What’s driving the surge in M&A deal volumes in India?

Background concept wordcloud illustration of merger acquisition

After a relatively lukewarm 2015, India Inc. has firmly regained its deal making appetite, with an eight-fold jump in Mergers and Acquisitions (M&A) deal values in March 2016 to a whopping USD 5.4 billion over a year ago. Confidence in the world’s fastest growing major economy, relaxed FDI norms, easing cross border transaction regulations and the government’s aggressive reform agenda has made India the hotbed of deal making activity.

Crunching the numbers…India shines amidst global deal-making gloom

At USD 8,925 million in Jan-March 2016, India’s total deal tally was 31 per cent higher than a year ago, tax, assurance & advisory firm Grant Thornton notes. March’s 48 M&A deals compared to 43 a year ago with telecom, energy and automotive sectors attracting significant investor attention.

Meanwhile, cautious business sentiment due to a faltering global economic recovery and financial volatility restrained global M&A activity in the first quarter, with deal values falling 25 per cent to USD 701.5 billion, according to Dealogic.

Big-ticket deals grab the limelight

Mega Mergers seem to be the flavour of the day for Corporate India’s boardrooms with the March quarter witnessing 19 big ticket deals worth over USD 100 million. Moreover, the hunger for billion dollar deals seems to be growing as March witnessed two mammoth deals of over USD 1 billion. These included IOC’s USD 1.3 billion acquisition of Tass-Yuryakh oilfield and the Yokohama Rubber Co’s acquisition of USD 1.2 billion of off-highway-tyre manufacturer Alliance Tire Group.

Cash-flush Indian companies eying to increase global footprint

Strong number of outbound transactions signal that India Inc. is looking to spread its wings on foreign shores by striking deals with overseas companies. Further, attractive valuations of assets abroad with companies in Europe and US battered by a slowdown in their home markets have also paved way for a rise in outbound investments made by Indian companies. Drug maker Lupin’s USD 800 million acquisition of US-based Gavis Pharmaceuticals in 2015 marked the biggest outbound acquisition in the Indian pharma space, showing the aggressive intent of Indian companies to transform themselves into leading global players.

Buzzing economy spurs M&A confidence

India’s growing global economic prowess and burgeoning consumer demand amid rising middle class incomes have caught the attention of top foreign behemoths, paving the way for increased cross-border transactions as they look to make it big in one of the world’s fastest growing markets.

Aside from soaring growth rates, India is home to a young, entrepreneurial & skilled workforce and boasts of a professional business culture & a well-established legal system, factors that have aided the rise in cross border transactions.

A robust foreign exchange reserves kitty, a strong financial system and a consumer-driven growth model has helped insulate India from the ongoing global slowdown, enhancing the appetite for foreign firms to seek growth in the country.

Reform impetus aids deal momentum

Power backed reforms including ‘Make in India’ which seeks to make the country the hub of global manufacturing and investment by ensuring that doing business in the country is hassle free and the GST, seen as a breakthrough tax reform, coupled with improved governance, have increased business sentiment, prompting companies to go aggressive on deal making activity.

Easing regulations bolster cross-border inbound deals

Relaxation in FDI rules in many sectors such as defence, insurance, construction, aviation, media & e-commerce and easier norms for start-ups regarding cross border transactions including enabling them to access foreign venture capital investment, have also spurred a rise in inbound deals.

Deal momentum set to continue

With more power-packed reforms such as the bankruptcy law in the pipeline, and policymakers stepping up efforts to create a more business friendly environment, and the economy firmly on the double-digit growth path, the stage is set for continued momentum in M&A activity in Asia’s third biggest economy.