Slowdown in mergers & acquisition (M&A) activity appears to have bottomed out even though private equity (PE) transactions are yet to bounce back.

The July-September quarter 2009 has reported higher M&A activity both in terms of volume and value of deals compared to the same period last year.

Significantly, this is the first quarter this year when there has been a growth in either deal numbers or the value of the announced transactions compared to the corresponding period in 2008.

The total value of M&A deals struck in the July-September 2009 quarter is pegged at $2.4 billion spread across 87 transactions, according to data from VCCEdge, the financial research platform of VCCircle. Compare this to M&A deal value of $1.7 billion across 82 deals in July-September 2008.

This takes the total value of deals in the first nine months of 2009 to $6 billion through 243 deals. However, the year to date M&A activity is still much lower compared to last year when the first nine months reported M&As worth $11.6 billion led by large transactions such as Daiichi Sankyo acquiring Ranbaxy with a total deal volume was 333. But, compared to the third quarter (July-September) last year, M&A deal volume has risen 6% and value has shot up 33%.

The cross-border deal picture is showing a clear trend where Indian companies have turned cautious on investing abroad. That could be due to the relatively poorer economic growth forecasts in the West. Investment bankers, VCCircle spoke to, feel that the distressed assets which are available now will be there for at least two years and they expect valuation to remain as much as now, if not more attractive in the future.

For instance, in the first nine months of the year, value of outbound M&A deals is down by 90% compared to last year when it stood at $7 billion and the number of such deals has more than halved from 131 in January-September 2008. The inbound M&A deals has increased around 20% in volumes and remained more or less at the same level as last year in value.

The sectoral picture is skewed towards manufacturing when it comes to deal volume with around one in five or 47 M&As involving manufacturing companies. Other top sectors in terms of deal volumes were IT/IT Services with 31 deals (the sector also dominates PE deals) followed by banking, finance & insurance (29), energy (15) and mining & metals (14).

But, in terms of value of M&A deals, there is more parity among the top five sectors: Pharmaceuticals & research ($951 million), manufacturing ($873.79 million), IT/IT Services ($829.03 million), energy ($819.56 million) and telecom ($742.4 million). Telecom and energy were also among the top sectors in attracting PE money.

Notably, agriculture, digital media and logistics are three sectors which are recording a significant number of M&A deals (as also PE deals) even though the deal values in these three sectors are much lower.

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