Sachin Date, who is a Transaction Advisory Services Partner specialising in private equity transactions at Ernst & Young’s London office, says, a significant amount of caution still exists and that the days of “business as usual” are over. His key private equity clients include Advent International, Cinven, CVC and Warburg Pincus. On his brief visit to India, Date talks to VCCircle on the M&A outlook and the need for a new capital agenda for boards. Edited Excerpts:-
What is your assessment of the current M&A environment?
There is a lot of interest on the M&A side. There is significant action in the market and we will probably see a lot of deals in the next 18 months in various parts of the world. In the European markets, there are deals picking up on the private equity and leveraged buyout side. In the Indian markets, it is more equity-based but the M&A market is growing. There is a fundamental need for a new capital agenda. The changes we have seen in the market have transformed the corporate relationship with capital. It (capital) is no longer cheap and it is not readily available — and this will be the “new normal” for the future.
Which sectors do you think will lead the M&A action?
Banking & Financial services is seeing a lot of activity. Governments have spent trillions on bailout and stimulus packages, the unwinding of which will impact economies. Utilities continue to be a very big sector with demand for oil & gas only increasing. Infrastructure is another space as infrastructure of the developed world needs to be replaced and that of the developing world needs to be built.
What are the significant trends in M&A in the post crisis world?
There is certainly caution in the market. The ideas that reach the table don’t necessarily win the confidence fully. But, at the same time, there is also a realisation that they have to go out and get companies to achieve growth. Traditional approaches will no longer suffice for those gearing up to transact. Certainly, the 2007-2008 levels do not exist anymore, where one could see repeat billion-dollar deals. A mid-sized number of about $400 million is more digestible. The developing world is certainly on the agenda. Also, as companies seek to manage increased risk and conserve capital, JVs and strategic alliances are also being seen on the rise.
Some of the big PE firms are your clients. Why don’t we see major deals from them in India?
I don’t really think that they are on the sidelines or downsizing their operations. The fact is that due diligence has become tighter. Any opportunity coming from India is weighed against an equal and opposite opportunity coming in globally. But they will continue to make deals in India.