The surge in deal value is largely due to the $12.9 bn Essar-Rosneft deal
Merger and acquisition (M&A) activity scaled a six-year high in 2016, with deal value at a record high of $56.2 billion, up 87 per cent over a year before.The volume declined marginally by two per cent. The year also saw the largest ever inbound investment, of $12.9 bn.
Consultancy EY’s analysis shows a total of 867 deals with a total disclosed value of $56.2 bn were announced. The surge in value was due to 12 billion-plus dollar deals, totalling $34.4 bn.
The largest transaction of the year was the $12.9 bn acquisition of Essar Oil (98 per cent stake) and Vadinar port by a consortium led by Russia’s state-controlled petroleum giant, Rosneft.
The oil and gas sector led in deal value, followed by financial services. From a volume perspective, the information technology, infrastructure and financial services sectors dominated, accounting for nearly a third of announced deals.
The year saw 505 domestic deals, totalling $25.1 bn, highest yearly value on record, accounting for 58 per cent and 45 per cent of the total deal volume and value, respectively.
According to the EY report, significant momentum behind the M&A activity was driven by increased consolidation across sectors as companies divested distressed assets, 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, with companies’ focus on optimising their portfolio.
A total of 60 restructuring deals with an aggregate disclosed value of $7.7 bn were recorded, as compared to 44 such deals worth $4.3 bn in 2015.
Some examples included the merger of Grasim Industries and Aditya Birla Nuvo, two subsidiaries of the 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 bn were clocked. While deal value saw a rise of 127 per cent year-on-year, volume fell 10 per cent. Inbound activity contributed significantly to the surge in value, in large measure to the $12.9 bn Essar-Rosneft transaction.
On the outbound front, there were 158 deals with a cumulative disclosed value of $9.7 bn, a rise of eight per cent in volume and 160 per cent in value. The oil and gas sector led in deal value, with two billion-plus dollar acquisitions, cumulatively contributing $5.5 bn.
Outbound activity for the sector is expected to remain strong as national oil companies will continue to scout for exploration and production assets in CIS, Latin America and Africa.
The US sustained its position of being the most active cross-border partner, with cross-border deals (50 inbound, 43 outbound), followed by Britian (21 inbound, 23 outbound) and Singapore (16 inbound, 8 outbound).
Momentum is expected to stay robust through 2017. With scale expansion on corporates’ strategy, consolidation is likely to dominate the M&A agenda.
On the inbound front, investments are likely to stay healthy, given the economy's attractiveness. In addition, the recently announced proposal to abolish the Foreign Investment Promotion Board will encourage investors.