Indian deal-making activity hit a rough patch in the backdrop of global economic uncertainty in the third quarter ended September 30. Slowdown in private equity transactions, both in terms of deal volume and aggregate value, and the lack of large M&A deals shrank the total value of transactions, both sequentially and over the year-ago period, according to VCCedge, financial research platform of VCCircle.
There were 109 PE deals during the third quarter of 2011 worth $2.58 billion, a dip of 22 per cent in terms of both deal value and volume from the $3.31 billion worth of investments spread across 141 transactions in Q2 2011. Compared to the corresponding period last year (Q3 2010), the quarter saw deal value dipping 10 per cent and deal volume come down by 6 per cent.
M&A deals, which have been declining during the last two quarters over rising global uncertainty and increasing cost of capital, slipped further to $6.27 billion – a third of the $19 billion recorded in Q3 2010 (which was skewed upwards due to the $8.4 billion Cairn India-Vedanta deal). However, the deal volume remained robust – rising 6 per cent to 188 during the same period as companies continued to be active across smaller M&As, especially on the domestic front.
Private Equity/ Venture Capital Investment
The private equity deal value crossed the CY2010 numbers in the first three quarters of 2011, with 356 deals worth $8.4 billion. Incidentally, CY2010 saw 399 deals worth $8.36 billion. With rising interest rates and volatile stock markets, PE deal-making is set to cross the $10 billion mark this year on a conservative basis.
Preference for risk seems to be returning among investors, with venture capital deals showing an increase – both in terms of value and volume – as compared to last year. On the other hand, growth capital/late stage deals slipped 20 per cent in volume and 13 per cent in value.
Industrial sector saw the largest inflow of investments with $723 million, followed by financial and utilities. The median deal amount decreased 18 per cent, from $11 million in Q3 2010 to $9 million in Q3 2011, while average deal value remained unchanged at $28 million.
Deals under $50 million accounted for 72 per cent of the total deal volume, with $100 million-plus deals accounting for another 6.4 per cent (51 per cent in terms of value) in Q3 2011.
Some of the largest PE deals came in September, with JPMorgan Chase & Co investing about $400 million in SKIL Infrastructure, which controls ship-builder Pipavav Defense and Offshore Engineering Ltd, and holds 21 per cent stake in Everonn Education.
Renewable energy start-up ReNew Wind Power Pvt Ltd, founded by prominent deal-maker and former Suzlon Energy COO Sumant Sinha, received Rs 1,000 crore or $200 million from Goldman Sachs.
Third quarter of the current calendar year saw a total of 33 exits valued at $876 million, as against 28 deals worth $623 million seen in Q2 2011. Compared to the corresponding period last year, deal value went up 23 per cent while the volume slipped by 31 per cent.
Some of the largest exits were recorded through open market sales, with Warburg Pincus offloading 2.28 per cent in Kotak Mahindra Bank for $172 million and ChrysCapital also shedding 2.7 per cent stake in telecom firm Idea Cellular for $170 million.
Merger & Acquisition
After the blockbuster Q1 this year, which saw 192 M&A deals worth $22.04 billion, deal activity has started to decline. Compared to Q2 2011, deal value fell 27 per cent and deal volume slipped 8 per cent to reach $6.27 billion across 188 deals.
With the slowing global economy, India Inc. has been busy shopping both at home and abroad. There had been 33 outbound deals worth $3.09 billion and 111 M&A deals worth $1.72 billion on the domestic front. The value of inbound deals slipped significantly from $11.7 billion during Q3 2010 to $1.27 billion in Q3 2011, even though the deal volume increased by one transaction.
The energy sector saw the maximum M&A value during the quarter, seven acquisitions worth over $2 billion, followed by consumer discretionary sector.
The biggest M&A deal of the quarter was the $1.26 billion acquisition of certain assets of Hancock Prospecting by GVK Power & Infrastructure. This is followed by the sale of 5.5 per cent stake in Vodafone Essar by Piramal Healthcare for $640 million.