The country witnessed subdued mergers and acquisitions(M&A) in 2013 and the situation is unlikely to change drastically in the January-March quarter, experts said.
This year, there were 480 M&A deals worth $27.4 billion, lower both in volume and value than the deals struck in 2011 and 2012. M&A deals’ value dipped 23% on-year, while volumes fell 20%, in line with expectations. Experts attribute this to economic slowdown, fiscal pressures, the rupee fall, runaway current account deficit (CAD) in the early part of the year and political uncertainty relating to the 2014 general elections.
Harish HV, partner, India Leadership Team, Grant Thornton, said, “India Inc continued its quest for outbound investments, investing $11 billion on fewer deals, indicating that the average deal size is up. In-bound investment has suffered compared to previous years, in line with foreign direct investment (FDI), indicating weaker faith of new investors in acquiring companies in India.”
Typically, M&As happen either in a very buoyant environment or amid too much pain. “People still believe India is a growth market. Robust domestic consumption remains. Fast-moving consumer goods or FMCG, pharma, healthcare, financial services and information technology saw most M&A activity. Because of debt overhang in sectors like infra, companies were looking to offload stake or restructure,” said Avinash Gupta, national leader and head - financial advisory services, Deloitte.
The coming (January-March) quarter will continue to see subdued M&A activity, he said. “Based on the election results and market sentiment, we believe there would be a big uptick in M&A thereafter,” said Harish.
Experts feel 2014 will be very much about inward M&A. “When your home market is stretched and there is so much pain, there is no question of going out. Domestic consumption story will remain; pharma, IT will continue to see activity. If regulatory environment gets better, then infrastructure may also see some action,” said Gupta, adding that consumer services can be scaled up fast and exited easily.
As the number of funds having an ability to invest is falling, Indian corporates may look to sell their stakes in over-stressed assets and non-core businesses. “So PE (private equity) firms will look for such buyout opportunities where corporate assets are being divested,” Gupta said.
Experts said the big story for 2013 certainly was growth in investment in spite of difficulties in PE exits, issues between promoters and investors, and the rupee depreciation.
“Funds have had huge pressure to exit and give returns. Businesses have not performed, values have gone down. So even if they wish to exit, they can’t.
No strategic investors are available. Initial public offering, or IPO, is generally the primary avenue for such firms to exit stressed investments, but right now, the IPO market is also bad,” said Gupta.
Ashish Chugani, head of investment banking, Centrum Capital, expects revived interest in capital goods companies because valuations look attractive, given the prospect of a revival in capex investment by companies and a boost to infra spending by the government.
“I feel consumer-based themes will see a decline because valuations are rich. However, healthcare will see continued interest due to immense opportunity in the sector. As for internet commerce, there will be continued interest from investors but I feel valuations will come down and consolidation will happen,” said Chugani.