M&A activity scales six-year high in 2016 on big-ticket buys

The mergers and acquisitions in the country scaled a six-year high, banking on a resilient domestic economy and stable capital markets, while robust momentum is expected to continue through 2017.

The year 2016 witnessed a total of 867 deals with a total disclosed value of $56.2 billion, while the deal value soared 87 per cent (y-o-y) to a new high since 2010. The deal value surged $12 billion-dollars totalling $34.4 billion, according to an EY report.

The report, EY's comprehensive analysis of the M&A activity for 2016, states that the largest transaction of the year was the $12.9- billion acquisition of Essar Oil Limited (98 per cent stake) and Vadinar Port by Russia's state-controlled petroleum giant Rosneft Oil Company-led consortium.

The oil and gas sector led in terms of the deal value, followed by the financial services sector. From a volume perspective, the technology, infrastructure and financial services sectors dominated, accounting for nearly one-third of the total announced deals in 2016.

However, the volume declined marginally by 2 per cent (YOY).

''M&A activity in India was buoyant in 2016 with the announcement of several big-ticket deals. The momentum is expected to sustain in 2017 as the Indian government continues its focus to improve business and investment climate in the country. Sectors like technology, life sciences and financial services are expected to attract significant investor attention,'' said Amit Khandelwal, partner and national leader, transaction advisory services at EY.

The year saw 505 domestic deals totalling to $25.1 billion, the highest yearly value on record, accounting for 58 per cent and 45 per cent of the total deal volume and value, respectively. The significant momentum behind India's M&A activity was driven by an increased consolidation across sectors as companies divested distressed assets in an effort to reduce debt. On the other hand, corporates with stronger balance sheets were seen deploying funds towards acquisitions and consolidating their market positions.

Restructuring also emerged as an important factor for the robust M&A activity, with companies' focus on optimising their portfolios, and maximising operational efficiency with the aim of unlocking value for shareholders. A total of 60 restructuring deals with an aggregate disclosed value of $7.7 billion were recorded during 2016, as compared with 44 such deals worth $4.3 billion in 2015.

Some of the prominent examples include the merger of Grasim Industries and Aditya Birla Nuvo, the two subsidiaries of Aditya Birla Group and demerger of Talwalkars Better Value Fitness' gym business into a separate company, Talwalkars Lifestyles.

A total of 362 cross-border deals with a cumulative disclosed value of $31.1 billion were recorded in 2016. While the deal value witnessed an increase of 127 per cent y-o-y, the deal volume registered a decline of 10 per cent y-o-y. Inbound activity contributed significantly to this surge in value, in large measure to the $12.9 billion Essar-Rosneft transaction.

On the outbound front, the year clocked 158 deals with a cumulative disclosed value of $9.7 billion - registering an increase of 8 per cent in terms of volume and 160 per cent in terms of deal value. The oil and gas sector led in terms of total deal value, with two billion-dollar-plus acquisitions cumulatively contributing $5.5 billion. The outbound activity for the sector is expected to remain strong as the national oil companies will continue to scout for E&P assets in CIS, Latin America and Africa.

The US sustained its position of being the most active cross-border partner with a total of 93 cross-border deals (50 inbound; 43 outbound), followed by the UK (21 inbound; 23 outbound) and Singapore (16 inbound; 8 outbound).

Robust M&A activity in 2017
The momentum behind the M&A activity is expected to stay robust through 2017, with domestic deal activity impacting positively on transaction dynamics.

With scale expansion becoming a critical element of Indian corporates' strategy agenda, consolidation is likely to dominate the M&A agenda across sectors.

On the inbound-front, investments are likely to stay healthy given the attractiveness of the Indian economy. In addition, the recently announced proposal to abolish the FIPB in the Union Budget FY17-18 will further liberalise the FDI policy and encourage foreign investors.