Three months after the global stock market crash, companies are back to striking merger and acquisition (M&A) deals, but private equity (PE) firms have clearly retreated into a shell. The data for May shows that while M&A volumes have pretty much clawed back to the monthly average for 2007, PE deals shrank to a 3-year low in May after hitting an all-time high of 60 transactions in January this year.
There were a total of 48 M&As, with an average ticket size of $51 million, which were strategic in nature involving Indian firms either as an acquirer or the target as per the latest dealtracker by advisory firm Grant Thornton. This included 25 cross border deals, of which 17 were outbound worth $1.58 billion and 8 were inbound deals adding up to $630 million, besides 23 domestic deals with an announced value of $240 million.
While there was no frenetic activity for strategic M&As, the month of May recorded the second-highest deal volume during the past five months, marginally below the 56 deals announced in January. The total number of M&A deals during the first five months of 2008 stands at 214 with an announced value of $13.19 billion.
Says the chief financial officer of a mid sized industrial firm which recently announced an overseas acquisition: “It is the best time to acquire companies from a strategic viewpoint as valuations are reasonable. Though there are concerns of a slowdown which could impact demand, anyone with a long-term strategy would see it as an intermediate downturn in a business cycle.”
However, the volatility in the market, which reflects on corporate valuations, is keeping the PE firms from signing the term sheets. The PE deal volumes have dropped to just 14 in May, a level last seen in 2005 when Indian companies were just warming up to PE investment.
In fact, there has been a decline in the number of PE deals since March even as few high value deals have catapulted the average PE deal size to $103 million last month. Says Grant Thornton, partner(corporate finance) Harish HV: “While many more PE firms are now in the market, they are taking more time to close the transaction given the state of the markets and valuations.”
While PE deal volumes have dried up, there were a few big size deals: Providence picking a stake in Aditya Birla Telecom for $640 million, Symphony Capital investing $450 million in DLF Assets besides a Goldman Sachs’ unit investing in M&M for $175 million.
Sectors which attracted PE firms included telecom, pharma, media, IT & ITeS, automotive and real estate & infrastructure management. In total, for the first five months there have been 170 PE deals announced in India with an announced value of $6.39 billion as against 159 PE deals worth $4.97 billion which were announced during the same period last year.
The total number of all equity deals announced during the January-May period this year now stands at 384 deals worth $19.58 billion spread across M&As and PE transactions.
Source: Economic Times