The string of big ticket deals struck by India Inc in the last three months has created a new milestone for deal street. With the cumulative value of the deals announced during the first quarter of 2007 pegged at a staggering $42 billion, the merger & acquisition(M&A) to gross domestic product(GDP) ratio now stands around 18%.
The significance of the ratio can be gauged by the fact that during the dotcom boom—when M&As were pumping strong—the corresponding global average peaked at about 10.5%. According to some international reports, citing other data sources, the global ratio of M&A to GDP ratio during Q1 stood at about 8.8%.
Says Grant Thornton, partner(corporate finance), Harish HV: “The deal value to GDP figure appears pretty notable as in the past it was less than 1%. However, it would be even more significant if the ratios for domestic deals to domestic GDP rises, which is still small as a majority of the transactions are being driven by cross border deals.” The latest Dealtracker data of advisory firm Grant Thornton, puts the total value of equity deals announced by India Inc in the January-March period at $42 billion.
Since the GDP figure for Q4 of FY’07 is unavailable, we considered the advance estimate of the Central Statistical Organisation’s GDP at market price for 2006-07 which is pegged at Rs 41,00,636 crore. At current exchange rates, this works out to be about $ 952 billion. On a quarterly basis this translates into roughly $ 238 billion. The deals to GDP ratio on a quarterly basis works out to be a phenomenal 17.6%.
Out of the total deals announced by India Inc during the quarter, $38.9 billion represent strategic M&As including the big ticket Tata-Corus, Hindalco-Novelis and Vodafone-Hutch deals. In March there were 54 M&A deals announced worth $2.14 billion. The big ones last month were Tata Power’s $1.1 billion deal for a strategic stake in coal assets in Indonesia and Havell’s $300 million deal to acquire Frankfurt based lighting company SLI Sylvania.
The remaining $3.1 billion of equity deals last quarter is accounted by private equity(PE) transactions, according to a Grant Thornton report. This marks a spike from just $1.3 billion worth of PE deals during Q1 of 2006.
Private equity transactions also marked a comeback in March after a relatively weak February. There were a total of 45 PE deals totalling about $928 million in March. While PE deals have been gaining ground they have been overshadowed by the size of the strategic acquisitions in India.
The one difference between the global and domestic scenario is the characteristic of PE deals. While globally PE deals are led by buyout funds which are also counted as M&As, in India a majority of PE deals are restricted to picking minority equity stakes by the PE funds.
Source : Economic Times