Spurred by a round of consolidation at home, merger & acquisition deal values jumped more than six-fold in January 2018, compared to the same period last year.
According to Grant Thornton India LLP (an assurance, tax and advisory firm), January 2018 saw 27 domestic M&A deals worth $12.6 billion – 8.2 times more than $1.6 billion worth of deal across 23 transactions in Jan. 2017. In fact, the domestic M&A deals in Jan 2018 were more than twice the total domestic deals worth $5.6 billion clinched across the twelve months of 2017.
In 2017, India Inc. had registered an 8.4% plunge in the total value of mergers and acquisitions (M&A), falling to $40.2 from $43.9 billion in 2016. However 2018 seems to be the year when a course correction could happen.
Four domestic deals valued over $1 billion, were the primary drivers of January’s bumper performance. The deals were the state-owned Oil & Natural Gas Corporation’s $5.8 billion deal for a controlling stake in another state-owned oil refiner – Hindustan Petroleum Corporation; Reliance Jio’s $3.8 billion acquisition of the wireless infrastructure assets of Reliance Communication; Adani Transmission’s $2.9 billion Mumbai power business acquisition from Reliance Infrastructure; and the IDFC Bank –Capital First merger worth $1.5 billion.
“With acquisition to scale becoming a critical element of Indian corporates’ strategy agenda, consolidation deals are likely to gain further prominence across sectors,” says Prashant Mehra, Partner at Grant Thornton India, in the firm's annual Dealtracker report for 2017.
Mehra also says that the momentum behind the M&A activity is expected to stay robust through 2018, with domestic deal activity creating a positive effect on transaction dynamics. “2018 will perhaps be one of the best years for M&A with transaction activity closing at an even higher level than 2017."
Talking of Jan. 2018, Pankaj Chopda, Director at Grant Thornton India says that deleveraging the asset holding companies and strengthening the market position appeared to be the motive for the large domestic/merger transactions.
“Debt leveraging, insolvency proceedings and pressure to strengthen / retain market position will continue to drive M&A transactions in energy and natural resources, industrials and banking and financial services sectors,” says Chopda.
Interestingly, overleveraged steel plants are up for grabs and that along with other assets’ sales for deleveraging would push mergers & acquisitions to set newer records in 2018.