Merger and acquisition (M&A) activity in India, which grew sharply in 2014, is likely to further pick up pace next year as energy companies look to divest stakes to pare debt and consolidation exercises fuel similar activity in select sectors such as pharma.Investment bankers said the trend will also be supported by more M&A activity withing the country itself in sectors such as food as local companies expand capacities to meet demand.
According to a report by Dealogic, a global research outfit that collates data on M&As, India-focussed volume rose 46% to $47 billion (about Rs 3 lakh crore) in 2014, aided by energy firms that sold operational units due to their inability to service costly financial commitments. The utility and energy sector saw record M&A volumes at $5.2 billion (Rs 33,000 crore) followed by food and beverages at $3.9 billion (Rs 24,792 crore).
“The trend is healthy and the underlying theme is that energy companies are looking to take the divestment route to solve their problems as many of their projects have been delayed or stuck due to debt stress,” said Ajay Garg, MD, Equirus Capital.
The Manoj Gaur-led Jaiprakash Group recently sold power generating and cement manufacturing units to reduce debt, currently estimated at Rs 72,000 crore. While the Mumbai-based JSW Group bought out Jaiprakash’s two hydropower plants for Rs 9,700 crore, the Aditya Birla Group acquired cement companies in Gujarat and Madhya Pradesh for about Rs 9,200 crore.
“Utility and energy sector and food and beverages will see major inbound activity, apart from other areas such as financial services and education,” said Avinash Gupta, MD, Dubai-based Alpen Capital. “M&A activity will be mostly India focussed as outbound is difficult in current conditions where liquidity will be limited.”
According to Mergermarket, another M&A research outfit, pharma, medical and biotech sectors were active this year, accounting for 23.4% market share. This was largely driven by the $4-billion Sun Pharma-Ranbaxy deal.
While outbound acquisitions have been few, there were some deals done to acquire growing markets — Aurobindo Pharma bought out assets of nutritional supplement maker Natrol Inc for $132.5 million while Cipla bought a majority stake in a Sri Lankan firm for $14 million.
“There has been lot of talk and a positive sentiment has built up. Now companies and investors outside want to see things on the ground. They want to see steps to ease business, basic measures that will send the right message to the world,” said Alpen’s Gupta.
According to Equirus’ Garg, conducive capital markets are necessary for deal activity. “We are good on domestic factors with the government also showing commitment to the reform process. But global variables especially the impact of falling oil prices will have to be seen in early 2015 to see how the market behaves,” he added.