2Q18 Recorded Highest Quarterly Deal Value With US$34.8 Billion Across 273 Deals In India
According to EY’s 30th Transaction Quarterly, M&A activity in India saw a significant y-o-y jump in both deal volume and disclosed deal value in 2Q18. While deal volume rose by19% to 273 deals, on a y-o-y basis, the disclosed deal value was 6.8x at US$34.8 billion in comparison to US$5.1 billion in 2Q17. This difference can mainly be attributed to the six big ticket deals (>US$1 billion) in 2Q18. The biggest deal in this quarter was the US$16 billion acquisition of Flipkart by Walmart Inc, which accounted for 46% of the total disclosed deal value.
Commenting on M&A Scenario, Amit Khandelwal, Managing Partner, Transaction Advisory Services, EY, said, “M&A activity is expected to stay positive in the coming quarters, on the back of continued interest of financial and strategic investors in the Indian market. Domestic activity should strengthen further as players across sectors look to expand scale, de-leverage balance sheets and innovate their offerings through increased usage of new technologies. The restructuring deals will remain active in the coming months as the NPAs cleaning is a high priority for banks. Furthermore, the successful resolution of certain cases recently, with healthy recovery rates under the IBC, along with the implementation of project ‘Sashakt’, will further add to the pipeline.”
Cross-border activity made the headlines with inbound activity taking the lead
Cross-border M&A activity in 2Q18 was a record high as the inbound deal value reached US$23.2 billion across 69 deals, on the back of the Walmart-Flipkart deal. Even after excluding the above-mentioned deal, the inbound activity remained impressive with 68 deals worth US$7.2 billion, highlighting the difference from the last few quarters and reinforcing the confidence in India’s growth story. The outbound activity (34 deals; US$990 million) also showed y-o-y improvement in both value and volume terms but was sub-par when compared to the long-term quarterly average.
Domestic M&A market continued to perform well
While the inbound activity led in terms of deal value, the domestic activity was ahead in volume terms and recorded a significant y-o-y jump both in the deal count and disclosed deal value. The domestic landscape witnessed 170 deals with a disclosed deal value of US$10.6 billion compared with 152 deals with US$1.8 billion in 2Q17. Consolidation, anchored on portfolio reviews and increased focus on core businesses, and balance sheet de-leveraging remained the key deal drivers in the domestic arena.
The US remained the most active cross-border partner
The US continued to be the most active cross-border M&A partner for Indian companies during the quarter, with a total of 26 deals (18 inbound and 8 outbound deals) for a total disclosed value of US$16.6 billion. Japan, the UK and the Netherlands emerged as other key partners with investments across sectors.
The ongoing M&A momentum to continue in the coming months
The transition of India’s economy towards a formal structure, coupled with healthy deal market fundamentals and the authority’s commitment to the IBC, should support the deal-making in the short-term. While the resolution process of stressed assets can witness certain challenges such as differences over valuations and lack of interest, especially in old/poor quality assets, the overall environment looks positive, given the successful resolution of certain stressed assets recently and continuous regulatory support. On the cross-border front, we expect inbound activity should carry the momentum in the coming months, while a sense of caution can prevail on the outbound front.