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M&A and private equity developments in Q1 & Q2 FY14
Recent M&A activity in India has come to a slow burn, with stark differences to FY2013. However private equity (PE) activity is steadfastly increasing. Taxand India reflects on M&A and PE deal activity for the first half of financial year 2014.
The first half of financial year 2014 was marked by mixed investor confidence. The strategic investors stayed on the side lines as the drop in the deal activity during this period suggests. The PE investors on the other hand were relatively aggressive in deploying capital with circa 1.5x jump in average quarterly value and volume versus FY13.
The strategic investors by and large placed small bets which is a sign of conservatism still prevailing and a preference to converse cash. The multi billion dollar deals were sponsored by state owned ONGC and Apollo-Cooper was the only private sector deal in that league. Indian corporates preferred to look at foreign markets to satisfy their growth ambitions, braving higher acquisition costs and demonstrating confidence in the revival of long term growth.
India-focused venture capital funds have added a record amount of over $1 billion as 'dry powder' over the past 16-18 months. This has manifested in higher venture stage investments with an interesting shift in the investment focus to the consumption driven play. The good news is emerging markets like India, despite the current economic challenges, appears to inspire investor confidence in the long term. The higher momentum of PE exits in the first half of FY14, has been another confidence booster.
The overall M&A activity during the first half of FY14 has been fairly muted, concentrated on select sectors and at levels which were lower than the quarterly averages of FY13 and FY12. The extent of the drop in the deal activity was unexpected and it seems the fundamental weakness in India's domestic story could be a significant contributing factor. On the other hand, PE activity in the first half of FY14 rose significantly as deal volume and value grew by 1.5x the average quarterly deal value and volume for FY13. The deal volume grew from 98 deals in Q4FY13 to 141 deals in Q1FY14 and further to 177 deals in Q2FY14.
The deal activity in the second half of FY14 is predicated on the global and domestic economic decisions and performance. Quality deals in promising sectors would continue to be pursued and would command a higher price.