Telecom was the most-favoured sector for mergers and acquisitions in India in the 2005-11 period, accounting for over one-fifth (21.3 per cent) of the total deal value.

The cumulative value of M&A deals during the seven-year period was $225 billion, as per data provided by research and consultancy firm Grant Thornton.

However, oil and gas is fast-emerging as the sector of choice for high value acquisitions or mergers in India: In the post-crisis 2009-11 period, oil and gas M&A transactions were responsible for 28.7 per cent of the value of deals inked during the period. In contrast, the telecom sector enjoyed 21.7 per cent of the total proceeds.

Merger and acquisition activity in the oil and gas sector was not a regular feature during the years leading up to the 2008 global financial crisis.

The sector witnessed M&A deals valued at around $5 billion during the 2005-2008 period, less than 5 per cent out of the total tally of $118.7 billion. This was far less than sectors such as pharma, healthcare and biotech; energy and power and IT & ITeS.

Hot sector for M&As

But in the post-crisis period, the oil and gas sector witnessed a surge in merger and acquisition interest, which culminated in more than one multi-billion deal, including the UK-based Vedanta Resources buy-out of a majority stake in Cairn India for $9 billion and British Petroleum’s acquisition of participating interest in oil and gas blocks operated by Reliance Industries Ltd for $7 billion.

Biotech, pharma and healthcare has remained a hot sector for merger and acquisition activity during the 2005-11 period, accounting for nearly 9 per cent of the deal activity.

It managed to increase its share of the total M&A proceeds from 8.7 per cent in the four years, leading up to the global financial crisis to 9.3 per cent in the three years after 2008. In contrast, the IT sector has seen its share dip from 8.9 per cent in the pre-crisis period to less than 7 per cent after the crisis.

Shift to outbound activity

The average size of M&A deals has oscillated around the $70-million mark during the 2007-11 period.

From $76 million in 2007, the average deal size fell to $68 million in 2008 and plummeted further to $36 million in 2009. In 2010, there was a sharp recovery in the average deal size to $75 million, but it again fell to $69 million in 2011.

One of the trends that has emerged has been a shift in the focus of M&A from outbound deals to inbound activity. Around 30 per cent of M&A activity was inbound in 2007.

This rose to around 50 per cent in 2008 and further to over 70 per cent in 2009.

There was a reversal in 2010, when the value of inbound deals fell to around 20 per cent of total M&A value. But in 2011, inbound M&A activity accounted for about 70 per cent of the deal value.

> arvind.jayaram@thehindu.co.in

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