Average deal size has reduced due to the ripple effect created by the e-commerce boom and increased investor interest in start-ups, the Grant Thornton report says.
The value of mergers and acquisitions (M&A) in the country shrunk for the first time since 2012 to $15.8 billion with 277 deals in the first six months of the current year, says a report.
Deals worth $17.1 billion took place in the Indian M&A market during the first half of 2014, according to the report by tax and advisory firm Grant Thornton. M&A activity was down 7.6% in first six months of 2015 compared to the same period last year.
The number of deals, however, has climbed compared to H1 2014. In the first six months of 2015, 277 M&As were signed, as against 269 in the same period a year ago.
"Inbound deals have increased in terms of value and decreased in terms of volume while outbound deals have not witnessed too many big ticket deals, as volumes have increased while deal values have decreased," the report said.
Besides, private equity (PE) deals witnessed a surge with execution of 462 deals worth $7.1 billion, in the first six months of this year.
About 285 transactions amounting to $5.1 billion took place in first half of 2014.
"It (PE deals) has seen substantial growth in terms of volume and value, even though average deal size has reduced due to the ripple effect created by the e-commerce boom and increased investor interest in start-ups," the report said.
Combined, the Indian market saw deals worth $22.8 billion (739 deals) in first half of 2015, as against $22.3 billion (554 deals) in the year ago period.
"The overall deal environment which got activated last year by a stable and assertive political regime is likely to gather further momentum as corporates revive investment cycles," Grant Thornton India partner Sumeet Abrol said.
Energy and natural resources, IT & ITeS and manufacturing topped the sector in M&A deal space.
"The IT & ITeS space grew on the back of strategic consolidation amongst e-commerce firms and inorganic diversification amongst technology players," the report said.
"The manufacturing sector saw large ticket deals with six deals above $100 million," it added.
IT and ITeS, banking and financial services and pharma and healthcare sectors drove the private equity investment activity in first half of 2015.
"Investments in the financial services sector were driven by micro finance companies which have seen increased investments since the beginning of this year, aided by the recent RBI announcement on increased lending limits," Grant Thornton noted.
Grant Thornton India partner Prashant Mehra said that e-commerce players "despite being at a cash burn stage but having users, traction and Internet traffic, are attracting investors".
"PE firms are increasingly investing in start-ups which was a space exclusively dominated by venture capital funds /angel investors/HNIs," Mehra said.
As per the report, the government''s actions on key policy issues and reforms such as ITP for tech start-ups, land acquisition should improve the business climate in India and therefore help accelerate the transaction activity.
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