Mergers & acquisitions’ activity in 2012 failed to live up to the expectations raised in the previous year, which saw a surge in such deals, particularly inbound.
In 2012, deals fell both in value and volume terms, thanks to the ongoing euro zone crisis, slow recovery in the US, a weak rupee and a volatile stock market.
According to Grant Thornton, an assurance, tax and advisory firm, the period from January 1 to December 15, 2012 witnessed 582 M&A deals, totalling $41.5 billion, compared to 644 deals worth $44.6 billion in 2011. The 2012 figures include mergers and internal restructuring of $14.8 billion, bereft of which deal value fell as much as 39%.
“At the start of the year, we were hopeful of several transactions happening,” said Raja Lahiri, partner, transaction advisory, Grant Thornton. “The optimism sprang from the experience in the last two years, when there was a big interest in inbound deals from Japan, the US and Europe, riding on the India growth story.”
Value of inbound deals fell sharply to $7 billion compared with $29 billion in 2011 and $9 billion in 2010. “The triggers (for the slowdown) were there from the first quarter, when the GDP growth slowed. The second trigger was the Vodafone tax issue, and the GAAR amendments proposed in the Budget. The issues surrounding telecom were a dampener, too.”
But the year has been a landmark one for corporate India, when companies that borrowed heavily to fuel expansion came in for a reality check, bogged down by slowing cash flows and high interest rates. Mounting debt also forced some promoters to sell part of their assets. Vijay Mallya, who shut down operations of his ailing airline Kingfisher, sold 53% in United Spirits to Diageo for around $2 billion while Kishore Biyani sold a controlling stake in Pantaloon to Aditya Birla Nuvo in a R1,600-crore deal.
“Deal-making lost its momentum in the middle,” said Amit Khandelwal, national director and partner, transaction advisory services, Ernst & Young.
In private equity, the challenge was in the form of timely exits, he added. “Exits are taking longer, and there is a mismatch in valuation, although that gap has reduced from 70% to 30% this year,” said Khandelwal.
However, the second half was different. “From July, the environment turned positive, since the government took the right steps towards reforms. The deferring of GAAR and formation of the Shome committee are positives,” said Grant Thornton's Lahiri.