernst & Young, “The current economic environment both at the domestic and global level had its bearing on the Indian M&A activity in the last three months.

“Besides, several cash-rich companies are playing the waiting game. However, the recent flurry of policy reforms announced by the Government should boost investor sentiment and consequently, M&A activity in the coming quarters.”

Besides the current economic headwinds, E&Y, in its latest Transactions Quarterly report said the reasons for India Inc’s caution on foreign acquisitions could be the recent wave of resource nationalism sweeping the globe and a weak Indian rupee.

Further, international buyers were cautious on M&As in India due to mismatch in valuation expectations, decline in the country’s GDP growth and policy-related apprehensions.

In the reporting quarter, the highest deal value was due to a single outbound deal – Sahara India Pariwar’s acquisition of New York’s Plaza Hotel for $570 million.

The largest inbound deal of the quarter was US-based Hospira Inc’s acquisition of Penicillin and Penem active pharma ingredient (API) business of Orchid Chemicals and Pharmaceuticals for $200 million, said the report.

The technology sector recorded the highest number of deals (21) and third-highest amount of disclosed value ($494.5 million) for the quarter. The majority of the deal value in the sector was contributed by an outbound acquisition of the Swiss consulting firm Lodestone Management by Infosys for $348.8 million, said E&Y.

The US continued to be the most-favoured target destination in the latest quarter, especially for companies in the technology sector. Indian companies made eight acquisitions in the US collectively worth $585.6 million.

The global consulting firm said the Indian IT-BPO companies are buying out US-based BPO units in order to gain competencies in certain verticals, and strengthen their onshore presence and client relationships.

Domestic deal activity in July-September was flat at 93 deals (from 110 deals in the year-ago period). The disclosed deal value was also lower at $1.17 billion ($1.9 billion). Due to high borrowing costs, dormant primary market, weak industrial production, etc. Indian players are delaying their inorganic growth plans in the domestic arena.

Published on October 09, 2012

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