18 Jan 11 M&A back with a bang in 2010
With the recovery in stock markets and overall economy, calendar year 2010 saw investment bankers smiling all the way to the bank as Indian M&A activity increased by nearly 80% over the last year and by more than 100% over calendar year 2008. As per ISI emerging markets database, 392 deals were announced in the year 2010 as compared to 220 for the year 2009 and 183 for the year 2008. Net deal value (excluding undisclosed deal values) amounted to USD 43bn in 2010 while it was only USD 27bn in 2009 and USD 36bn in 2008.
Out of these, 173 were domestic deals amounting to a deal value of USD 21.8bn, 76 were outbound deals where Indian companies acquired a foreign target (deal value USD 10.7bn) while 143 inbound deals saw Indian companies being acquired by foreign firms (deal value USD 10.8bn). Strong corporate balance sheets and an improving environment for acquisition finance have been the positive drivers for the increase in outbound deals (76 in 2010 as compared to 35 in 2009) as more and more Indian companies fish for acquisitions overseas. Indian securities markets have performed well in 2010, providing a range of financing opportunities, including issuance of novel hybrid securities.
The biggest M&A deal announced in 2010 was, Vedanta Resources Plc, the UK-listed metals and mining company, agreeing to acquire between 51%-60% in Cairn India, the listed Indian oil and gas company for USD 9bn. Other major deals were Essar energy Plc acquiring Navabharat Power Pvt Ltd, the 2,250 MW coal-fuelled power plant in Orissa for USD 2bn, Oil & Natural Gas Corporation Ltd acquiring ExxonMobil’s Angolan oil field for USD 2bn and Reliance Industries Ltd acquiring 65% of Value Creation Inc, the Canada based company with oil-sands assets for 1.9bn.
Sector wise breakup of the M&A deals for the year 2010 shows that Oil & gas sector accounted for 29% of the total deal value while the Health & Pharma sector accounted for 12.93%. Electric power generation sector was the third highest contributor as it contributed 12.31% in deal value.
Interestingly this year saw corporate Indian look beyond their traditional target geographies of the US and Europe to hunt for deals in regions such as Africa and South America and closer to home, such as in Sri Lanka and Bangladesh when Tata communications acquired Sri Lanka’s second-largest land-based telephone company Suntel and Airtel acquired Bangladesh’s Warid Telecom. Most of the countries in South America and Africa are rich in natural resources and as several Indian companies (including public sector companies) are seeking to secure energy and raw material to achieve their expansion targets, these sectors and regions could see further larger deals being announced in 2011. But at the same time we could see an increase in the number of inbound deals as multinational companies realize that the slowing growth in their domestic markets requires them to be in emerging markets like India with a focus on sectors like consumer goods and pharmaceuticals.
So it looks like the Indian M&A sector is back on track again and I think it will continue to show a sustained growth in 2011, driven by India’s strong fundamentals and robust economy. I can already see the I-bankers rubbing their hands in glee!
Source: ISI Emerging Markets Database