Deal-making volume in India, in terms of private equity and M&A transactions, has reached a new high for CY2011 although the value has slipped by nearly 30 per cent (as compared to 2010) in the backdrop of tightening credit and looming Eurozone crisis.

Till Dec 10, 2011, the number of PE and M&A transactions reached 1,186 (worth $49.4 billion), showing the first cut numbers from VCCedge, the financial research platform of VCCircle. A total of 1,177 deals, valued at $69.2 billion, took place in 2010, when both volume and value reached a high, thanks to a record M&A transactions.

While M&A deals have slowed down in 2011, activity across private equity and especially venture capital has remained robust, leading to record number of transactions. With the data of three more weeks to be added, deal-making in 2011 may easily cross the 1,200 mark (in terms of number) or the $50 billion mark (in terms of deal values).

Mergers & Acquisitions: Heavy, Heavy Fuel

M&A deal value slipped by two-thirds during 2011 even though the volume remained resilient. While deal value fell 35 per cent to $40 billion (as compared to $61 billion in 2010), deal volume slipped only 5 per cent to 732. The January-March quarter accounted for more than half of the annual deal value, with 198 transactions worth $22.1 billion. The deal-making has slipped dramatically since, with Q4 recording only 130 deals worth $1.85 billion till now.

M&A transactions during 2011 have been dominated by commodities, especially the energy assets. But the largest deal in the segment was an inbound deal where Reliance Industries formed a partnership with BP Plc that saw the UK group acquire 30 per cent stake in its offshore oil and gas interests in eastern India for $7.2 billion.

While the energy sector, followed by telecommunications, leads M&A deals by value, consumer discretionary space, followed by industrials, were on top in terms of volume.

Private Equity: Chasing Consumption Story

The year 2011 has seen 454 PE deals worth $9.4 billion, with both volume and value up 12 per cent as compared to 2010. While PE deal-making overtook the entire CY2010’s volume and value in the first three quarter of 2011, the momentum has slipped during Q4. In fact, the number of deals sank to the lowest since Q2 CY09, when it slipped to just 64 transactions.

India’s consumption story was clearly the investment theme for 2011, with consumer discretionary space dominating in terms of deal volume and deal value. The space has witnessed 111 transactions worth over $2.2 billion. The industrials space also saw increasing attention from PE firms, with 82 transactions worth $2.1 billion.

In the infrastructure space, transportation is the new favourite. However, this sector was dominated by deals in the power utilities space last year. In 2011, there are large investments in companies like GMR Airports Holding, highway projects of Soma Enterprises, Karaikal Port, etc.

PE exit volume fell 38 per cent to 109 deals while the value fell 55 per cent to $2.5 billion due to weak capital markets. Exits hit a record in 2010 when there were 175 exit transactions worth $4.54 billion in the backdrop of robust capital markets.

Two of the largest exits came through M&A in the IT space. The largest exit came in May this year when Blackstone sold its stake in business process outsourcing firm Intelenet to UK’s Serco for over $500 million. Earlier, General Atlantic sold its stake in Patni Computers to iGate for $254 million, exiting its decade-old investment.

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