Delays in deal execution, growing complexity in deal structures and macroeconomic factors like upcoming elections, global economic conditions and the uncertainty around Brexit dampening investor sentiment led to a tepid January-March quarter, both in terms of deal value and deal volume, a report by Grant Thornton said.
The first quarter of the calendar year 2019 (Q12019) saw 292 mergers and acquisitions (M&As) and private equity (PE) transactions worth $21 billion, which is a 10% and 8% decline both in terms of deal volume and value, the report stated.
M&A activity by itself declined by 33% at $12.461 billion compared to the same period last year.
However, owing to other encouraging factors such as the Insolvency and Bankruptcy Code (IBC); divesting non-core assets that have no synergies with larger group companies; separation of ownership from operating businesses, especially in the roads, infra, power, telecom, real asset and hospitality sectors; drive in the stressed asset space and cleaning up of NPAs, the quarter recorded a marginal increase in the deal activity as compared to Q42018, the report said.
The quarter under review recorded two billion-dollar deals and 15 deals valued and estimated at over $100 million each, together contributing to 93% of the total M&A deal values and 15% of the M&A deal volumes, demonstrating an appetite for big ticket deals and an uptick in the deal activity amid uncertainties.
Notable is the ArcelorMittal-Essar Steel deal valued at $7.2 billion, driving the manufacturing sector values to 62% of the total M&A deal values, while this deal alone accounted for 95% of the manufacturing sector deal values, Grant Thornton indicated.
Pankaj Chopda, director at Grant Thornton India, said continued reforms in the GST and the IBC, major reforms related to foreign direct investment in sectors such as branding and defence, restructuring cross-border mergers, and amendments to delisting regulations 2009 will act as accelerators to the deal momentum.
While all of these present a favourable deal environment, much of the action is dependent on the policies of the coming government, consequent to the general elections, he said.