Survey points to heightened M&A activity in 2019

The heightened activity level in the M&A landscape during 2018 is set to spill over to 2019 as deal fundamentals are expected to remain robust, says Mahesh Singhi.

Rainmakers in the deal street may seem to have imbibed the full import of the saying "never let a good crisis go to waste" as they go on to double down on their bets in the corporate mergers and acquisitions (M&A) space on a global scale in 2019.

The narrative seems to be unravelling for a country like India which is on the cusp of a transition that may see many models and plans coming unstuck in 2019.

But what will lend balance to this equation is that the professionals, focussed on corporate marriages and arrangements, are out there on the street in full force to turn any good crisis into durable opportunities provided the dominant theme -- the domestic activity level -- remains intact.

Incidentally, India is inching closer to become a $5 trillion economy any time soon riding on the consumption theme though risks to growth such as fiscal slippage, farms distress, a diving rupee and job crisis are there.

A just released report by a global deal tracking firm which polled corporate executives and fund managers of global investment firms focused on M&A sheds light into this growing line of thinking among globetrotting deal makers.

The results of the survey unambiguously point out that the heightened activity level in the M&A landscape during 2018 is all set to spill over to 2019 as deal fundamentals are expected to remain robust.

Majority of the executives polled, says the survey, anticipate deal flow to perk up in 2019 both in terms of volume and value.

One of the key takeaways from the survey is the surprise uptick in optimism among deal makers despite the mounting odds and multiple headwinds global and local economies are facing.

The survey says corporate and private equity executives focused on M&A foresee further acceleration of deal flow in 2019.

Further, 79 per cent of the respondents polled by the survey expect the number of deals they close in the next 12 months to increase.

There is also a notable dive in the percentage of respondents who foresee deal flow flattening or abating.

The report also predicts a significant spike in the ticket size of deals.

There is, however, a notable change in the essential levers that will change the M&A template going forward -- that technology acquisition no longer reigns as the most critical aspect of M&A strategy.

Instead, most corporate respondents are focused on expanding their customer bases in existing geographies or expanding and diversifying their business offerings.

But what weighs on the mind space of the deal makers is the worrying fact that the return on investments from past deals are below the curve implying misplaced or inflated valuations and business is failing to generate cash flow as per preset milestones.

The blame is equally shared by factors not specific to business like the economic slowdown, market complexities and rigid regulations.

For Indian deal makers who went into a huddle in the second half of 2018 to revisit their style and strategy after a blockbuster first half, the key learning is going full steam ahead into 2019.

Mahesh Singhi is founder and managing director of Singhi Advisors.