‘Domestic M&A deals saw 27% rise in January-March quarter’

Home-grown investment banking companies are witnessing some amount of turbulence as corporate India is battling with a debt pile-up. During his visit to Bengaluru, Mahesh Singhi, MD of Singhi Advisors, a mid-sized i-banking company, spoke to BusinessLine on cause for the slowdown, the investment climate in India and the changing outlook of Indian corporates when it comes to acquisitions. Excerpts:

Has M&A slowed down with the kind of debt pile-up by corporate India?

The traditional inbound deals, involving overseas companies that want to enter India and Indian companies wanting to go abroad have certainly slowed down and corporates think twice today before they take such calls. An enormous debt pile-up by corporate India and a weak rupee are not proving to be major impediments for financially strong Indian companies to pick relevant assets. Easing of FDI in several crucial sectors and opening of the stressed assets space to foreign players will provide the much-needed fuel to inbound M&As. Increased growth momentum, clarity in regulatory mechanisms, increased capital market activities and access to capital at increased valuations will also trigger renewed outbound M&A activities in certain sectors like pharma and IT.

However, domestic M&A (deals within Indian players) has increased substantially, particularly involving deals where companies are under financial stress like JayPee, GVK. Backed by some high ticket deals, the aggregate mergers and acquisitions (M&A) deal value in India surged to $7.8 billion in the first quarter of 2016, a rise of 63 per cent as compared to the first three months in 2015.

Is corporate India weary of M&As following the troubles they are facing in almost all the investments they made in the past decade?

No. Unlike in the past, where Indian corporates were relentlessly chasing outbound deals backed by strong capital flows and ever rising valuations, the market has taken a corrective path, penalising corporates for their risky or irrational acquisitions while rewarding companies pursuing a rational acquisition strategy. Prudent fiscal analysis has become a norm of the day for corporates following a decade of erroneous investments and diminished returns.

With initiatives like Digital India and the Start-up India campaign injecting a new entrepreneurial spirit in the country along with improved health of public finances, the entire M&A ecosystem is acquiring new paradigms. With soft commodity prices coupled with relaxed FDIs in key economic sectors and regulatory mechanisms made more transparent and less stringent, Indian corporates are largely warming up to increased inbound, outbound and domestic M&A investments.

So, do you think the M&A market will still be dominated by domestic deals with the flurry of cheap assets?

Yes. Domestic M&A deals have dominated in the January-March quarter with 149 deals at a disclosed value of $5.2 billion out of a cumulative 245 M&A deals. There was a 27 per cent rise in the domestic M&A transactions in the first three months of the year, as compared to the same period in 2015. With banks pressurising debt-laden companies to put their assets on the block, the domestic M&A space is expected to witness an influx of cheaply priced assets. With an increasing number of companies wanting to offload their non-core assets with an aim to cleaning their balance sheets, buyers are expected to throng the markets in large numbers to acquire them.

Is the optimism largely due to the investment climate in the country?

It is on revival mode. Inflation is coming under control, nod for big infrastructure projects and other policies including Bankruptcy and Insolvency Bill to accelerate the pace of insolvency proceedings for sick companies have helped.

Which are the sectors that look promising?

Construction has emerged as the hot pick in value terms with two top transactions in the sector totalling $3.1 billion. Another sector which is grabbing eyeballs is transportation with 11 M&A deal announcements valued at $732 million.

Renewed interest in the renewable energy space is expected to spawn a new slew of M&A deals with investors moving away from the traditional oil and gas sector.

The smart cities initiative of the government is expected to accelerate M&A activity in the infrastructure sector, going ahead.

Investors are increasingly focussing on pharmaceutical or biotechnology, healthcare, specialty chemicals, building materials, consumer markets and technology.

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