Consolidation in India’s domestic industry is accelerating, but the value of assets is declining sharply, according to a recent study on mergers and acquisition carried out by consulting firm Grant Thornton. The profusion of deals has created a windfall for dealmakers in India.
Domestic deals have grown in volume from 151 in 2005 to 214 in 2006 to 193 so far this year. But the deal values have significantly declined from $ 6.8 billion (2005) to $ 4.5 billion (2006) and now to $ 1.8 billion in the first 7 months 2007.
The flurry of activity has meant a windfall for investment bankers. “Fees from deals for investment bankers have more than doubled in the last financial year itself,” said a Mumbai-based investment banker on condition of anonymity. Another I-banker confirmed the trend.
Investment bankers say that the trend is only going to sustain. Indian buyers are becoming more and more savvy as to the kind of assets they need, and accordingly, they are homing in on more strategic targets that fit the bill.
“This points towards a consolidation in the Indian industry,” says Rajiv Shukla, head, healthcare practice of Advinus Therapeutics, India’s fifth largest investment banking firm. “Indian companies are more mature today than ever before, and they want better and better assets at better and better prices," he said.
In the last few years, India’s pharmaceutical industry, textile industry, banking and power have all seen heated activity, much in line with the predictions made by industry-watchers a few years back.
However, a section of industry watchers feel this could also mean that the best assets in the industry has been already bought out, and whatever assets are left do not command the premium most companies charge for selling assets these days. “It is a fact that most of the low-lying fruit has been picked,” said an investment banker from Chennai on condition of anonymity.
“In fact, the consolidation in industries such as textiles would only continue,” said Devyani Khanvilkar, associate director with Kotak Securities, speaking on the US-based Blackstone Group’s investment in Gokaldas Exports. Gokaldas may be looking making investments in India with the new cash flow from the deal, she said.