India's Deal Street sees $29 billion M&As in 2014

Albeit muted for most part of the year, Deal Street in India has clocked M&As worth $29 billion in 2014 and expects the size to get larger with transactions worth over $40 billion in the New Year.

Experts say that various reform measures promised by the new government, including on foreign investment caps, should accelerate the merger and acquisition activities in India in the New Year which has remained somewhat subdued for last few years amid slackened economic growth momentum.

The Indian M&A activity in 2014 appears to have grown by a modest 9 per cent during 2014, as compared to 2013, according to global consultancy major PwC.

There have been little over 800 merger and acquisition (M&A) deals totalling $28.7 billion this year, as against about 850 deals worth $26.3 billion during 2013.

The most significant increase this year has been in the domestic M&A space which has almost doubled, while inbound and outbound M&As were down by 37 per cent and 75 per cent respectively.

The low outbound activity was largely because of stretched balance sheets of Indian companies, which are "under repair" at the moment, and hopefully a benign interest rate

regime in 2015 would help, experts said, adding inbound activity suffered because most overseas investors are in wait mode for real reform activity before investing in India.

"Though in value and volume terms the increase was marginal, there has been a significant improvement in sentiments. There seems to be more deals in the pipeline and businesses are reviving their M&A plans," global deal tracking firm Mergermarket India Bureau Chief Mithun Varkey said.

Experts believe the uplift in sentiment is likely to boost M&A activity in 2015 as many deals that have been in the making over the last six months or so are expected to close or be announced in 2015. Moreover, the second half of 2015 would see the deal activity really pick up momentum.

"The year 2014 is ending on a very positive note with significantly increased interest in India. With the new government committed to large scale reforms and sustaining

investor interest, we expect 2015 to be a very strong year in terms of deals/IPO's," Vikram Hosangady, Head, Transaction and Restructuring at consultancy firm KPMG.

Opening of FDI in new sectors and enhancing limits in sectors such as insurance will be helpful as would be the easing labour laws etc, experts said, adding the government has also launched the 'Make in India' campaign, but for it to have a positive impact it is critical that the ease of doing business in India goes up.

"If the government can bring in real reform, activity levels could pick up significantly. We would expect M&A growth rate to at least double in 2015 at the minimum and it won't be surprising if overall M&A activity crosses $40 billion next year," PwC India Partner and Leader - Private Equity and Transaction Services Sanjeev Krishan said.

Sector-wise, in terms of number of deals, the "technology sector, industrial and consumer products would continue to be attractive in 2015, while in terms of value contribution, one could see increased traction in telecom, financial services and asset heavy industries such as oil and gas," consultancy firm Brands of Desire's CEO Saurabh Uboweja said.

Commenting on the private equity (PE) and Venture Capital (VC) landscape, Gopal Srinivasan, founding member of angel investors group The Chennai Angels said, 2014 was a good year for PE investments in India as the year witnessed a total investment of $14.13 billion over 765 deals as against $11.67 billion over 838 deals in 2013.

"We saw series of deals in which foreign funds invested in the India consumption story, through ecommerce and mobile/web enabled businesses. Another interesting aspect was the much awaited exit opportunity that the market euphoria has provided, resulting in quite a few IPO exits and more in the pipeline," Srinivasan added.

The year 2015 is likely to see higher M&A activity, specially in PE and inbound segment if the growth momentum builds up and the government brings in real reforms, experts said. 

"In the 2015 budget the new government has a great opportunity to bring about PE & VC-friendly reforms, so that the right amount of this capital enters India to support excellent initiatives like smart cities, make in India, infrastructure investing and support for entrepreneurship," Indian Private Equity and Venture Capital Association (IVCA) President Arvind P Mathur said.