With the markets hitting new highs almost every day and an improving business sentiment, India Inc got on to the mergers and acquisitions (M&A) bandwagon closing as many as six deals worth Rs. 27,153 crore in just seven days.
The deal makers are expecting more such “frenzied” weeks and months ahead with domestic deals overshadowing both outbound and inbound deals due to the rising market sentiment.
“I don’t recall so much activities happening in just one week. Five deals in a week is unprecedented in our market. The market is in a frenzy and the deal making gathers more traction going forward if the rising bullishness in the economy is any indication,” Mahesh Singhi, founder and managing director of city-based boutique investment bank Singhi Advisors, told PTI.
“I see more deals between domestic companies as there are many low hanging fruits up for grabs. I also see this bullishness racing past next year as many more are in the making,” he said.
For the past three years, deals had almost been dried up in the country as sentiment was down, but since the beginning of 2014, investment bankers were working overtime and the results have started bearing fruits now, he added.
ICICI Securities, also sanguine about the deal market, says going forward the climate is conducive for more deals as there are many low-hanging fruits available in the market.
“With a strong economic outlook and markets showing positive signs, we have been seeing more discussions led by private equity firms for exits through going public or M&A. We are seeing corporates looking to strengthen growth through acquisitions,” said Anup Bagchi, managing director and CEO of ICICI Securities Ltd.
“Deal sentiment is quite positive. Global investors are very bullish about the country since the elections and I am very positive about more deals as there is scope for more consolidation in many sectors,” ICICI Securities M&A head Hemant Vora said.
Kotak Mahindra Bank clinched the biggest M&A deal in the nation’s banking history and also the biggest across the sectors so far this year, by snapping up ING Vysya last Thursday in an all-stock deal, valuing the troubled Dutch lender’s Indian franchise at Rs. 15,033 crore.
The second biggest deal was sealed by JSW Power when it bought 2 hydroelectric units of the debt-laden JP Associates for Rs. 9,700 crore in a cash and debt deal on last Sunday.
As per the Mergermarket data, the country saw $21.7 billion worth of M&A transactions in the first nine months of the year, up 22.4 per cent from the year-ago period.
With these four deals, M&A transactions in 2014 have surpassed the $22.3 billion in the entire 2013.
The deal street got spruced up last week when the debt-laden Jaypee group’s Jaiprakash Power Ventures – after failing to make RInfra walk the talk last month – managed to get JSW Energy to buy out its two hydel plants in Himachal Pradesh for Rs. 9,700 crore.
Last Thursday, Tech Mahindra shelled out Rs. 1,500 crore to snap up US-based global telecom network service provider Light Bridge Communications. The day also saw PE firms Everstone Capital and Solmark acquiring Servion Global Solutions for Rs. 403 crore.
This is the largest acquisition for Tech Mahindra after its buyout of Satyam Mahindra. So far, the Mumbai-based firm has acquired seven firms, including Satyam Computer Services, Hutchison Global Services and Comviva Technologies.
Headquartered in Virginia, Light Bridge is one of the world’s largest independent global providers of network engineering services to the telecommunications industry.
On Friday, Kishore Biyani’s Future Group announced buying Chennai-based Nilgiris’ convenience store chain for about Rs. 300 crore and in the evening a Rs. 213-crore deal was finalised by Ahmedabad’s pipes and fittings maker Astral with smaller rival Resinova Chemie for buying 76 per cent stake.
Last Thursday could be termed the biggest day in the recent history of M&As in the domestic market with the Kotak and TechM deals alone constituting nearly two-thirds of total deal size of the week, notching up as many as Rs. 16,936 crore.
“Consolidation, especially among the private sector players, is probably the quickest and most efficient way forward to attain the size and geographical coverage to compete for retail customers in a growing economy,” said Aman Bhargava, director of financial services advisory at Grant Thornton India.
On the Kotak-ING deal, Ashvin Parekh, managing partner at Ashwin Parekh Advisory Services, said it is good for Kotak Bank and signifies the much-needed consolidation in the banking industry.
“The deal is good for Kotak Bank from a strategic point of view. But we need to see whether it can retain its present RoA of 1.8 post-merger as ING’s RoA is only 1.2 now. Kotak Bank has to continue to ensure the efficiency it has having all these years to make a win-win deal,” Mr Parekh said.
Further consolidation in banking seems imminent with the State Bank of India (RBI) planning a merger of its five associates.
Power is a sector where consolidation is a continuing theme. In August, Adani Power acquired the 1,200 MW Udupi thermal power plant from Lanco Infratech for Rs. 12,000 core.
Telecom is another area where consolidation has been long overdue, but for awaiting regulatory clarity.