The financial meltdown has dampened the merger and acquisition spirit in India with companies and private equity (PE) players adopting “extreme caution” in dealmaking. The sudden market crash in the face of a liquidity crunch has impacted M&A plans with some deals even falling apart.
Experts at top consultancy firms told TOI that the current sentiment in the M&A space was of “wait and watch” with no company in a hurry to rush through deals. “There are a lot of people who are sitting on cash. But most are in a wait-and-watch mode and are taking time to decide,” Pankaj Karna, Head M&As at Grant Thornton, said.
Karna said while good companies are generating interest among suitors, the meltdown had seen the collapse of many deals-in-the-making. “There has been a good excuse for investors to re-negotiate… We have come across situations where due to the changed market conditions, people got cautious and held off (from previously negotiated deals),” Karna added.
Sanjeev Krishnan, executive director at PricewaterhouseCoopers, said the existing negative sentiments are estimated to have slowed down the M&A activity by 30-40%. “It could be even more. The sentiment remains low as the economic environment is challenging and the credit squeeze means companies do not have funds to buy,” he said.
Krishnan, however, said the difficult situation and uncertain outlook was prompting many companies to shed the flab and concentrate on core areas. “If two or three businesses out of a total five ventures of a promoter are not making money, he is now trying to get out of the non-performers rather than invest further. People want to channelise resources and money where it is actually required,” he said.
Rohit Kapur, head of corporate finance at KPMG India, agreed that instead of scouting for new buys, companies were now looking at exiting some not-so-performing businesses while strengthening core operations. “The board room talk is more on raising efficiency of existing business rather than inorganic growth. They are saying let's reassess our portfolio and see what is competitive and what to monetise to feed the core business,” he said.
Interestingly, while the market crash has meant that previously-high valuations now become sober, many of the promoters are still unwilling to accept the new reality. “Even if they want to exit, many promoters are still reluctant to accept lower valuations,” Kapur said, adding that the domestic market could see consolidation in many sectors.
Grant Thornton had pegged the average deal size in M&As at $77 million last year while it was $44 million in PE. Kapur forecasted that average deal sizes would reduce in the coming months while the absolute number of deals would also come down.
Ranjan Biswas, partner at Ernst & Young India, said the appetite for deals was “very low” and promoters were looking to strengthen operations before cashing out. “Even those who want to sell are waiting and building valuations. Nobody wants to sell cheap,” he said.
He said companies that were caught in the middle of the credit squeeze were postponing growth plans by some months. “But many are looking for alternate methods like joint ventures or strategic alliances,” Biswas said.
Source: Economic Times