India’s M&A Optimism Of 2016 May Be Here To Stay
The value of M&A deals in India may jump 20-25% this year.
Improvement in domestic market sentiment and government reforms coupled with concerns about protectionism in the U.S. and Brexit in Europe are likely to make India a favourable destination for merger and acquisition (M&A) deals. According to assurance, tax and advisory firm Grant Thornton, the value of such deals may cross the $70-billion mark this year.
I expect 20 to 25 percent uptick in activity this time because the budget has been quite pragmatic, there is traction in the core sectors with investment in infrastructure sectors coming-in, which would further boost M&A activity.Prashant Mehra, Partner, Grant Thornton India
The resurgence of big-ticket corporate deals led to a record 40 percent jump in the value of M&A deals in 2016 with $62.5 billion worth of transactions, data from Grant Thornton showed.
In the Union Budget for 2017-18, the government proposed to abolish the 20-year-old Foreign Investment Promotion Board (FIPB), which is expected to make it easier to do business in India. Finance Minister Arun Jaitley in his budget speech said the government will bring in more reforms to liberalise foreign direct investment policies.
Riddham Desai of Morgan Stanley India believes India is at the cusp of a big M&A cycle in India, after four years of subdued activity. His optimism stems from strong capital spending by the public sector, improving global growth prospects, and consumption trends, he said in an interview with BloombergQuint earlier this month.
These three will add up to capacity utilization going up and confidence coming back. And not just that, you will see a big scale-up in M&A.Riddham Desai, Managing Director, Morgan Stanley India
Part of the optimism is due to the improvement in domestic market sentiment. India’s benchmark S&P BSE Sensex index has risen nearly 7 percent so far in 2017, compared with a mere 2 percent gain last year after a negative return of 5 percent in 2015.
We are coming out of a lacklustre two-year performance in the equities, but 2017 has started with a strong momentum and that lent momentum to the M&A activity. So yes, there are expectations that with increasing traction in the equity market, the overall M&A activity may also see some traction.Akash Singhania, Head-Equities, DHFL Pramerica Asset Managers
Improving Business Environment
The growing appetite for M&As is also supported by a healthy business environment.
According to a research report by Baker McKenzie published earlier this month, India has the biggest focus on improving business environment in the Asia Pacific region, more so than China, Singapore or Australia. The law firm expects India to be a global hotspot for M&A in the coming years.
"Business leaders are expecting more confident, outward looking Indian corporates to be looking for new opportunities," Baker & McKenzie's Asia Pacific Chair Gary Seib said in the report dated February 7.
Sectors directly linked to consumption such as financials, consumer, healthcare, Internet and real estate are likely to see momentum on the M&A front, the report added.
Muted PE Activity
While M&A activity may be picking up, private equity (PE) investments declined for the first time in four years with nearly a 1,000 transactions contributing just below $14 billion in values.
Mehra of Grant Thornton India, however, expects PE investments to ramp-up in consumption-driven sectors and industrial space amid improving domestic macroeconomic conditions and the government’s reform push.