Deal making has shifted gears. The size of an individual merger and acquisition (M&A) deal as well as the number of such deals have plunged significantly this year.
While volume has shrunk by 10-20% year-on-year, indicating a clear slowdown on deal street, their values have crashed by 60% for the January-July period due to lack of bulge bracket M&As.
Private equity (PE) deals have also hit a low with the total value of transaction dropping to $650 million as against the two-year monthly average of $1-1.5 billion.
July was the worst month for M&A this year, 43 deals worth $583.95 million were sealed compared with 51 deals worth $5.35 billion in June. Previously, there were more cross-border deals than domestic M&As. Within overseas deals, there were more Indian companies buying firms abroad than MNCs acquiring local companies.
This takes the number of M&A deals during the first seven months of 2008 to 315, with an announced value of $18.10 billion against 394 deals worth $44.91 billion during the corresponding period last year, according to the latest dealtracker by Grant Thornton. The value of deals have crashed due to the base effect. Last year, the picture was skewed due to three large deals Tata-Corus, Hindalco-Novelis and Vodafone-Hutch.
Grant Thornton partner corporate advisory services CG Srividya said: “M&A deals have come down in value terms in July. But we need to wait for another 2-3 months for a clear picture. If the monthly average of M&A deals continue to be at the sub-billion dollar level, only then will it be worth worrying. As far as the volumes is concerned, the picture is a little better. While it (the number of deals) has come down, it has not crashed which means deals are happening but their size is smaller.”
The most significant M&A transactions last month were in the ITeS space: WNS’s acquisition of Aviva Global Services and Quatrro BPO Solutions’ acquisition of majority stake in the UK-based Babel Media.
Besides M&As, the activity of private equity funds has also slowed down. The total value of PE deals announced in July stood at $650 million as against $1.15 billion in June. This takes the total number of PE deals during the first seven months of 2008 to 215, with an announced value of $7.74 billion against 224 deals amounting to $9.52 billion during January-July 2007.
One of the reasons why PE deals have slowed down over the last few months is the correction in the real estate sector. While PE firms are still investing in the sector ,the size of the transactions have dropped. Some of the bigger PE deals of last month include WL Ross-SpiceJet, Genesis-Welspun Gujarat Stahl, JP Morgan-BPTP, TAIB Bank-Anant Raj and Sun-Apollo Ventures’ investment in a special purpose vehicle of Amrapali Group.
Source: Economic Times